T

he Energy and Mineral Resources Ministry has thrown in the towel on its efforts to realize President Joko “Jokowi” Widodo’s ambition to significantly lower gas prices for domestic industries.

The ministry was previously tasked to cut gas prices for petrochemical, fertilizer, steel, oleochemical, glass, ceramics and rubber gloves manufacturers to below US$6 per million British thermal units (mmbtu) in order to create a multiplier effect in the industrial sector.

In response, the ministry issued in November 2016 Presidential Regulation No. 40/2016, which sets a new price formula for gas supplied by various upstream producers to eight companies from three industries; five dealing in fertilizers, one in steel and two in petrochemicals.

These companies now enjoy gas prices of $6 per mmbtu or less.

The ministry then promised to issue a follow-up regulation in order to provide further price cuts for other industry players. However, as of today, that promise has yet to be delivered.

Deputy Energy and Mineral Resources Minister Arcandra Tahar said his side was still discussing the matter with other relevant ministries, including the Office of the Coordinating Economic Minister. Nonetheless, he said the price cut for other industrial players might not be as significant as initially expected.

“By sacrificing the government’s non-tax state revenue [PNBP] we might only be able to cut gas prices by 70 cents to 80 cents per mmbtu,” Arcandra said.

In 2017, the Industry Ministry gave its recommendation to the Energy and Mineral Resources Ministry on the name of 86 companies in petrochemical, glass, ceramics, steel and fertilizer industries that, the former claimed, deserved to enjoy a reduced price for gas. Six were already included in Presidential Regulation
No. 40/2016.

The Energy and Mineral Resources Ministry then made a price cut simulation for 77 industrial gas users, in which it reduced the government’s PNBP collection by $4.3 million per year in the upstream sector and slashed distribution costs in the midstream sector. As a result, gas prices still hovered above $6 per mmbtu, even with such efforts.

For instance, the upstream price of gas supplied by Ellipse Energy to 56 industry players would only fall by 9.78 percent to $6.27 per mmbtu. Meanwhile, the price of gas supplied by state-owned energy giant Pertamina from the West Madura Offshore block to 12 industry players would decrease by 11.2 percent to $7.15 per mmbtu.

Furthermore, the price of gas supplied by Pertamina from its blocks in West Java to eight industry players would drop 9.7 percent to $6.46 per mmbtu.

The price of gas supplied from Pertamina’s Asset 4 areas, which covers East Java, Central Java and Central Sulawesi, to one industry player would stand at $7.37 per mmbtu, down 10.12 percent.

Arcandra said gas fields in the country had different characteristics. Each upstream contractor, therefore, faces different challenges, resulting in the varied prices of gas.

“Some fields are able to sell gas with a price of only $3 per mmbtu, but for others, the price can reach $9 to $10 per mmbtu,” he said.

“We could abuse our power and force upstream contractors to revoke their contracts and sign new ones. By doing so, we might be able to ‘win’ now, but we would certainly lose in the future.”

Komaidi Notonegoro, executive director of Jakarta-based energy think tank ReforMiner Institute, said it was natural to see the government fail to meet its target to lower industrial gas prices to below $6 per mmbtu, particularly because of the high cost of developing Indonesia’s mature, depleted gas fields.

“Even if the government is able to do so, it may not create a multiplier effect in the industrial sector, because gas prices are not the only factors that determine competitiveness. Raw materials, which are mostly imported, also play a big role,” Komaidi said.