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

Industry individuals seeking phase-in period anticipate progressive introduction

Industry faces technical obstacles and expense issues

Government financing problems develop due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has actually sustained issues it could curb worldwide palm oil products, looks significantly likely to be executed slowly, analysts said, as industry individuals look for a phase-in duration.

Indonesia, the world's most significant producer and exporter of palm oil, plans to raise the necessary mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has activated a dive in palm futures and might pressure costs further in 2025.

While the government of President Prabowo Subianto has stated consistently the strategy is on track for complete launch in the brand-new year, market watchers say expenses and technical challenges are likely to result in partial application before complete adoption across the stretching island chain.

Indonesia's most significant fuel retailer, state-owned Pertamina, said it requires to customize a few of its fuel terminals to mix and keep B40, which will be finished during a "transition duration after federal government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without providing information.

During a meeting with federal government authorities and biodiesel producers recently, fuel retailers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in presence, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate walking would not be executed gradually, and that biodiesel producers are all set to supply the higher mix.

"I have validated the preparedness with all producers recently," she said.

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

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

The federal government plans to assign 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, moneying the greater mix could also be a difficulty as palm oil now costs around $400 per metric ton more than unrefined oil. Indonesia uses proceeds from palm oil export levies, handled by a company called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it needed a 68% boost 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 industry would object to a levy hike, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the industry, 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 money) originate from?" he stated.

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

"The application might be slow and gradual in 2025 and most likely more fast-paced 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 accomplish 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.)