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

Industry individuals seeking phase-in duration expect steady intro

Industry deals with technical difficulties and expense concerns

Government funding problems occur due to palm oil price disparity

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel required from Jan. 1, which has sustained issues it could suppress worldwide palm oil supplies, looks significantly most likely to be carried out slowly, analysts said, as market individuals seek a phase-in duration.

Indonesia, the world's greatest producer and exporter of palm oil, plans to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a dive in palm futures and may push rates even more in 2025.

While the federal government of President Prabowo Subianto has stated repeatedly the strategy is on track for full launch in the new year, market watchers say costs and technical challenges are likely to result in partial implementation before full adoption throughout the stretching island chain.

Indonesia's greatest fuel merchant, state-owned Pertamina, stated it requires to modify some of its fuel terminals to blend and store B40, which will be finished throughout a "shift duration after government develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without supplying details.

During a meeting with government officials and biodiesel producers last week, fuel retailers requested a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in participation, told Reuters.

Hiswana Migas, the fuel retailers' association, did not instantly respond to a request for comment.

Energy ministry senior main Eniya Listiani Dewi told Reuters the required walking would not be executed gradually, and that biodiesel manufacturers are ready to supply the higher mix.

"I have confirmed the preparedness with all manufacturers last week," she said.

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

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

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

FUNDING CHALLENGES

For the government, funding the higher blend might likewise be an obstacle as palm oil now costs around $400 per metric lot more than petroleum. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

In November, BPDPKS estimated 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, fuelling market speculation that a levy hike impends.

However, the palm oil market would challenge a levy walking, said Tauhid Ahmad, a senior expert with INDEF, as it would hurt the industry, including palm smallholders.

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

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

"The application may be slow and gradual 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 required 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