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

Industry participants looking for phase-in duration expect progressive introduction

Industry deals with technical obstacles and cost issues

Government funding concerns develop due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has fuelled issues it could suppress global palm oil materials, looks significantly most likely to be carried out slowly, analysts stated, as industry participants look for a phase-in period.

Indonesia, the world's greatest producer and exporter of palm oil, plans to raise the obligatory 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 pressure costs even more in 2025.

While the government of President Prabowo Subianto has said consistently the plan is on track for complete launch in the new year, market watchers state costs and technical difficulties are most likely to result in partial execution before full adoption across the sprawling archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, said it requires to customize some of its fuel terminals to blend and store B40, which will be completed throughout a "transition duration after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without providing details.

During a conference with government officials and biodiesel manufacturers last week, fuel sellers asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in attendance, told Reuters.

Hiswana Migas, the fuel sellers' association, did not right away react to a request for comment.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed gradually, which biodiesel producers are prepared to provide the higher mix.

"I have actually validated the readiness with all manufacturers last week," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the federal government has actually not issued allowances for manufacturers to sell to sustain sellers, which it generally has done by this time of the year.

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

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 government, funding the greater blend might also be a difficulty as palm oil now costs around $400 per metric load more than crude oil. Indonesia uses proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

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

However, the palm oil industry would object to a levy hike, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the market, consisting of palm smallholders.

"I believe there will be a delay, because if it is executed, the aid will increase. Where will (the money) originate from?" he stated.

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

"The application may be slow and gradual in 2025 and probably more busy 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 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.)