Indonesia insists B40 biodiesel execution to proceed on Jan. 1

Industry participants seeking phase-in duration expect gradual introduction

Industry faces technical challenges and expense concerns

Government funding issues emerge due to palm oil cost variation

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

Indonesia, the world's biggest manufacturer 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 triggered a dive in palm futures and may pressure costs even more in 2025.

While the federal government of President Prabowo Subianto has said repeatedly the strategy is on track for complete launch in the new year, industry watchers say costs and technical obstacles are most likely to result in partial implementation before complete adoption across the stretching island chain.

Indonesia's most significant fuel retailer, state-owned Pertamina, stated it requires to customize some of its fuel terminals to mix and save B40, which will be finished during a "transition duration after government develops the required", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

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

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the mandate walking would not be implemented slowly, which biodiesel producers are all set to provide the higher mix.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has actually not provided allotments for producers to offer to sustain retailers, which it generally has done by this time of the year.

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

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

FUNDING CHALLENGES

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

In November, BPDPKS approximated it required a 68% boost 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 looms.

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

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

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

"The application may be slow and progressive in 2025 and probably more busy in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the mandate even more 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