Indonesia insists B40 biodiesel application to proceed on Jan. 1

Industry participants seeking phase-in period anticipate gradual intro

Industry deals with technical obstacles and cost issues

Government funding concerns occur due to palm oil cost variation

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

Indonesia, the world's most significant producer and exporter of palm oil, prepares 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 prices even more in 2025.

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

Indonesia's greatest fuel retailer, state-owned Pertamina, said it requires to modify some of its fuel terminals to mix and keep B40, which will be finished throughout a "transition duration after government develops the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without supplying information.

During a conference with federal government officials and biodiesel producers last week, fuel retailers requested a two-month transition duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in participation, informed Reuters.

Hiswana Migas, the fuel merchants' association, did not right away respond to an ask for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be implemented slowly, which biodiesel manufacturers are ready to provide the greater mix.

"I have actually confirmed the preparedness with all producers last week," she stated.

APROBI, whose members make fat methyl ester (FAME) from palm oil to be blended with diesel fuel, stated the federal government has not released allotments for producers to sell to sustain retailers, which it usually has actually 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 told Reuters. "Fuel business can only 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 informed Reuters, less than its preliminary quote of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the higher blend could also be a difficulty as palm oil now costs around $400 per metric lot more than unrefined oil. Indonesia uses proceeds from palm oil export levies, managed by a firm called BPDPKS, to cover such gaps.

In November, BPDPKS approximated it required a 68% increase in aids to 47 trillion rupiah ($2.93 billion) next year and approximated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy hike is imminent.

However, the palm oil industry would object to a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would injure the market, consisting of palm smallholders.

"I believe there will be a hold-up, because if it is implemented, the subsidy will increase. Where will (the money) come from?" he said.

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

"The application might be sluggish and gradual in 2025 and probably more busy 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 annual fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina