Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry individuals seeking phase-in period expect gradual introduction

Industry deals with technical obstacles and cost issues

Government financing due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually fuelled concerns it might curb worldwide palm oil supplies, looks progressively likely to be executed gradually, experts stated, as industry individuals seek a phase-in duration.

Indonesia, the world's most significant manufacturer and exporter of palm oil, plans to raise the compulsory 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 rates even more in 2025.

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

Indonesia's most significant fuel seller, state-owned Pertamina, said it requires to modify a few of its fuel terminals to mix and keep B40, which will be completed during a "transition duration after government develops the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

During a conference with federal government authorities and biodiesel producers last week, fuel merchants asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in presence, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be executed gradually, and that biodiesel manufacturers are all set to supply the greater mix.

"I have actually 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, said the government has not released allotments for producers to sell to fuel merchants, which it generally has done by this time of the year.

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

The federal 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 quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher mix could also be a challenge as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses proceeds 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 aids to 47 trillion rupiah ($2.93 billion) next year and approximated 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, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the market, consisting of palm smallholders.

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

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

"The implementation might be slow and progressive in 2025 and most likely more busy in 2026," he said.

Prabowo, who took office 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