Indonesia insists B40 biodiesel implementation to continue on Jan. 1

Industry participants seeking phase-in period expect steady intro

Industry deals with technical challenges and expense concerns

Government financing concerns develop due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has actually sustained concerns it might curb international palm oil supplies, looks significantly likely to be carried out gradually, analysts said, as market individuals seek a phase-in period.

Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the compulsory 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 costs even more in 2025.

While the government of President Prabowo Subianto has stated consistently the plan is on track for full launch in the brand-new year, market watchers say expenses and technical challenges are most likely to lead to partial implementation before full adoption throughout the stretching island chain.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it requires to customize a few of its fuel terminals to blend and save B40, which will be finished during a "transition period after government develops the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

During a conference with federal government officials and biodiesel producers last week, fuel merchants requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, informed 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 mandate hike would not be executed slowly, which biodiesel manufacturers are prepared to supply the higher blend.

"I have validated the readiness with all producers last week," she stated.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, said the government has not issued allotments for manufacturers to sell to fuel merchants, which it typically has done by this time of the year.

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

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 preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, moneying the higher blend might likewise be a difficulty as palm oil now costs around $400 per metric heap more than crude oil. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated 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 hike impends.

However, the palm oil market would challenge a levy hike, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the market, including palm smallholders.

"I believe there will be a hold-up, due to the fact that if it is implemented, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

"The implementation may be sluggish and steady in 2025 and probably more fast-paced in 2026," he said.

Prabowo, who took office in October, campaigned on a platform to raise the mandate further to B50 or B60 to achieve energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Christina; Editing by Tony Munroe and Lincoln Feast.)