Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants looking for phase-in duration anticipate steady intro

Industry deals with technical challenges and expense issues

Government financing issues develop due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has sustained issues it could suppress international palm oil supplies, looks significantly most likely to be carried out gradually, experts stated, as industry individuals look for a phase-in duration.

Indonesia, the world's biggest manufacturer and exporter of palm oil, prepares 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 may press costs 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 expenses and technical difficulties are most likely to lead to partial execution before complete adoption throughout the sprawling island chain.

Indonesia's most significant fuel merchant, state-owned Pertamina, said it requires to customize some of its fuel terminals to blend and keep B40, which will be finished throughout a "shift period after government develops the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

During a meeting with federal government officials and biodiesel producers last week, fuel retailers asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in participation, informed Reuters.

Hiswana Migas, the fuel sellers' association, did not instantly respond to an ask for remark.

Energy ministry senior main Eniya Listiani Dewi told Reuters the required walking would not be implemented gradually, and that biodiesel manufacturers are prepared to supply the higher blend.

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be mixed with diesel fuel, said the federal government has not released allowances for producers to offer to sustain retailers, which it typically has done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, moneying the greater mix might likewise be an obstacle as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia uses earnings from palm oil export levies, by a company called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% boost 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, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the industry, including palm smallholders.

"I believe 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 said.

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

"The implementation might be sluggish and gradual in 2025 and probably more hectic 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 self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina