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

Industry participants looking for phase-in duration anticipate gradual intro

Industry deals with technical difficulties and cost issues

Government funding problems develop due to palm oil rate variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel required from Jan. 1, which has actually fuelled issues it could suppress worldwide palm oil supplies, looks significantly most likely to be implemented slowly, experts said, as market participants seek a phase-in duration.

Indonesia, the world's most significant manufacturer and exporter of palm oil, prepares to raise the compulsory mix of palm oil in biodiesel to 40% - called B40 - from 35%, a policy that has actually activated a jump in palm futures and might push costs further in 2025.

While the federal government of President Prabowo Subianto has stated consistently the plan is on track for complete launch in the brand-new year, market watchers state costs and technical obstacles are likely to lead to partial execution before complete adoption across the sprawling archipelago.

Indonesia's greatest fuel merchant, state-owned Pertamina, said it requires to customize some of its fuel terminals to blend and store B40, which will be completed during a "transition duration after government establishes the required", spokesperson Fadjar Djoko Santoso informed Reuters, without offering information.

During a conference with federal government officials and biodiesel producers recently, fuel sellers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel producers association APROBI, who was in presence, informed Reuters.

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

Energy ministry senior main Eniya Listiani Dewi told Reuters the mandate walking would not be carried out gradually, and that biodiesel manufacturers are prepared to provide the greater mix.

"I have verified the readiness with all manufacturers recently," she stated.

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

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

The government prepares 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, moneying the higher blend could also be an obstacle as palm oil now costs around $400 per metric heap more than unrefined oil. Indonesia uses earnings from palm oil export levies, handled by an agency called BPDPKS, to cover such gaps.

In November, BPDPKS approximated 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 walking is imminent.

However, the palm oil industry would challenge a levy walking, stated Tauhid Ahmad, a senior analyst with think-tank INDEF, as it would hurt the industry, including palm smallholders.

"I think there will be a hold-up, due to the fact that if it is implemented, the subsidy will increase. Where will (the cash) come from?" he stated.

Nagaraj Meda, managing director of Transgraph Consulting, a product consultancy, said B40 execution would be in 2025.

"The execution might be sluggish and progressive in 2025 and most likely more hectic in 2026," he said.

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