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

Industry individuals seeking phase-in period expect gradual intro

Industry deals with technical challenges and expense concerns

Government funding problems occur due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled issues it might suppress worldwide palm oil materials, looks increasingly most likely to be carried out slowly, experts said, as industry participants seek a phase-in duration.

Indonesia, the world's most significant manufacturer and exporter of palm oil, prepares to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off a dive in palm futures and might press costs even more in 2025.

While the federal government of President Prabowo Subianto has said consistently the strategy is on track for complete launch in the new year, industry watchers say costs and technical challenges are likely to lead to partial execution before full adoption throughout the stretching archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, stated it needs to modify some of its fuel terminals to mix and save B40, which will be finished throughout a "shift duration after government establishes the mandate", representative Fadjar Djoko Santoso told Reuters, without offering details.

During a meeting with federal government officials and biodiesel manufacturers recently, fuel retailers requested a two-month transition period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in presence, informed Reuters.

Hiswana Migas, the fuel merchants' association, did not right away respond to a demand for comment.

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

"I have actually verified 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, said the federal government has not issued allotments for producers to sell to fuel sellers, which it usually has done by this time of the year.

"We can't provide the goods without order files, and order files are gotten after we get agreements with fuel business," Gunawan informed Reuters. "Fuel business can only sign agreements after the ministerial decree (on biodiesel allowances)."

The 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 quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher blend could also be a challenge as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses proceeds from palm oil export levies, handled by a firm called BPDPKS, to cover such spaces.

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

"I believe there will be a hold-up, because if it is carried out, the aid will increase. Where will (the cash) originate from?" he said.

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

"The execution might be slow and steady in 2025 and probably more fast-paced in 2026," he said.

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