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

Industry individuals looking for phase-in period expect gradual intro

Industry faces technical obstacles and expense issues

Government funding issues occur due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has actually sustained issues it could curb worldwide palm oil materials, looks progressively most likely to be implemented gradually, experts said, as industry participants seek a phase-in period.

Indonesia, the world's most significant 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 activated a dive in palm futures and may push costs further in 2025.

While the federal government of President Prabowo Subianto has actually said consistently the plan is on track for full launch in the new year, industry watchers say expenses and technical obstacles are most likely to result in partial application before complete adoption across the sprawling island chain.

Indonesia's most significant fuel merchant, state-owned Pertamina, stated it needs to customize some of its fuel terminals to mix and keep B40, which will be completed during a "transition duration after federal government develops the required", representative Fadjar Djoko Santoso told Reuters, without supplying information.

During a conference with federal government officials and biodiesel producers last week, fuel merchants requested a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be executed gradually, which biodiesel producers are ready to provide the greater mix.

"I have confirmed the preparedness with all producers last week," she said.

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

"We can't perform without order documents, and order documents are gotten after we get agreements with fuel companies," Gunawan informed Reuters. "Fuel companies can just sign agreements 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 preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

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

In November, BPDPKS approximated 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, sustaining market speculation that a levy walking looms.

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

"I believe there will be a hold-up, since if it is carried out, the aid will increase. Where will (the cash) originate from?" he said.

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

"The execution might be slow and progressive in 2025 and probably more busy in 2026," he said.

Prabowo, who took office in October, campaigned on a platform to raise the required even more 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