Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry participants seeking phase-in period anticipate gradual intro

Industry faces technical difficulties and cost issues

Government financing issues arise due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has sustained concerns it could curb worldwide palm oil supplies, looks significantly likely to be carried out slowly, analysts said, as industry participants look for a phase-in duration.

Indonesia, the world's most significant manufacturer and exporter of palm oil, prepares to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a dive in palm futures and might push costs further in 2025.

While the federal government of President Prabowo Subianto has said repeatedly the strategy is on track for complete launch in the new year, industry watchers say expenses and technical difficulties are likely to result in partial application before full adoption across the stretching island chain.

Indonesia's most significant fuel retailer, state-owned Pertamina, stated it needs to customize a few of its fuel terminals to blend and keep B40, which will be completed during a "transition period after federal government develops the required", representative Fadjar Djoko Santoso told Reuters, without supplying details.

During a conference with government officials and biodiesel producers last week, fuel retailers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate walking would not be executed gradually, which biodiesel manufacturers are all set to supply the higher mix.

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be combined with diesel fuel, said the federal government has actually not issued allotments for producers to sell to fuel merchants, which it typically has actually done by this time of the year.

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

The federal government prepares to designate 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 federal government, funding the greater blend could also be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes earnings from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it needed a 68% boost in subsidies to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy hike is impending.

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

"I believe there will be a delay, since if it is carried out, the aid 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 application may be slow and progressive in 2025 and most likely more hectic in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the required even more to B50 or B60 to accomplish energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)