Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry participants looking for phase-in period expect progressive introduction

Industry deals with technical difficulties and cost concerns

Government funding problems emerge due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled concerns it could suppress worldwide palm oil supplies, looks significantly likely to be executed gradually, experts stated, as industry individuals look for a phase-in period.

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

While the federal government of President Prabowo Subianto has stated repeatedly the plan is on track for full launch in the new year, market watchers state expenses and technical difficulties are likely to lead to partial execution before complete adoption across the stretching island chain.

Indonesia's most significant fuel merchant, state-owned Pertamina, said it requires to customize some of its fuel terminals to blend and store B40, which will be finished during a "shift period after government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without supplying details.

During a meeting with federal government officials and biodiesel manufacturers recently, fuel retailers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

Hiswana Migas, the fuel merchants' association, did not right away respond to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be implemented gradually, which biodiesel producers are ready to supply the higher blend.

"I have actually confirmed the preparedness with all producers last week," 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 not issued allocations for producers to sell to fuel merchants, which it generally has done by this time of the year.

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

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

FUNDING CHALLENGES

For the federal government, moneying the higher blend could also be an obstacle as palm oil now costs around $400 per metric heap more than crude oil. Indonesia uses proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% 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 looms.

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

"I believe there will be a delay, due to the fact that if it is executed, the subsidy will increase. Where will (the cash) originate from?" he said.

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

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

Prabowo, who took office in October, campaigned on a platform to raise the required further to B50 or B60 to accomplish energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina