Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry participants looking for phase-in duration expect progressive introduction

Industry faces technical difficulties and expense issues

Government funding issues develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has sustained issues it could suppress international palm oil supplies, looks significantly likely to be implemented slowly, analysts said, as market individuals seek a phase-in duration.

Indonesia, the world's greatest producer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually triggered a jump in palm futures and might press costs further in 2025.

While the federal government of President Prabowo Subianto has stated consistently the plan is on track for complete launch in the new year, market watchers say costs and technical difficulties are most likely to lead to partial implementation before complete adoption across the stretching island chain.

Indonesia's greatest fuel seller, state-owned Pertamina, said it requires to customize a few of its fuel terminals to blend and save B40, which will be finished during a "transition duration after government develops the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying details.

During a meeting with federal government authorities and biodiesel producers last week, fuel retailers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in participation, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be implemented gradually, which biodiesel manufacturers are prepared to supply the greater blend.

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be mixed with diesel fuel, stated the government has not released allotments for manufacturers to sell to sustain merchants, which it normally has done by this time of the year.

"We can't perform without order files, 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 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 quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the greater blend could likewise be a challenge as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, it required a 68% increase 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 walking impends.

However, the palm oil market would object to a levy hike, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the industry, including palm smallholders.

"I believe there will be a delay, because if it is executed, the aid will increase. Where will (the cash) originate from?" he said.

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

"The execution may be sluggish and steady in 2025 and probably more fast-paced 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