Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry participants looking for phase-in duration anticipate gradual intro

Industry deals with technical difficulties and expense issues

Government funding concerns arise due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has fuelled issues it might curb global palm oil materials, looks significantly likely to be implemented gradually, analysts stated, as market individuals seek a phase-in period.

Indonesia, the world's greatest producer 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 actually triggered a jump in palm futures and may pressure rates even more in 2025.

While the federal government of President Prabowo Subianto has actually said consistently the strategy is on track for full launch in the brand-new year, say expenses and technical difficulties are most likely to result in partial execution before full adoption across the stretching archipelago.

Indonesia's greatest fuel retailer, state-owned Pertamina, said it needs to customize some of its fuel terminals to blend and save B40, which will be finished throughout a "shift period after government establishes the required", representative Fadjar Djoko Santoso told Reuters, without offering information.

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

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed slowly, which biodiesel producers are ready to supply the higher blend.

"I have validated the preparedness with all manufacturers last week," she stated.

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

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

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

FUNDING CHALLENGES

For the federal government, funding the higher blend might also be a challenge as palm oil now costs around $400 per metric lot more than petroleum. 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% increase in aids to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, fuelling market speculation that a levy walking is imminent.

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

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

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

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

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