I

n recent weeks a former minister for state owned enterprises (SOE), Dahlan Iskan, has been involved in a number of investigations relating to government owned companies during his tenure as president director of state electricity company (PLN).

From my view Dahlan, and the gas purchasing system he empowered at PLN, is a hero of the modern day domestic gas market.

Prior to Dahlan'€™s installation at PLN, the gas price paid by PLN, and industry in general, was limited to approximately US$3.50/MMBTU while diesel oil purchases (imports) cost the Indonesian government as much as $26.00/MMBTU. PLN was/is subsidized by the government thus these increased costs were not one of PLN'€™s primary concerns in the history of the management of PLN.

Drivers of this non-commercial approach were the lack of a '€benchmark'€ price for gas and therefore increasing the risk of the generally dreaded government audit for any purchases of gas at prices higher than historic levels and the inability of the government to identify specific, long term gas supply opportunities for PLN hence inhibiting energy planning with gas that could potentially justify a higher price for gas.

As a businessman from the private sector, Dahlan quickly identified this opportunity to save costs, including much needed foreign exchange, for the government and in the face of bureaucratic resistance; increased audit risk; and influence from the diesel oil lobby, Dahlan initiated a program to use as much gas as possible to displace diesel oil shortly after his appointment as president director of PLN in 2009.

The results of this commercial paradigm are dramatic. For the 2005 to 2009 period gas demand by PLN increased at a rate of 5 percent as compared to with a growth rate of 15 percent for the period 2009 to 2014.

This recognition of the inherent commercial value of gas in displacing diesel oil resulted in a cumulative savings, 2009 to 2014, of between Rp 28 trillion (US$2.1 billion at an exchange rate of Rp 13,200 per US dollar) and Rp 41 trillion, depending on one'€™s opinion of the savings attributable to Dahlan.

The initiative can also be credited with reduction in CO2 equivalent emissions of between 3.7 and 10.9 million tons.

Finally, these estimated benefits do not account for the '€œknock on'€ effect as corollary gas demand increases in the industrial sector, facilitated by this gas pricing leadership of PLN, helped unlock a backlog of gas supply waiting economic terms for development.

To provide some comfort with the veracity of this analysis, I was involved in the first international standard gas supply and sales agreements in Indonesia with PLN, state gas distributor PGN and state fertilizer company PT Petrokimia Gresik in 1990 and also conducted the Small Scale LNG Screening Study for Eastern Indonesia for PLN in 2011, the later being the only study commissioned by, conducted for and paid for by for PLN.

In October 1995 at the Indonesian Petroleum Association (IPA) convention, I presented a paper that indicated a potential annual savings through the displacement of petroleum fuels by gas of $450 million.

As petroleum fuels were subsidized at the time, and for nearly two decades thereafter, there was scant awareness or concern for the potential general interest savings to Indonesia.

However, for me as a supporter of the gas value chain and the capturing of '€œlow hanging fruits'€, the displacement diesel oil remained a key focal point throughout the studies conducted by PT Pandawa Consultama Sejati for various clients seeking support in understanding gas utilization in the past two decades.

Attendant with Indonesia'€™s drive to participate and lead the globalization process will be a dilemma of bureaucratic compliance versus commercial initiative.

The need for a broader economic foundation will drive decentralization and require the institutional system to understand 50 shades of grey in commercial endeavors.

The now fairytale stories of Apple (Steve Jobs) and OrbitX/Telsa (Elon Musk), both eccentric innovators, and, many more modest examples, will need a dramatic increase in support to be replicated in the Indonesian context.

Dahlan'€™s efforts provided a catalyst for this modern day journey of enlightenment in the domestic gas sector.
___________________________

The initiative can also be credited with a reduction in CO2 equivalent emissions of between 3.7 and 10.9 million tons.
_________________________________

The writer is a technical advisor for oil and gas consultant company PT Pandawa Consultama Sejati, Jakarta. The views expressed are his own.