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

Industry participants seeking phase-in duration expect gradual introduction

Industry faces technical difficulties and cost issues

Government financing problems develop 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 palm oil products, looks significantly most likely to be implemented slowly, experts stated, as industry individuals look for a phase-in period.

Indonesia, the world's biggest manufacturer and exporter of palm oil, plans to raise the obligatory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has set off a jump in palm futures and may push rates further in 2025.

While the government of President Prabowo Subianto has said repeatedly the strategy is on track for complete launch in the new year, industry watchers say costs and technical challenges are likely to result in partial application before complete adoption across the stretching island chain.

Indonesia's greatest fuel retailer, state-owned Pertamina, said it needs to modify a few of its fuel terminals to blend and save B40, which will be finished during a "transition duration after government develops the required", representative Fadjar Djoko Santoso informed Reuters, without providing information.

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

Hiswana Migas, the fuel retailers' association, did not instantly react to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be carried out slowly, which biodiesel producers are prepared to supply the higher mix.

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

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

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

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

FUNDING CHALLENGES

For the federal government, funding the greater mix could likewise be a challenge as palm oil now costs around $400 per metric ton more than petroleum. Indonesia uses earnings from palm oil export levies, managed by an agency called BPDPKS, to cover such gaps.

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

However, the palm oil industry would object to a levy hike, stated Tauhid Ahmad, a senior expert 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 implemented, the aid will increase. Where will (the cash) come from?" he said.

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

"The execution might be sluggish and steady in 2025 and probably more hectic in 2026," he said.

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