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

Industry individuals seeking phase-in period expect progressive intro

Industry faces technical challenges and cost concerns

Government financing problems develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has fuelled concerns it could curb worldwide palm oil materials, looks increasingly most likely to be carried out slowly, experts said, as industry participants look for a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, prepares to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a jump in palm futures and might pressure prices even more in 2025.

While the government of President Prabowo Subianto has stated repeatedly the strategy is on track for complete launch in the brand-new year, industry watchers state costs and technical difficulties are most likely to lead to partial application before full adoption throughout the stretching archipelago.

Indonesia's biggest fuel seller, state-owned Pertamina, said it needs to modify some of its fuel terminals to blend and save B40, which will be finished throughout a "transition duration after federal government establishes the mandate", representative Fadjar Djoko Santoso told Reuters, without providing information.

During a conference with federal 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 was in presence, informed Reuters.

Hiswana Migas, the fuel sellers' association, did not immediately respond to an ask for remark.

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

"I have validated the readiness with all manufacturers recently," she said.

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

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

The government prepares to assign 15.62 million (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 might also be a difficulty as palm oil now costs around $400 per metric heap more than crude oil. Indonesia utilizes profits from palm oil export levies, managed by a firm called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it needed a 68% boost in subsidies 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 object to a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, consisting of palm smallholders.

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

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

"The execution might be sluggish and gradual in 2025 and most likely more fast-paced in 2026," he stated.

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 annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)