Indonesia firmly insists B40 biodiesel implementation to proceed on Jan. 1

Industry individuals seeking phase-in period expect progressive intro

Industry deals with technical obstacles and cost issues

Government financing issues develop due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has fuelled issues it could suppress global palm oil supplies, looks increasingly likely to be executed gradually, experts stated, as market participants seek a phase-in duration.

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

While the government of President Prabowo Subianto has stated repeatedly the strategy is on track for complete launch in the new year, industry watchers say costs and technical obstacles are likely to result in partial execution before full adoption throughout the sprawling archipelago.

Indonesia's biggest fuel seller, state-owned Pertamina, said it needs to modify some of its fuel terminals to blend and store B40, which will be finished during a "shift duration after government develops the mandate", representative Fadjar Djoko Santoso informed Reuters, without offering information.

During a conference with federal government officials and biodiesel manufacturers last week, fuel merchants requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be carried out slowly, and that biodiesel producers are all set to supply the greater blend.

"I have actually validated the preparedness with all producers recently," she said.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be mixed with diesel fuel, stated the federal government has not released allowances for producers to offer to fuel retailers, which it normally has actually done by this time of the year.

"We can't deliver the goods without purchase order files, and order files are acquired after we get agreements with fuel companies," Gunawan informed Reuters. "Fuel companies can just sign agreements 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 estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the greater mix might likewise be a challenge as palm oil now costs around $400 per metric lot more than crude oil. Indonesia utilizes earnings from palm oil export levies, handled by a company called BPDPKS, to cover such gaps.

In November, BPDPKS estimated 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 walking is imminent.

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

"I think there will be a delay, because if it is executed, the subsidy will increase. Where will (the cash) originate from?" he said.

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

"The implementation may be sluggish and gradual 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 accomplish energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)