Indonesia insists B40 biodiesel implementation to continue on Jan. 1

Industry participants seeking phase-in period anticipate progressive introduction

Industry deals with technical challenges and expense concerns

Government financing concerns arise due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has sustained issues it might suppress international palm oil materials, looks significantly likely to be executed slowly, experts stated, as industry participants seek a phase-in duration.

Indonesia, the world's biggest manufacturer and exporter of palm oil, plans to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a jump in palm futures and might pressure prices even more in 2025.

While the federal government of President Prabowo Subianto has 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 lead to partial execution before complete adoption throughout the sprawling archipelago.

Indonesia's biggest fuel seller, state-owned Pertamina, said it needs to customize some of its fuel terminals to blend and store B40, which will be completed throughout a "shift duration after government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without supplying information.

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

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be carried out gradually, which biodiesel producers are ready to supply the higher blend.

"I have actually confirmed the readiness with all producers last week," she stated.

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

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

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 quote of 16 million kilolitres.

FUNDING CHALLENGES

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

In November, BPDPKS approximated it needed a 68% increase 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 hike is impending.

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

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

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

"The execution may be slow and progressive in 2025 and probably more fast-paced in 2026," he said.

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