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

Industry participants seeking phase-in duration expect progressive introduction

Industry deals with technical difficulties and cost concerns

Government financing concerns develop due to palm oil cost disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to broaden its biodiesel required from Jan. 1, which has fuelled concerns it might suppress global palm oil materials, looks progressively likely to be implemented slowly, analysts stated, as market individuals look for a phase-in duration.

Indonesia, the world's most significant 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 triggered a jump in palm futures and may push rates even more in 2025.

While the government of President Prabowo Subianto has said consistently the plan is on track for complete launch in the brand-new year, industry watchers state costs and technical difficulties are most likely to lead to partial application before complete adoption throughout the sprawling island chain.

Indonesia's greatest fuel retailer, state-owned Pertamina, said it requires to modify some of its fuel terminals to blend and keep B40, which will be finished throughout a "transition period after government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without providing details.

During a conference with government officials and biodiesel producers last week, fuel retailers requested a two-month shift 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 respond to a demand for comment.

Energy ministry senior official Eniya Listiani Dewi told Reuters the required walking would not be carried out gradually, and that biodiesel manufacturers are all set to supply the greater blend.

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

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

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

The federal government plans to allocate 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 higher mix might likewise be a difficulty as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses profits from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS estimated it required a 68% boost in aids to 47 trillion rupiah ($2.93 billion) next year and estimated levy collection at around 21 trillion rupiah, fuelling market speculation that a levy hike looms.

However, the palm oil industry would object to a levy hike, 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, since if it is implemented, the subsidy will increase. Where will (the money) originate from?" he said.

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

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

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