Indonesia insists B40 biodiesel execution to continue on Jan. 1

Industry participants looking for phase-in duration expect gradual introduction

Industry deals with technical challenges and cost issues

Government funding problems emerge due to palm oil cost variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has actually fuelled concerns it might curb international palm oil products, looks increasingly likely to be carried out slowly, experts said, as market individuals look for a phase-in period.

Indonesia, the world's most significant 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 triggered a dive in palm futures and may pressure rates further in 2025.

While the government of President Prabowo Subianto has said repeatedly the plan is on track for complete launch in the brand-new year, industry watchers say costs and technical challenges are most likely to result in partial execution before full adoption across the sprawling archipelago.

Indonesia's most significant fuel seller, state-owned Pertamina, said it requires to customize a few of its fuel terminals to blend and store B40, which will be finished during a "transition duration after government develops the required", spokesperson Fadjar Djoko Santoso informed Reuters, without offering details.

During a conference with government officials and biodiesel producers recently, fuel merchants requested a two-month shift period, Ernest Gunawan, secretary general of biofuel producers association APROBI, who remained in presence, told Reuters.

Hiswana Migas, the fuel merchants' association, did not right away react to a demand for comment.

Energy ministry senior main Eniya Listiani Dewi informed Reuters the required hike would not be executed slowly, and that biodiesel manufacturers are ready to provide the higher blend.

"I have validated 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, stated the government has not provided allowances for producers to sell to fuel sellers, which it usually has done by this time of the year.

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

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 initial estimate of 16 million kilolitres.

FUNDING CHALLENGES

For the federal government, funding the greater blend could likewise be a challenge as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia uses proceeds from palm oil export levies, handled by an agency called BPDPKS, to cover such spaces.

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, speculation that a levy hike looms.

However, the palm oil industry would challenge a levy walking, said Tauhid Ahmad, a senior expert with think-tank INDEF, as it would injure the industry, consisting of palm smallholders.

"I think there will be a hold-up, since if it is carried out, the subsidy 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 execution may be sluggish and steady in 2025 and most likely 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 attain energy self-sufficiency and cut $20 billion of yearly fuel imports. ($1 = 16,035.0000 rupiah) (Reporting by Bernadette Christina