Indonesia insists B40 biodiesel implementation to proceed on Jan. 1

Industry participants looking for phase-in duration expect steady intro

Industry faces technical challenges and cost concerns

Government funding issues develop due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has fuelled concerns it might curb international palm oil supplies, looks significantly likely to be carried out gradually, analysts said, as market participants seek a phase-in period.

Indonesia, the world's biggest producer and exporter of palm oil, prepares to raise the compulsory 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 press 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 new year, industry watchers say costs and technical challenges are likely to lead to partial implementation before complete adoption throughout the sprawling island chain.

Indonesia's most significant fuel seller, state-owned Pertamina, stated it requires to modify some of its fuel terminals to mix and keep B40, which will be completed during a "transition period after government develops the required", representative Fadjar Djoko Santoso told Reuters, without offering information.

During a conference with federal government authorities and biodiesel manufacturers recently, fuel sellers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in participation, told Reuters.

Hiswana Migas, the fuel retailers' association, did not immediately respond to an ask for remark.

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate walking would not be implemented gradually, which biodiesel producers are all set to supply the greater blend.

"I have actually verified the preparedness with all manufacturers recently," she stated.

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

"We can't perform without order files, and order files are obtained after we get agreements with fuel companies," 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 preliminary price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the greater mix could also be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes earnings from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it needed a 68% boost 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 walking is impending.

However, the palm oil industry would challenge a levy hike, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the market, consisting of palm smallholders.

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

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

"The implementation may be sluggish and gradual in 2025 and most likely more hectic 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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina; Editing by Tony Munroe and Lincoln Feast.)