Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants looking for phase-in duration anticipate gradual introduction

Industry deals with technical difficulties and cost concerns

Government funding issues develop due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has fuelled issues it might suppress global palm oil supplies, looks significantly most likely to be executed gradually, experts stated, as market participants look for a phase-in period.

Indonesia, the world's greatest producer and exporter of palm oil, prepares to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a jump in palm futures and might press rates even more in 2025.

While the federal government of President Prabowo Subianto has said consistently the plan is on track for full launch in the brand-new year, industry watchers say costs and technical obstacles are most likely to result in partial implementation before full adoption across the sprawling archipelago.

Indonesia's greatest fuel seller, state-owned Pertamina, stated it requires to customize some of its fuel terminals to mix and keep B40, which will be completed throughout a "transition period after government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without supplying details.

During a meeting with government authorities and biodiesel producers last week, fuel retailers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, informed Reuters.

Hiswana Migas, the fuel sellers' association, did not instantly react to a demand for comment.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate hike would not be implemented gradually, which biodiesel manufacturers are ready to supply the greater mix.

"I have actually validated the preparedness with all manufacturers recently," she stated.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not issued allocations for producers to sell to sustain sellers, which it generally has done by this time of the year.

"We can't perform without order files, and purchase order files are acquired after we get agreements with fuel business," Gunawan informed Reuters. "Fuel business can just sign agreements after the ministerial decree (on biodiesel allowances)."

The government prepares to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its preliminary estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher mix might likewise be a challenge as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes profits from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% boost in subsidies to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking looms.

However, the palm oil market would object to a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the market, including palm smallholders.

"I believe there will be a hold-up, since if it is executed, the subsidy will increase. Where will (the cash) originate from?" he said.

Nagaraj Meda, handling director of Transgraph Consulting, a commodity consultancy, said B40 application would be challenging in 2025.

"The execution might be slow and gradual in 2025 and most likely more busy in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate further to B50 or B60 to accomplish energy and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina