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

Industry individuals seeking phase-in period expect gradual intro

Industry faces technical obstacles and cost concerns

Government funding issues develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's plan to expand its biodiesel mandate from Jan. 1, which has fuelled issues it could curb worldwide palm oil materials, looks significantly most likely to be implemented gradually, experts said, as industry individuals seek a phase-in period.

Indonesia, the world's greatest producer 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 actually activated a jump in palm futures and may push costs further in 2025.

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

Indonesia's biggest fuel seller, state-owned Pertamina, said it requires to modify some of its fuel terminals to blend and store B40, which will be finished throughout a "shift period after federal government establishes the required", spokesperson Fadjar Djoko Santoso told Reuters, without providing information.

During a meeting with federal government officials and biodiesel producers last week, fuel merchants requested a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in attendance, told Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the required hike would not be implemented gradually, and that biodiesel manufacturers are all set to provide the greater blend.

"I have verified the readiness with all producers last week," 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 released allocations for manufacturers to sell to fuel merchants, which it usually has actually done by this time of the year.

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

The government plans to assign 15.62 million kilolitres (4.13 billion gallons) of FAME for B40 in 2025, Eniya informed Reuters, less than its initial estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher mix could also be a challenge as palm oil now costs around $400 per metric heap more than crude oil. Indonesia uses profits from palm oil export levies, managed by a company called BPDPKS, to cover such spaces.

In November, BPDPKS estimated it needed 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 is imminent.

However, the palm oil industry would object to a levy walking, said Tauhid Ahmad, a with think-tank INDEF, as it would hurt the industry, including palm smallholders.

"I believe there will be a hold-up, due to the fact that if it is implemented, the aid will increase. Where will (the cash) originate from?" he said.

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

"The application might be slow and steady in 2025 and probably more hectic in 2026," he stated.

Prabowo, who took office in October, campaigned on a platform to raise the mandate even more to B50 or B60 to attain energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina