Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry participants seeking phase-in period anticipate progressive intro

Industry deals with technical challenges and expense concerns

Government financing problems develop due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually sustained issues it might suppress global palm oil materials, looks progressively most likely to be executed slowly, experts stated, as market individuals seek a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, prepares to raise the necessary 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 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, market watchers say costs and technical obstacles are likely to result in partial execution before complete adoption across the sprawling archipelago.

Indonesia's biggest fuel retailer, state-owned Pertamina, said it requires to customize a few of its fuel terminals to mix and keep B40, which will be completed during a "shift duration after government establishes the mandate", representative Fadjar Djoko Santoso informed Reuters, without offering information.

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

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be carried out slowly, and that biodiesel manufacturers are all set to provide the higher blend.

"I have actually confirmed the readiness with all producers recently," she said.

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

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

The federal government plans to assign 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 federal government, moneying the higher blend could likewise be a challenge as palm oil now costs around $400 per metric lot more than crude oil. Indonesia utilizes earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it required a 68% boost in subsidies 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 challenge a levy walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would harm the market, including palm smallholders.

"I think there will be a delay, due to the fact that if it is executed, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

"The execution may be sluggish and gradual in 2025 and probably more busy in 2026," he stated.

Prabowo, who took office 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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina