Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry participants looking for phase-in period expect steady introduction

Industry faces technical difficulties and cost concerns

Government funding problems emerge due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has fuelled issues it might suppress global palm oil supplies, looks increasingly most likely to be executed gradually, analysts stated, as market individuals seek a phase-in period.

Indonesia, the world's greatest producer and exporter of palm oil, prepares to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually set off 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 plan is on track for complete launch in the new year, market watchers say and technical difficulties are most likely to lead to partial execution before full adoption throughout the sprawling archipelago.

Indonesia's most significant fuel retailer, state-owned Pertamina, said it requires to modify some of its fuel terminals to blend and keep B40, which will be completed throughout a "transition duration after federal government develops the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

During a meeting with federal government officials and biodiesel manufacturers last week, fuel sellers asked for a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, told Reuters.

Hiswana Migas, the fuel merchants' association, did not immediately react to a demand for remark.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate walking would not be implemented slowly, and that biodiesel producers are ready to provide the higher mix.

"I have verified the readiness with all producers last week," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be combined with diesel fuel, said the government has not issued allowances for manufacturers to offer to sustain sellers, which it typically has actually done by this time of the year.

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

The 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 quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher mix could also be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses profits from palm oil export levies, managed by a firm called BPDPKS, to cover such spaces.

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, sustaining market speculation that a levy hike looms.

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

"I think there will be a delay, since if it is executed, the aid will increase. Where will (the money) come from?" he stated.

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

"The implementation may be slow and steady in 2025 and most likely more fast-paced 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 accomplish 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.)