Indonesia insists B40 biodiesel application to continue on Jan. 1

Industry individuals looking for phase-in period expect steady intro

Industry deals with technical obstacles and cost issues

Government financing concerns develop due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has sustained issues it could suppress worldwide palm oil supplies, looks progressively likely to be executed slowly, experts stated, as industry participants seek a phase-in duration.

Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the obligatory 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 rates even more in 2025.

While the government of President Prabowo Subianto has said repeatedly the strategy is on track for full launch in the brand-new year, market watchers say costs and technical obstacles 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 modify some of its fuel terminals to mix and save B40, which will be finished throughout a "transition period after government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without supplying details.

During a conference with government authorities and biodiesel manufacturers last week, fuel sellers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, told Reuters.

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

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required walking would not be carried out slowly, which biodiesel producers are prepared to provide the greater blend.

"I have verified 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, said the government has actually not released allowances for manufacturers to sell to sustain merchants, which it generally has done by this time of the year.

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

The 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 estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the greater mix might likewise be an obstacle as palm oil now costs around $400 per metric load more than crude oil. Indonesia uses proceeds from palm oil export levies, managed by a company called BPDPKS, to cover such spaces.

In November, BPDPKS approximated it required a 68% increase in subsidies to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, fuelling market speculation that a levy hike looms.

However, the palm oil market would challenge a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, including palm smallholders.

"I think there will be a hold-up, because if it is implemented, the aid will increase. Where will (the money) come from?" he said.

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

"The implementation might be sluggish and gradual in 2025 and most likely more hectic in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the required further to B50 or B60 to attain energy self-sufficiency and cut $20 billion of annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina