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

Industry participants looking for phase-in period expect steady introduction

Industry deals with technical challenges and expense issues

Government financing issues develop due to palm oil price variation

JAKARTA, Dec 18 (Reuters) - Indonesia's strategy to expand its biodiesel mandate from Jan. 1, which has sustained concerns it could suppress worldwide palm oil supplies, looks increasingly likely to be executed gradually, experts stated, as industry participants seek a phase-in duration.

Indonesia, the world's biggest 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 may press prices even more in 2025.

While the federal government of President Prabowo Subianto has actually said consistently the strategy is on track for complete launch in the new year, market watchers say expenses and technical obstacles are likely to result in partial implementation before complete 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 completed during a "shift period after government establishes the mandate", spokesperson Fadjar Djoko Santoso told Reuters, without supplying details.

During a meeting with government officials and biodiesel producers recently, fuel retailers asked for a two-month shift duration, Ernest Gunawan, secretary general of biofuel manufacturers association APROBI, who remained in presence, told Reuters.

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

Energy ministry senior official Eniya Listiani Dewi told Reuters the mandate hike would not be carried out slowly, and that biodiesel manufacturers are prepared to supply the greater mix.

"I have verified the readiness 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 government has not released allotments for producers to sell to sustain merchants, which it normally has actually done by this time of the year.

"We can't deliver the products without order files, and order files are gotten after we get contracts with fuel companies," Gunawan informed Reuters. "Fuel business can just sign agreements after the ministerial decree (on biodiesel allocations)."

The government plans to allocate 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 .

FUNDING CHALLENGES

For the government, moneying the higher mix could likewise be a difficulty as palm oil now costs around $400 per metric load more than petroleum. Indonesia uses proceeds from palm oil export levies, handled by an agency 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 estimated levy collection at around 21 trillion rupiah, sustaining market speculation that a levy walking is imminent.

However, the palm oil market would object to a levy hike, stated 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 delay, due to the fact that if it is implemented, the aid will increase. Where will (the money) originate from?" he stated.

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

"The application may be sluggish and steady in 2025 and most likely 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