Indonesia insists B40 biodiesel implementation to continue on Jan. 1

Industry individuals looking for phase-in duration expect progressive introduction

Industry deals with technical obstacles and cost issues

Government financing issues occur due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has actually fuelled issues it could curb international palm oil products, looks progressively likely to be carried out slowly, analysts said, as market individuals look for a phase-in duration.

Indonesia, the world's most significant 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 triggered a dive in palm futures and might push rates even more in 2025.

While the federal government of President Prabowo Subianto has stated consistently the strategy is on track for full launch in the new year, market watchers state costs and technical challenges are likely to result in partial implementation before complete adoption across the sprawling island chain.

Indonesia's most significant fuel seller, state-owned Pertamina, said it requires to modify a few of its fuel terminals to blend and keep B40, which will be finished during a "transition duration after federal government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without offering information.

During a conference with government authorities and biodiesel producers recently, fuel sellers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in presence, informed Reuters.

Hiswana Migas, the fuel merchants' association, did not immediately react to a request for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required walking would not be executed slowly, and that biodiesel manufacturers are prepared to supply the higher mix.

"I have confirmed the readiness with all manufacturers last week," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the federal government has actually not released allowances for producers to offer to sustain retailers, which it normally has done by this time of the year.

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

The federal government plans to assign 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 federal government, funding the higher blend might likewise be a challenge as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes proceeds from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it required a 68% increase in subsidies 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 looms.

However, the palm oil market would challenge a levy hike, 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, because if it is executed, the aid will increase. Where will (the cash) originate from?" he stated.

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

"The implementation may be slow and steady in 2025 and most likely more hectic in 2026," he stated.

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