Indonesia firmly insists B40 biodiesel application to continue on Jan. 1

Industry individuals seeking phase-in period expect progressive intro

Industry faces technical challenges and cost issues

Government financing problems occur due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has sustained concerns it could curb international palm oil materials, looks significantly likely to be executed gradually, analysts said, as industry participants look for a phase-in period.

Indonesia, the world's biggest manufacturer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a jump in palm futures and might press prices 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, market watchers state expenses and technical obstacles are likely to result in partial implementation before full adoption across the sprawling island chain.

Indonesia's greatest fuel seller, state-owned Pertamina, stated it requires to modify a few of its fuel terminals to blend and store B40, which will be completed throughout a "shift duration after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without providing information.

During a meeting with federal government authorities and biodiesel manufacturers last week, fuel merchants asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in presence, told Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be executed slowly, and that biodiesel producers are all set to supply the greater blend.

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

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

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

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 quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher blend might likewise be a challenge as palm oil now costs around $400 per metric load 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 needed a 68% increase 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 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 market, consisting of palm smallholders.

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

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

"The implementation may be sluggish and gradual in 2025 and probably more fast-paced in 2026," he said.

Prabowo, who took office in October, campaigned on a platform to raise the mandate 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; Editing by Tony Munroe and Lincoln Feast.)