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

Industry participants seeking phase-in period expect gradual intro

Industry faces technical obstacles and cost concerns

Government funding issues arise due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has fuelled issues it might curb global palm oil products, looks increasingly most likely to be executed slowly, analysts stated, as seek a phase-in period.

Indonesia, the world's most significant manufacturer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off a jump in palm futures and may pressure costs further in 2025.

While the government of President Prabowo Subianto has actually said repeatedly the strategy is on track for full launch in the new year, market watchers state expenses and technical obstacles are most likely to result in partial execution before full adoption throughout the stretching island chain.

Indonesia's greatest fuel merchant, state-owned Pertamina, said it needs to modify a few of its fuel terminals to mix and store B40, which will be completed throughout a “transition period after federal government establishes the mandate”, representative Fadjar Djoko Santoso informed Reuters, without offering details.

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

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be carried out gradually, and that biodiesel producers are all set to provide the greater blend.

"I have actually verified the preparedness with all manufacturers recently,” she stated.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has not provided allowances for producers to offer to fuel sellers, which it typically has done by this time of the year.

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

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 initial price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the higher mix could also be an obstacle as palm oil now costs around $400 per metric ton more than crude oil. Indonesia utilizes earnings from palm oil export levies, handled by a firm called BPDPKS, to cover such spaces.

In November, BPDPKS approximated it needed 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 market would object to a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the market, including palm smallholders.

"I believe there will be a hold-up, since if it is implemented, the subsidy will increase. Where will (the cash) originate from?” he stated.

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

"The implementation might be sluggish and progressive in 2025 and most likely more hectic in 2026,” he stated.

Prabowo, who took office 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