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

Industry participants seeking phase-in period expect steady introduction

Industry faces technical challenges and expense issues

Government financing problems develop due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has fuelled concerns it could suppress international palm oil products, looks increasingly likely to be executed slowly, analysts said, as market individuals look for a phase-in period.

Indonesia, the world's greatest manufacturer and exporter of palm oil, to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a dive in palm futures and may press rates even more in 2025.

While the government of President Prabowo Subianto has actually said repeatedly the strategy is on track for full launch in the new year, industry watchers say expenses and technical difficulties are most likely to lead to partial implementation before full adoption throughout the sprawling archipelago.

Indonesia's biggest fuel merchant, state-owned Pertamina, stated it requires to customize some of its fuel terminals to blend and store B40, which will be finished during a "transition period after government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without offering information.

During a meeting with federal government authorities and biodiesel manufacturers last week, fuel merchants requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, told Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate walking would not be executed slowly, and that biodiesel manufacturers are all set to provide the higher mix.

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

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

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

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

FUNDING CHALLENGES

For the federal government, moneying the higher blend might also be an obstacle as palm oil now costs around $400 per metric lot more than crude oil. Indonesia utilizes profits from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it needed a 68% boost in aids to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, fuelling market speculation that a levy walking impends.

However, the palm oil market would object to a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the industry, including palm smallholders.

"I believe there will be a hold-up, because if it is carried out, the aid will increase. Where will (the money) come from?" he stated.

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

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

Prabowo, who took office in October, campaigned on a platform to raise the mandate even more 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; Editing by Tony Munroe and Lincoln Feast.)