Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry participants looking for phase-in duration expect progressive introduction

Industry deals with technical difficulties and cost concerns

Government funding concerns emerge due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has fuelled concerns it could suppress global palm oil products, looks progressively likely to be carried out slowly, experts said, as industry individuals look for a phase-in duration.

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 actually activated a jump in palm futures and may press rates even more in 2025.

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

Indonesia's biggest fuel merchant, state-owned Pertamina, stated it needs to modify a few of its fuel terminals to mix and save B40, which will be completed throughout a "shift period after federal government develops the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without offering details.

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

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be executed gradually, which biodiesel producers are all set to provide the higher blend.

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

APROBI, whose members make fatty acid (FAME) from palm oil to be mixed with diesel fuel, stated the federal government has actually not issued allocations for producers to sell to fuel merchants, which it usually has actually done by this time of the year.

"We can't perform without order documents, and order files are obtained after we get agreements with fuel business," Gunawan informed Reuters. "Fuel companies 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 informed Reuters, less than its initial estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the greater blend might likewise 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 a firm called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% increase in subsidies to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy hike impends.

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

"I think there will be a delay, due to the fact that if it is carried out, the aid will increase. Where will (the cash) come from?" he said.

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

"The execution might be slow and gradual in 2025 and most likely more busy 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 annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina