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

Industry participants looking for phase-in period anticipate progressive intro

Industry deals with technical challenges and expense concerns

Government funding problems occur due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has actually fuelled issues it could curb global palm oil supplies, looks increasingly most likely to be implemented slowly, analysts said, as market individuals seek a phase-in period.

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

While the federal government of President Prabowo Subianto has said consistently the strategy is on track for full launch in the new year, market watchers state expenses and technical challenges are likely to result in partial implementation before full adoption throughout the stretching island chain.

Indonesia's most significant fuel seller, state-owned Pertamina, said it needs to customize some of its fuel terminals to mix and store B40, which will be completed during a "shift period after federal government develops the mandate", representative Fadjar Djoko Santoso told Reuters, without supplying details.

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

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be executed slowly, and that biodiesel producers are prepared to supply the greater blend.

"I have actually confirmed the readiness with all manufacturers recently," she said.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, said the federal government has actually not provided allowances for producers to offer to fuel sellers, which it typically has done by this time of the year.

"We can't provide the goods without order files, and order documents are acquired after we get agreements with fuel companies," Gunawan told Reuters. "Fuel business can only sign contracts after the ministerial decree (on biodiesel allotments)."

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

FUNDING CHALLENGES

For the federal government, moneying the higher blend might also be a difficulty as palm oil now costs around $400 per metric load more than petroleum. Indonesia uses earnings from palm oil export levies, managed by a firm called BPDPKS, to cover such gaps.

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

However, the palm oil industry would object to a levy hike, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would harm the market, consisting of palm smallholders.

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

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

"The application might be sluggish and steady 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 even more 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