Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry individuals seeking phase-in duration expect gradual introduction

Industry faces technical challenges and cost concerns

Government financing concerns develop due to palm oil rate disparity

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

Indonesia, the world's greatest manufacturer and exporter of palm oil, prepares to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a jump in palm futures and might press 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 new year, market watchers state expenses and technical difficulties are likely to result in partial implementation before full adoption throughout the sprawling archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, said it requires to modify a few of its fuel terminals to mix and store B40, which will be completed throughout a "transition period after government establishes the mandate", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

During a conference with government authorities and biodiesel producers last week, fuel sellers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who was in participation, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi informed Reuters the mandate hike would not be implemented gradually, and that biodiesel manufacturers are ready to supply the greater mix.

"I have verified the readiness with all producers last week," she stated.

APROBI, whose members make fatty acid methyl ester (FAME) from palm oil to be combined with diesel fuel, said the federal government has not released allotments for manufacturers to offer to fuel sellers, which it typically has actually done by this time of the year.

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

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

FUNDING CHALLENGES

For the government, moneying the greater 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 spaces.

In November, BPDPKS estimated 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 impends.

However, the palm oil industry would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would harm the industry, including palm smallholders.

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

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

"The implementation might be sluggish and progressive 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 mandate even more 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