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

Industry individuals seeking phase-in period expect progressive introduction

Industry deals with technical obstacles and expense concerns

Government funding issues arise due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has sustained issues it could suppress worldwide palm oil products, looks increasingly most likely to be implemented gradually, experts stated, as industry individuals look for a phase-in period.

Indonesia, the world's most significant manufacturer and exporter of palm oil, plans to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a jump in palm futures and may pressure costs further in 2025.

While the federal government of President Prabowo Subianto has actually said repeatedly the plan is on track for complete launch in the brand-new year, industry watchers state costs and technical obstacles are most likely to lead to partial application before complete adoption throughout the stretching island chain.

Indonesia's greatest fuel merchant, state-owned Pertamina, said it requires to customize some of its fuel terminals to mix and keep B40, which will be completed during a "transition duration after federal government develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

During a meeting 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 participation, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate walking would not be implemented gradually, which biodiesel manufacturers are prepared to provide the higher blend.

"I have validated the readiness with all producers recently," she stated.

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

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

The federal government prepares to designate 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 higher mix could likewise be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses profits from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

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

However, the palm oil industry 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 delay, since if it is executed, the subsidy will increase. Where will (the cash) 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 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 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; Editing by Tony Munroe and Lincoln Feast.)