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

Industry participants seeking phase-in period anticipate progressive intro

Industry faces technical obstacles and cost issues

Government financing problems emerge due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has actually fuelled issues it could curb worldwide palm oil materials, looks increasingly most likely to be executed gradually, experts said, as market participants seek a phase-in period.

Indonesia, the world's biggest producer and exporter of palm oil, prepares to raise the mandatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a jump in palm futures and might press prices further in 2025.

While the federal government of President Prabowo Subianto has actually stated repeatedly the plan is on track for full launch in the new year, market watchers say expenses and technical difficulties are likely to lead to partial execution before full adoption across the stretching island chain.

Indonesia's biggest fuel merchant, state-owned Pertamina, stated it needs to customize a few of its fuel terminals to mix and keep B40, which will be finished throughout a "transition period after government develops the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without offering details.

During a meeting with federal government officials and biodiesel manufacturers recently, fuel sellers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, informed Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to an ask for comment.

Energy ministry senior official Eniya Listiani Dewi told Reuters the required hike would not be gradually, and that biodiesel manufacturers are ready to supply the higher mix.

"I have actually validated the preparedness with all manufacturers last week," she stated.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be blended with diesel fuel, said the federal government has not provided allocations for manufacturers to sell to sustain retailers, which it typically has done by this time of the year.

"We can't provide the products without purchase order files, and order documents are obtained after we get agreements with fuel business," Gunawan told Reuters. "Fuel companies can just 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 told Reuters, less than its initial price quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, moneying the greater blend might also be a difficulty as palm oil now costs around $400 per metric lot 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 looms.

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

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

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

"The implementation may be sluggish and gradual in 2025 and most likely more busy in 2026," he said.

Prabowo, who took office 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 yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina