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

Industry participants seeking phase-in duration expect progressive introduction

Industry faces technical challenges and cost concerns

Government funding issues occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually fuelled concerns it might suppress international palm oil products, looks progressively most likely to be implemented slowly, analysts said, as industry individuals seek a phase-in duration.

Indonesia, the world's most significant 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 triggered a jump in palm futures and may push rates even more in 2025.

While the government of President Prabowo Subianto has stated consistently the strategy is on track for full launch in the new year, industry watchers state expenses and technical difficulties are likely to lead to partial implementation before full adoption across the stretching archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, said it needs to modify some of its fuel terminals to mix and save B40, which will be finished throughout a "shift duration after government establishes the mandate", representative Fadjar Djoko Santoso informed Reuters, without supplying details.

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

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be implemented gradually, and that biodiesel producers are ready to provide the greater mix.

"I have validated the readiness with all producers last week," she said.

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

"We can't provide the goods without purchase order documents, and purchase order files are obtained after we get agreements with fuel business," Gunawan informed Reuters. "Fuel companies can only sign contracts after the ministerial decree (on biodiesel allocations)."

The government plans to allocate 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 government, moneying the greater mix might also be a difficulty as palm oil now costs around $400 per metric lot more than crude oil. Indonesia uses profits from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS estimated 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 challenge a levy hike, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the industry, consisting of palm smallholders.

"I think there will be a delay, 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, stated B40 execution would be challenging in 2025.

"The application might be slow and steady in 2025 and most likely more hectic in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate further to B50 or B60 to achieve energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina