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

Industry individuals seeking phase-in period anticipate progressive introduction

Industry faces technical difficulties and expense issues

Government funding issues develop due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has fuelled concerns it might suppress global palm oil supplies, looks significantly most likely to be executed slowly, analysts said, as market participants seek a phase-in period.

Indonesia, the world's greatest manufacturer 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 actually activated a jump in palm futures and may pressure rates 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, industry watchers state costs and technical challenges are most likely to lead to partial execution before complete adoption across the stretching archipelago.

Indonesia's biggest fuel retailer, state-owned Pertamina, said 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 develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying information.

During a meeting with officials and biodiesel producers recently, fuel sellers asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in attendance, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate walking would not be carried out gradually, and that biodiesel producers are prepared to provide the greater mix.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, said the federal government has actually not released allocations for manufacturers to sell to sustain retailers, which it generally has actually done by this time of the year.

"We can't deliver the items without purchase order files, and purchase order files are acquired after we get contracts with fuel companies," Gunawan informed Reuters. "Fuel companies can only sign agreements after the ministerial decree (on biodiesel allowances)."

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

FUNDING CHALLENGES

For the government, funding the greater blend might likewise be a challenge as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia uses profits from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it needed a 68% boost 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 imminent.

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

"I believe there will be a hold-up, because if it is implemented, the subsidy will increase. Where will (the money) originate from?" he said.

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

"The application may be slow 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 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