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

Industry participants period anticipate gradual intro

Industry faces technical difficulties and expense issues

Government funding issues emerge due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has fuelled issues it might suppress international palm oil supplies, looks increasingly likely to be carried out slowly, analysts stated, as market individuals look for a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has triggered a dive in palm futures and might push prices further in 2025.

While the government of President Prabowo Subianto has stated consistently the plan is on track for complete launch in the new year, market watchers state costs and technical challenges are most likely to lead to partial implementation before full adoption across the sprawling island chain.

Indonesia's biggest fuel retailer, state-owned Pertamina, said it requires to customize a few of its fuel terminals to mix and store B40, which will be completed during a "transition period after federal government develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying details.

During a meeting with government officials and biodiesel producers last week, fuel retailers requested a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, informed Reuters.

Hiswana Migas, the fuel sellers' association, did not right away react to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be executed gradually, which biodiesel producers are ready to provide the higher blend.

"I have validated the preparedness with all producers last week," 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 provided allotments for producers to offer to sustain retailers, which it normally has actually done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, funding the higher mix could also be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses proceeds from palm oil export levies, managed by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS approximated it needed a 68% increase in subsidies 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 industry would object to a levy walking, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the market, including palm smallholders.

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

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

"The application may be sluggish and progressive in 2025 and most likely more busy in 2026," he stated.

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