Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry participants looking for phase-in duration anticipate gradual intro

Industry faces technical challenges and expense concerns

Government financing issues develop due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually sustained issues it could suppress global palm oil materials, looks progressively most likely to be executed gradually, analysts said, as industry individuals look for a phase-in duration.

Indonesia, the world's greatest producer 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 jump in palm futures and might press costs further in 2025.

While the government of President Prabowo Subianto has said consistently the strategy is on track for full launch in the new year, market watchers state expenses and technical challenges are most likely to result in partial application before complete adoption throughout the sprawling island chain.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it needs to modify some of its fuel terminals to blend and store B40, which will be finished throughout a "transition duration after federal government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without providing details.

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

Hiswana Migas, the fuel sellers' association, did not right away react to a demand for remark.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be implemented slowly, which biodiesel producers are ready to provide the higher mix.

"I have actually verified the preparedness with all manufacturers last week," she said.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not released allotments for manufacturers to offer to fuel retailers, which it normally has done by this time of the year.

"We can't perform without order files, and purchase order files are gotten after we get agreements with fuel companies," Gunawan told Reuters. "Fuel companies can just sign agreements after the ministerial decree (on biodiesel allotments)."

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

FUNDING CHALLENGES

For the government, the higher mix might also be a challenge as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses proceeds from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it required 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 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 hold-up, since if it is implemented, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

"The application may be sluggish and progressive in 2025 and most likely more fast-paced in 2026," he stated.

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