Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants seeking phase-in duration expect steady intro

Industry deals with technical obstacles and cost concerns

Government funding issues arise due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to its biodiesel mandate from Jan. 1, which has actually sustained concerns it might curb international palm oil products, looks increasingly most likely to be implemented gradually, analysts stated, as market participants look for a phase-in duration.

Indonesia, the world's greatest 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 dive in palm futures and may press costs even more in 2025.

While the federal government of President Prabowo Subianto has said consistently the plan is on track for complete launch in the new year, market watchers state expenses and technical challenges are most likely to lead to partial implementation before complete adoption throughout the sprawling archipelago.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it requires to modify some of its fuel terminals to mix and store B40, which will be finished during a "transition duration after federal government establishes the required", spokesperson Fadjar Djoko Santoso informed Reuters, without offering information.

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

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

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

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

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the government has not issued allotments for producers to offer to sustain merchants, which it normally has done by this time of the year.

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

The federal 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 price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the greater blend could likewise be a difficulty as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses proceeds from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it needed 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 looms.

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

"I believe there will be a hold-up, due to the fact that if it is implemented, the aid will increase. Where will (the cash) originate from?" he said.

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

"The execution might be sluggish and steady in 2025 and probably more hectic in 2026," he said.

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