Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry participants seeking phase-in period anticipate gradual introduction

Industry faces technical challenges and cost issues

Government funding concerns occur due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to broaden its biodiesel mandate from Jan. 1, which has sustained issues it could curb worldwide palm oil products, looks increasingly most likely to be executed slowly, experts said, as market participants look for a phase-in duration.

Indonesia, the world's most significant 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 set off a jump in palm futures and may pressure rates further in 2025.

While the federal government of President Prabowo Subianto has said consistently the strategy is on track for full launch in the new year, industry watchers say costs and are most likely to result in partial application before complete adoption across the sprawling archipelago.

Indonesia's biggest fuel merchant, state-owned Pertamina, said it needs to customize some of its fuel terminals to blend and keep B40, which will be completed during a "shift period after federal government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without supplying information.

During a meeting with federal government officials and biodiesel manufacturers recently, fuel retailers requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in attendance, informed Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to a demand for remark.

Energy ministry senior official Eniya Listiani Dewi informed Reuters the required walking would not be executed gradually, which biodiesel producers are ready to supply the greater mix.

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

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, said the government has not provided allotments for producers to offer to fuel merchants, which it typically has done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, funding the higher mix could also be a challenge as palm oil now costs around $400 per metric heap more than petroleum. Indonesia uses proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% boost 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 walking looms.

However, the palm oil industry would challenge a levy walking, stated Tauhid Ahmad, a senior expert with think-tank INDEF, as it would hurt the market, consisting of palm smallholders.

"I think there will be a delay, because if it is implemented, the subsidy will increase. Where will (the cash) originate from?" he stated.

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

"The execution may be sluggish and progressive in 2025 and most likely more busy 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