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

Industry individuals seeking phase-in period expect gradual introduction

Industry deals with technical difficulties and expense concerns

Government financing issues arise due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled concerns it could curb global palm oil materials, looks significantly likely to be executed gradually, experts stated, as market individuals look for a phase-in duration.

Indonesia, the world's biggest producer 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 set off a dive in palm futures and might press prices even more in 2025.

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

Indonesia's greatest fuel retailer, state-owned Pertamina, stated it needs to modify some of its fuel terminals to blend and save B40, which will be completed during a "shift period after federal government develops the required", representative Fadjar Djoko Santoso told Reuters, without offering details.

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

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be implemented slowly, and that biodiesel manufacturers are prepared to provide the greater blend.

"I have actually confirmed the preparedness with all manufacturers last week," she said.

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

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

The government plans to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary quote of 16 million kilolitres.

FUNDING CHALLENGES

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

In November, BPDPKS estimated it required a 68% increase 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 looms.

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

"I think there will be a delay, due to the fact that if it is implemented, the subsidy will increase. Where will (the money) originate from?" he stated.

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

"The execution might be sluggish and steady in 2025 and most likely more hectic in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate 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