Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry individuals seeking phase-in period anticipate progressive introduction

Industry faces technical obstacles and expense concerns

Government financing concerns develop due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to its biodiesel required from Jan. 1, which has fuelled concerns it could suppress global palm oil materials, looks increasingly likely to be implemented gradually, analysts stated, as market participants seek a phase-in period.

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

While the government of President Prabowo Subianto has actually said consistently the plan is on track for complete launch in the new year, industry watchers state costs and technical obstacles are most likely to result in partial implementation before complete adoption across the sprawling archipelago.

Indonesia's biggest fuel retailer, state-owned Pertamina, said it needs to customize a few of its fuel terminals to blend and store B40, which will be finished during a "transition period after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without providing details.

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

Hiswana Migas, the fuel sellers' association, did not immediately react to an ask for remark.

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

"I have verified the readiness with all producers recently," she stated.

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

"We can't provide the items without order documents, and purchase order documents are gotten after we get agreements with fuel business," Gunawan told Reuters. "Fuel companies can just sign agreements after the ministerial decree (on biodiesel allocations)."

The government prepares to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its initial quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher mix could also be a difficulty as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia utilizes proceeds from palm oil export levies, managed by a firm 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 is impending.

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

"I think there will be a hold-up, due to the fact that if it is implemented, the subsidy will increase. Where will (the money) come from?" he stated.

Nagaraj Meda, handling director of Transgraph Consulting, a product consultancy, stated B40 implementation would be challenging in 2025.

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