Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry individuals looking for phase-in period expect steady introduction

Industry faces technical challenges and expense concerns

Government funding issues develop due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has fuelled concerns it might curb global palm oil supplies, looks progressively likely to be out gradually, analysts said, as industry individuals seek a phase-in duration.

Indonesia, the world's greatest manufacturer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a dive in palm futures and may pressure costs even more in 2025.

While the federal government of President Prabowo Subianto has actually said repeatedly the plan is on track for complete launch in the new year, industry watchers state expenses and technical obstacles are most likely to result in partial execution before full adoption across the sprawling island chain.

Indonesia's biggest fuel seller, state-owned Pertamina, stated it needs to modify a few of its fuel terminals to mix and keep B40, which will be completed throughout a "shift period after government develops the required", representative Fadjar Djoko Santoso informed Reuters, without supplying details.

During a meeting with federal government authorities and biodiesel producers recently, fuel retailers requested a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in participation, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the required walking would not be carried out slowly, and that biodiesel manufacturers are all set to provide the higher blend.

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

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

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

The government prepares to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its initial price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the higher mix might likewise be a challenge as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes proceeds from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

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

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

"I think there will be a hold-up, due to the fact that if it is implemented, the subsidy will increase. Where will (the cash) come from?" he stated.

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

"The application might be sluggish and progressive in 2025 and probably more hectic in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the required even more to B50 or B60 to achieve energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina