Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry individuals looking for phase-in period expect steady intro

Industry deals with technical challenges and expense issues

Government funding problems emerge due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has actually sustained issues it could curb international palm oil supplies, looks increasingly most likely to be implemented gradually, experts said, as market participants look for a phase-in duration.

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 set off a dive in palm futures and might pressure prices further in 2025.

While the federal government of President Prabowo Subianto has actually stated repeatedly the strategy is on track for full launch in the new year, industry watchers state costs and technical challenges are most likely to lead to partial execution before full adoption throughout the sprawling archipelago.

Indonesia's greatest fuel seller, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and store B40, which will be completed during a "shift duration after government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without providing information.

During a conference with federal government officials and biodiesel manufacturers last week, fuel retailers requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in attendance, informed Reuters.

Hiswana Migas, the fuel retailers' association, did not instantly react to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be carried out gradually, and that biodiesel producers are ready to provide the greater blend.

"I have actually confirmed the preparedness with all manufacturers recently," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the federal government has not provided allocations for manufacturers to sell to fuel retailers, which it usually has actually done by this time of the year.

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

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

FUNDING CHALLENGES

For the federal government, funding the greater mix could likewise be a difficulty as palm oil now costs around $400 per metric ton more than crude oil. Indonesia uses earnings from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it needed a 68% boost in aids to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, fuelling market speculation that a levy hike impends.

However, the palm oil industry would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the industry, consisting of palm smallholders.

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

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

"The implementation might be slow and steady in 2025 and probably 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 achieve energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)