Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry participants looking for phase-in duration anticipate steady intro

Industry deals with technical difficulties and cost concerns

Government funding problems occur due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has sustained issues it might suppress global palm oil supplies, looks increasingly likely to be carried out gradually, analysts said, as market individuals seek a phase-in period.

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

While the federal government of President Prabowo Subianto has said repeatedly the plan is on track for complete launch in the brand-new year, industry watchers state costs and technical difficulties are likely to lead to partial application before full adoption across the sprawling island chain.

Indonesia's biggest fuel retailer, state-owned Pertamina, stated it needs to customize a few of its fuel terminals to mix and save B40, which will be completed during a "shift period after federal government establishes the required", representative Fadjar Djoko Santoso informed Reuters, without supplying information.

During a conference with government officials and biodiesel producers recently, fuel merchants asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

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

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

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

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

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

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

FUNDING CHALLENGES

For the government, funding the higher mix might also be a challenge as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes proceeds from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated 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 is impending.

However, the palm oil industry would object to a levy walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would harm 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 cash) originate from?" he stated.

Nagaraj Meda, handling director of Transgraph Consulting, a commodity consultancy, said B40 implementation would be challenging in 2025.

"The execution may be slow and steady in 2025 and most likely more hectic in 2026," he said.

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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina