Indonesia firmly insists B40 biodiesel application to proceed on Jan. 1

Industry individuals seeking phase-in duration expect steady introduction

Industry faces technical challenges and cost concerns

Government financing problems occur due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has sustained concerns it could curb international palm oil materials, looks progressively likely to be executed slowly, said, as industry individuals look for a phase-in period.

Indonesia, the world's biggest producer 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 triggered a dive in palm futures and may push costs even more in 2025.

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

Indonesia's greatest fuel seller, state-owned Pertamina, stated it requires to modify some of its fuel terminals to mix and save B40, which will be finished during a "transition duration after federal government develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

During a conference with government officials and biodiesel manufacturers recently, fuel merchants asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, informed Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to a request for remark.

Energy ministry senior main Eniya Listiani Dewi told Reuters the required walking would not be carried out gradually, which biodiesel producers are ready to supply the higher blend.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, stated the government has not released allotments for producers to sell to fuel sellers, which it generally has actually done by this time of the year.

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

The 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 price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher mix might also be a difficulty as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia uses proceeds from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS approximated 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 hike looms.

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

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

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

"The application may be sluggish and gradual in 2025 and probably more hectic in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate further to B50 or B60 to attain 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.)