Indonesia firmly insists B40 biodiesel execution to continue on Jan. 1

Industry participants seeking phase-in period expect steady introduction

Industry deals with technical challenges and expense concerns

Government funding issues emerge due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has actually sustained issues it could curb worldwide palm oil supplies, looks progressively most likely to be implemented gradually, analysts stated, as market individuals look for a phase-in period.

Indonesia, the world's greatest producer and exporter of palm oil, plans to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off a dive in palm futures and might push rates even more in 2025.

While the federal government of President Prabowo Subianto has actually said consistently the strategy is on track for complete launch in the new year, market watchers say costs and technical difficulties are likely to lead to partial implementation before full adoption throughout the sprawling island chain.

Indonesia's biggest fuel retailer, state-owned Pertamina, said it needs to modify a few of its fuel terminals to blend and keep B40, which will be finished throughout a "shift period after federal government develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying information.

During a meeting with government authorities and biodiesel manufacturers recently, fuel merchants asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in presence, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate walking would not be carried out gradually, which biodiesel producers are all set to provide the higher blend.

"I have verified the preparedness with all manufacturers last week," she stated.

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

"We can't deliver the items without order files, and order documents are acquired after we get contracts with fuel companies," Gunawan informed Reuters. "Fuel business can only sign agreements after the ministerial decree (on biodiesel allocations)."

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

FUNDING CHALLENGES

For the government, moneying the greater mix might also be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses earnings from palm oil export levies, handled by a company called BPDPKS, to cover such gaps.

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

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

"I believe there will be a delay, because if it is carried out, the subsidy will increase. Where will (the cash) come from?" he stated.

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

"The implementation may be slow and progressive in 2025 and most likely more hectic in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the required even more to B50 or B60 to accomplish energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina