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

Industry individuals looking for phase-in duration anticipate steady intro

Industry deals with technical difficulties and cost concerns

Government financing problems arise due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel required from Jan. 1, which has fuelled issues it could curb global palm oil products, looks progressively likely to be implemented slowly, experts stated, as market participants look for a phase-in duration.

Indonesia, the world's most significant 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 set off a jump in palm futures and may pressure costs further 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, market watchers say expenses and technical challenges are likely to result in partial execution before complete adoption across the sprawling island chain.

Indonesia's biggest fuel retailer, state-owned Pertamina, stated it requires to customize some of its fuel terminals to mix and store B40, which will be completed during a "shift period after federal government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

During a meeting with government officials and biodiesel producers last week, fuel merchants requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in presence, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate walking would not be implemented slowly, and that biodiesel manufacturers are ready to supply the greater blend.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be mixed with diesel fuel, stated the federal government has actually not issued allocations for manufacturers to offer to fuel sellers, which it usually has done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, moneying the greater blend might also be an obstacle as palm oil now costs around $400 per metric ton more than petroleum. Indonesia utilizes profits from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

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

However, the palm oil market would challenge a levy walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the market, consisting of palm smallholders.

"I believe there will be a delay, due to the fact that if it is implemented, the aid will increase. Where will (the cash) come from?" he said.

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

"The implementation might be slow and steady in 2025 and most likely more hectic in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the mandate 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; Editing by Tony Munroe and Lincoln Feast.)