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

Industry participants looking for phase-in duration expect progressive introduction

Industry faces technical challenges and expense issues

Government funding issues occur due to palm oil rate disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has actually fuelled concerns it could suppress worldwide palm oil products, looks significantly likely to be executed gradually, experts said, as market participants seek a phase-in duration.

Indonesia, the world's biggest 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 actually triggered a jump in palm futures and might pressure prices further in 2025.

While the government of President Prabowo Subianto has stated repeatedly the plan is on track for complete launch in the new year, industry watchers state costs and technical difficulties are most likely to result in partial application before complete adoption across the stretching archipelago.

Indonesia's greatest fuel retailer, state-owned Pertamina, stated it needs to modify a few of its fuel terminals to mix and keep B40, which will be completed during a "shift period after federal government develops the mandate", representative Fadjar Djoko Santoso told Reuters, without supplying details.

During a conference with federal government authorities and biodiesel manufacturers last week, fuel merchants asked for a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in participation, informed Reuters.

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required walking would not be carried out slowly, and that biodiesel manufacturers are prepared to supply the higher blend.

"I have confirmed the preparedness with all producers recently," she stated.

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

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

The government prepares to allocate 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, funding the higher mix might also be a difficulty as palm oil now costs around $400 per metric heap more than petroleum. Indonesia utilizes profits from palm oil export levies, handled by a company called BPDPKS, to cover such spaces.

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 impends.

However, the palm oil market would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the industry, including palm smallholders.

"I think there will be a hold-up, because if it is carried out, the subsidy will increase. Where will (the cash) come from?" he stated.

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

"The application may be sluggish and progressive in 2025 and probably more hectic in 2026," he said.

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