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

Industry participants looking for phase-in duration expect progressive introduction

Industry deals with technical obstacles and expense issues

Government funding issues develop due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has actually sustained concerns it could suppress worldwide palm oil supplies, looks increasingly likely to be carried out gradually, analysts stated, as industry participants seek a phase-in duration.

Indonesia, the world's greatest 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 set off a dive in palm futures and may push prices even more in 2025.

While the government of President Prabowo Subianto has actually said consistently the plan is on track for full launch in the brand-new year, industry watchers say costs and technical obstacles are likely to result in partial application before full adoption across the stretching island chain.

Indonesia's biggest fuel seller, state-owned Pertamina, said it needs to modify some of its fuel terminals to blend and store B40, which will be finished during a "transition period after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying information.

During a meeting with government officials and biodiesel manufacturers last week, fuel sellers asked for a two-month transition 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 an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required walking would not be carried out slowly, and that biodiesel producers are ready to provide the greater mix.

"I have actually confirmed the preparedness with all manufacturers recently," she said.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be mixed with diesel fuel, said the government has not issued allocations for producers to sell to fuel merchants, which it usually has actually done by this time of the year.

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

The federal government prepares to assign 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya told Reuters, less than its initial estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the government, funding the greater blend might also be a difficulty as palm oil now costs around $400 per metric load more than petroleum. Indonesia uses profits from palm oil export levies, handled by a firm called BPDPKS, to cover such gaps.

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

However, the palm oil market would object to a levy walking, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the market, including palm smallholders.

"I believe 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 stated.

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

"The execution might be sluggish and steady in 2025 and probably more fast-paced in 2026," he stated.

Prabowo, who took workplace 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.)