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

Industry individuals looking for phase-in period expect steady introduction

Industry faces technical difficulties and expense concerns

Government funding issues arise due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has sustained concerns it might suppress global palm oil supplies, looks increasingly most likely to be carried out gradually, experts stated, as market individuals look for a phase-in period.

Indonesia, the world's most significant producer and exporter of palm oil, prepares 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 may pressure prices further in 2025.

While the federal government of President Prabowo Subianto has stated repeatedly the strategy is on track for complete launch in the new year, industry watchers say costs and technical challenges are most likely to result in partial application before complete adoption across the sprawling island chain.

Indonesia's biggest fuel merchant, state-owned Pertamina, said it requires to modify a few of its fuel terminals to mix and store B40, which will be finished during a "shift period after government establishes the required", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

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

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the required walking would not be carried out gradually, and that biodiesel manufacturers are ready to provide the higher blend.

"I have actually validated the readiness with all producers recently," she stated.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has not provided allocations for manufacturers to sell to fuel sellers, which it generally has actually done by this time of the year.

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

The government plans to allocate 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its preliminary estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, moneying the higher mix could also be an obstacle as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia uses proceeds from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% increase in aids to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, speculation that a levy walking is impending.

However, the palm oil industry would challenge a levy hike, said Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the industry, consisting of palm smallholders.

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

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

"The application may be slow and steady in 2025 and most likely more fast-paced in 2026," he stated.

Prabowo, who took workplace in October, campaigned on a platform to raise the required further to B50 or B60 to achieve 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.)