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

Industry individuals looking for phase-in duration expect gradual introduction

Industry faces technical challenges and expense concerns

Government funding issues develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has it could suppress global palm oil materials, looks progressively likely to be carried out gradually, analysts said, as industry participants seek a phase-in duration.

Indonesia, the world's biggest manufacturer 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 triggered a jump in palm futures and may push rates further in 2025.

While the government of President Prabowo Subianto has stated repeatedly the plan is on track for complete launch in the new year, market watchers say expenses and technical challenges are most likely to result in partial execution before complete adoption throughout the stretching archipelago.

Indonesia's greatest fuel merchant, state-owned Pertamina, stated it needs to customize some of its fuel terminals to mix and keep B40, which will be finished throughout a "transition period after government develops the required", representative Fadjar Djoko Santoso told Reuters, without supplying details.

During a meeting with government authorities and biodiesel manufacturers last week, fuel merchants requested a two-month transition period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in presence, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required hike would not be implemented slowly, and that biodiesel producers are all set to supply the greater mix.

"I have confirmed the readiness with all producers last week," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the federal government has not provided allowances for manufacturers to offer to sustain merchants, which it normally has done by this time of the year.

"We can't deliver the items without purchase order documents, and order documents are obtained after we get agreements with fuel companies," Gunawan told Reuters. "Fuel business can just sign agreements after the ministerial decree (on biodiesel allowances)."

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

FUNDING CHALLENGES

For the government, moneying the higher mix could also be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS estimated 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, sustaining market speculation that a levy hike impends.

However, the palm oil market would object to a levy walking, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the industry, including palm smallholders.

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

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

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

Prabowo, who took office 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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina