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Businesses in doubt over gas incentives
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The crash of world oil prices, from a sustained US$100 plus per barrel to around $30 to 40 per barrel, has brought serious challenges for the national upstream oil and gas business. (shutterstock/-)
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atural gas buyers seem to be torn between ecstatic and pessimistic over the government’s ability to successfully implement a plan that aims to peg natural gas prices for selected sectors at below US$6 per million British thermal units (mmbtu) starting next year.
In an effort to slash the stubbornly high gas prices, President Joko “Jokowi” Widodo issued in May Presidential Regulation (Perpres) No. 40/2016 on natural gas pricing. The Perpres was part of the third economic stimulus package launched in October last year.
Two months later, the Energy and Mineral Resources Ministry issued a new regulation stating that the minister could lower prices for certain industries by a maximum of $2 per 1 mmbtu if gas prices were higher than $6 per mmbtu.
Currently, only seven industries enjoy the lower gas prices, but the government plans to add three other sectors — pulp and paper, food and beverages and textiles — to the list.
President Jokowi also recently expressed his commitment to make sure the 10 industrial sectors and one industrial zone enjoy such an incentive starting January next year.
Head of the Forum for Natural Gas-Using Industries (FIPGB), Achmad Safiun, is optimistic about the feasibility of the plan.
Maintaining gas prices at below $6 per mmbtu, he said, would help local players expand their operations as the current high prices had led to decreased global market shares due to the high percentage natural gas makes up in production costs.
“For example, in the production costs of some metals, energy-use makes up 15 percent of the production costs. So if you decrease the gas price from $9 per mmbtu to $5, you can see that production costs will drop significantly,” he said on Thursday.
Indonesia’s gas prices hover around $9 per mmbtu, higher than most of its Southeast Asian neighbors. Both Malaysia and Singapore, for example, sell gas at around $4 per mmbtu.
The government has long been trying to lower gas prices to boost income tax through improved industrial productivity.
Industry Minister Airlangga Hartarto said the economic benefit of lowered gas prices could reach Rp 32 trillion ($2.46 billion) if prices were cut to $4 per mmbtu, with an additional distribution and transmission cost of $1.5 to $2.
The 10 sectors that will enjoy the gas price cut, which also include fertilizer, petrochemical, stainless steel, ceramic, glass, oleochemical and glove industries, contributed around Rp 1,200 trillion, or 10 percent of the gross domestic product (GDP). The price cut is expected to increase their contribution to GDP as costs fall.
The Indonesian Chamber of Commerce and Industry’s (Kadin) deputy chairman of the upstream and petrochemical field, Ahmad Wijaya, said a price cut is essential if the government is serious about transforming the role of natural gas from a revenue maker to an industry booster.
Indonesian Textiles Association (API) chairman Ade Sudrajat, however, was pessimistic over the plan’s ability to lower gas prices. He argued that the authority to cut gas prices lays in existing regulations on corporations as a majority of gas suppliers are companies that have gone public.
“The firms are also monitored by Bappebti [the Futures Exchange Supervisory Board] and others. It will not be easy for the government to intervene unless a holding [company] is established,” he said.
Meanwhile, the Energy and Mineral Resources Ministry plans to change the fixed price system, which is based on future gas sales and purchase agreements (PJBG), with a “hybrid” system that would consider the fluctuation of global oil prices to determine gas prices.
The ministry’s director for oil and gas, Agus Cahyono Adi, said the fixed scheme is one of the main reasons why gas prices remain high in the country despite being low globally.
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