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

Industry individuals seeking phase-in duration expect gradual introduction

Industry faces technical difficulties and expense concerns

Government funding concerns arise due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has fuelled issues it might curb worldwide palm oil products, looks increasingly most likely to be carried out slowly, analysts said, as industry participants look for a phase-in duration.

Indonesia, the world's most significant 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 triggered a dive in palm futures and may push rates even more in 2025.

While the government of President Prabowo Subianto has stated consistently the strategy is on track for full launch in the new year, market watchers say expenses and technical difficulties are likely to lead to partial execution before full adoption throughout the sprawling island chain.

Indonesia's greatest fuel seller, state-owned Pertamina, said it requires to customize a few of its fuel terminals to mix and keep B40, which will be finished during a "transition period after federal government develops the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without offering information.

During a conference with government authorities and biodiesel manufacturers last week, fuel retailers asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be implemented gradually, which biodiesel manufacturers are prepared to provide the higher blend.

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

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

"We can't perform without order files, and purchase order files are obtained 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 plans to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher mix could also be a difficulty as palm oil now costs around $400 per metric load more than petroleum. Indonesia utilizes earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it needed a 68% boost in aids to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy hike impends.

However, the palm oil industry would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the industry, consisting of palm smallholders.

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

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

"The execution might be sluggish and steady in 2025 and most likely more busy in 2026," he said.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate further to B50 or B60 to achieve 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.)