Industry minister backs demand for gas price review

The Industry Ministry, representing the interests of Indonesian manufacturers, has demanded state-owned PT Perusahaan Gas Negara (PGN) review its decision to raise domestic prices by 50 percent.

Industry Minister MS Hidayat said he would facilitate a meeting scheduled for next week, involving representatives of gas-using industries and PGN’s board of directors in order to find a solution to disagreements on pricing.

“First of all, I’ll meet Energy and Mineral Resources Minster [Jero Wacik] to discuss the gas supply for industry from the upstream perspective. Then we’ll gather representatives of all gas-using industries. I believe that solutions will be found in the near future,” he told reporters after meeting PGN president director Hendi Priyo Santoso at the ministry in Jakarta on Thursday.

Hidayat said he would also raise the issue of supply certainty, which has long been one of the major concerns for industry. He hoped that the upstream oil and gas authority which supervises oil and gas contractors could join the meeting.

PGN has increased prices for customers in West Java from an average of US$6.80 per million British thermal units (Btu) to $10.20 after it renewed contracts with South Sumatran suppliers ConocoPhillips and Pertamina EP.

Under the new contracts, PGN pays $5.60 per million Btu for gas from the Grissik field in the Corridor block, operated by ConocoPhillips, up 202 percent from $1.85. The price will increase to $6.50 per million Btu in 2014. The price of gas from the Pagardewa field, operated by Pertamina EP, has also been increased to $5.50 per million Btu, up 150 percent from $2.20.

The Indonesian Employers Association (Apindo) claimed that the price increase would increase production costs by between 20 and 30 percent.

Apindo and 30 other industry associations have written to President Susilo Bambang Yudhoyono demanding that the increase in prices be phased in, starting with 15 percent in July and by 11 percent thereafter every six months to 2014.

When asked about the industries’ proposal, Hendi declined to comment, saying that the company still had to consult with other stakeholders.

“I can’t give any information for now. In the meeting with Minster Hidayat, we talked about many things related to gas allocation for industry,” he said.

The Energy and Mineral Resources Ministry’s oil and gas chief, Evita Herawati Legowo, said the increased prices might be revised.

Domestic businesses currently receive 565 billion Btu a day, about 65 percent of the 863 billion Btu a day needed.

To tackle the shortfall, Hidayat said he would back up the gas-using industries’ requests to revise the 2010 ministerial regulation on gas allocation for domestic purposes which put them last in priority to receive gas after oil and gas production activities, fertilizer producers and electricity generation.

“Industry is very important for our economy. It is the backbone of economic growth. Its contributions to our gross domestic product [GDP] and in creating jobs are very significant; therefore, the current regulation has to be revised,” he said.

He argued that industry must be on the same level as fertilizer producers.