Indonesia firmly insists B40 to continue on Jan. 1

Industry individuals looking for phase-in period expect gradual intro

Industry deals with technical obstacles and cost issues

Government financing issues arise due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has actually fuelled issues it could suppress global palm oil products, looks significantly most likely to be implemented gradually, analysts stated, as market individuals look for a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, plans to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has triggered a jump in palm futures and may press prices further in 2025.

While the federal government of President Prabowo Subianto has stated repeatedly the strategy is on track for full launch in the brand-new year, market watchers say expenses and technical difficulties are most likely to lead to partial execution before complete adoption across the stretching archipelago.

Indonesia's most significant fuel merchant, state-owned Pertamina, stated it needs to customize some of its fuel terminals to mix and store B40, which will be finished during a “transition duration after federal government establishes the mandate”, representative Fadjar Djoko Santoso told Reuters, without supplying details.

During a conference with government authorities and biodiesel producers recently, fuel merchants requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, informed Reuters.

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

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

"I have verified the preparedness with all manufacturers last week,” she stated.

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

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

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

FUNDING CHALLENGES

For the government, funding the higher blend might likewise be a difficulty as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia uses profits from palm oil export levies, handled 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 estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking impends.

However, the palm oil industry would object to a levy walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the industry, including palm smallholders.

"I think there will be a delay, due to the fact that if it is implemented, the subsidy will increase. Where will (the cash) come from?” he said.

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

"The execution might be sluggish and progressive in 2025 and most likely more busy in 2026,” he said.

Prabowo, who took office in October, campaigned on a platform to raise the required even more 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