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

Industry individuals seeking phase-in period expect steady intro

Industry faces technical challenges and cost issues

Government financing 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 sustained concerns it might suppress international palm oil materials, looks progressively likely to be implemented slowly, analysts said, as market participants seek a phase-in duration.

Indonesia, the world's most significant manufacturer 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 actually activated a jump in palm futures and may push prices further in 2025.

While the government of President Prabowo Subianto has stated repeatedly the strategy is on track for complete launch in the new year, market watchers state costs and technical challenges are likely to lead to partial application before complete adoption across the stretching island chain.

Indonesia's greatest fuel merchant, state-owned Pertamina, said it needs to customize a few of its fuel terminals to mix and keep B40, which will be finished during a "transition duration after government establishes the mandate", representative Fadjar Djoko Santoso informed Reuters, without supplying details.

During a conference with federal government authorities and biodiesel producers recently, fuel retailers requested a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in attendance, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be executed slowly, which biodiesel manufacturers are ready to supply the higher mix.

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

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

"We can't perform without order files, and order files are acquired after we get contracts with fuel companies," Gunawan informed Reuters. "Fuel companies can only sign contracts after the ministerial decree (on biodiesel allowances)."

The federal government plans to 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 federal government, moneying the higher blend could also be a challenge as palm oil now costs around $400 per metric ton more than crude oil. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% increase 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 market would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the market, including palm smallholders.

"I think there will be a hold-up, due to the fact that if it is executed, the aid will increase. Where will (the cash) originate from?" he said.

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

"The implementation might 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 required further 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