T

he government has been unable to find a solution that will see a reduction in end-user natural gas prices to below US$6 per million British thermal units (mmbtu), as President Joko “Jokowi” Widodo’s deadline looms closer.

Jokowi earlier this month ordered his Cabinet to slash natural gas prices for 10 industrial sectors and one industrial zone starting next year. The average price of $8.30 per mmbtu has been deemed too high by gas users and an obstacle for a country trying to boost its industrial sector.

Currently, only seven industries enjoy the lower gas prices, but the government plans to add pulp and paper, food and beverages, and textiles to the list.

The Energy and Mineral Resources Ministry’s director general of oil and gas, IGN Wiratmaja Puja, said on Monday that the average selling price in the gas upstream sector is $5.90 per mmbtu, made up of capital and operational expenditures — which are claimed as cost recovery — contractor share and non-tax and tax revenues.

Transmission and distribution fees of around $2.46 per thousand standard cubic feet are also added before arriving at the end-user.

Wiratmaja said that it was possible for the government to reduce cost recovery through increased operational efficiencies in existing contracts, while the government hopes that capital expenditure can also be slashed for projects that do not yet have signed contracts.

“We cannot create efficiencies in projects for which the capital expenditure has already been paid, we can only try to minimize operational expenditure in them. Furthermore, we will leave the contractor share, as we must respect the contracts,” Wiratmaja said.

Another option was to cut non-tax and tax revenues from the upstream gas sector. If only the non-tax revenues are erased, upstream gas prices can be lowered to $5.01 per mmbtu, while removing both non-tax and tax revenues can result in prices of around $3.82 per mmbtu. However, revoking both could result in state losses of around $1.26 billion per year.

“We have to discuss both non-tax and tax revenues further with the Finance Ministry,” he said.

The government has long wanted to reduce gas prices to boost income tax through improved industrial productivity. The economic benefits of lower gas prices could amount to Rp 32 trillion (US$2.46 billion) if prices are cut to $4 per mmbtu, with an additional distribution and transmission cost of $1.5 to $2, said Industry Minister Airlangga Hartato.

The 10 sectors that will enjoy the gas price cut — which include fertilizer, petrochemical, stainless steel, ceramic, glass, oleochemical and latex production — contribute around Rp 1.2 quadrillion, 10 percent of GDP. The price cuts are expected to boost their contribution to GDP as costs fall.

Meanwhile, state-owned fertilizer producer Pupuk Indonesia was hopeful that the government could slash gas prices as this would greatly benefit the agriculture sector.

“This policy is perfectly timed as we are currently experiencing difficulties as a result of a drop in competitiveness caused by high gas-related production costs,” president director Aas Asikin Idat said, adding that if gas prices remained unchanged, the company would most likely have to reduce production.