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Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry participants seeking phase-in period expect progressive intro

Industry faces technical difficulties and cost concerns

Government financing concerns arise due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel mandate from Jan. 1, which has sustained issues it could curb worldwide palm oil materials, looks progressively likely to be carried out gradually, analysts stated, as market 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 set off a dive in palm futures and may press rates even more in 2025.

While the government of President Prabowo Subianto has stated repeatedly the plan is on track for full launch in the brand-new year, industry watchers say costs and technical difficulties are likely to lead to partial application before complete adoption across the sprawling archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, said it needs to customize some of its fuel terminals to blend and store B40, which will be completed throughout a "shift duration after government develops the required", representative Fadjar Djoko Santoso informed Reuters, without providing details.

During a conference with federal government authorities and biodiesel producers recently, fuel sellers requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, informed Reuters.

Hiswana Migas, the fuel sellers' association, did not immediately react to a demand for comment.

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be executed gradually, and that biodiesel producers are all set to supply the greater mix.

"I have actually validated the readiness with all producers last week," she said.

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

"We can't perform without purchase order documents, and order documents are gotten after we get contracts with fuel companies," Gunawan informed Reuters. "Fuel business can just 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 federal government, moneying the greater mix could also be a difficulty as palm oil now costs around $400 per metric lot more than petroleum. Indonesia utilizes proceeds from palm oil export levies, managed by a company called BPDPKS, to cover such gaps.

In November, 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 hike looms.

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

"I think there will be a delay, because if it is executed, the aid will increase. Where will (the money) come from?" he stated.

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

"The implementation might be sluggish and steady in 2025 and probably more busy in 2026," he stated.

Prabowo, who took office 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.)