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

Industry participants looking for phase-in duration expect steady introduction

Industry deals with technical difficulties and expense concerns

Government financing concerns arise due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has fuelled issues it might curb worldwide palm oil supplies, looks progressively most likely to be carried out gradually, analysts said, as market participants look for a phase-in period.

Indonesia, the world's most significant manufacturer and exporter of palm oil, prepares to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has triggered a dive in palm futures and might pressure costs even more in 2025.

While the federal government of President Prabowo Subianto has actually said repeatedly the plan is on track for full launch in the new year, industry watchers state expenses and technical challenges are most likely to lead to partial application before full adoption across the stretching island chain.

Indonesia's greatest fuel seller, state-owned Pertamina, said it needs to customize a few of its fuel terminals to blend and save B40, which will be completed throughout a "transition duration after federal government develops the mandate", representative Fadjar Djoko Santoso informed Reuters, without providing information.

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

Hiswana Migas, the fuel sellers' association, did not right away react to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required walking would not be carried out slowly, and that biodiesel manufacturers are ready to provide the greater mix.

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the federal government has actually not released for producers to sell to sustain merchants, which it usually has actually done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, funding the higher mix might likewise be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

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

However, the palm oil market would challenge a levy walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would harm the market, consisting of palm smallholders.

"I think there will be a delay, due to the fact that if it is implemented, the aid will increase. Where will (the cash) come from?" he stated.

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

"The execution might be sluggish and gradual in 2025 and probably more fast-paced in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate further 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; Editing by Tony Munroe and Lincoln Feast.)