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n response to upstream oil and gas regulator BPMigas’s request to renegotiate gas prices, state gas distributor PT PGN says that the agency should have a strong reason to justify price adjustments to avoid customer resistance.

PGN’s director for investment planning and risk management Wahid Sutopo said in Jakarta on Monday the adjustment of the gas price agreements with gas producers would consequently result in an increase in prices of gas sold to the company’s customers,

The customers would therefore need sound explanations and compensation so that they would understand, he said.

“The first thing is we have to have strong reasons. The second thing is there should be clear regulations from the government and the last thing is compensation, including additional supply,” he told reporters.

He confirmed that BPMigas had sent a letter to the company related to renegotiation of prices, especially those lower than the market price. Wahid said PGN purchased gas at a range of between US$4.8 $5.2 per British thermal unit (mmbtu).

BPMigas head Raden Priyono earlier said that as the government is the majority shareholder of PGN, the decision on whether or not to renegotiate the gas prices would be discussed with the State Enterprise Ministry and the directorate general for oil and gas at the Energy and Mineral Resources Ministry.

Priyono said that the prices of gas were still below market price and should be adjusted. “The domestic gas price currently stands at $5 per mmbtu. If PGN could renegotiate the contracts, it would be easier for the government to renegotiate other gas sales contracts,” he added.

As widely reported, pressure on the government to renegotiate so-called “irregular” gas sales contracts has re-emerged following steep increases in global oil prices over the past several months.

The contracts feature flat pricing, such as the contract governing LNG sales from the Tangguh LNG plant in Papua to China with a total volume of 2.6 million tons per annum.

No price adjustment has been made to that contract, despite rising LNG prices on the world market during the past several years.

The government signed a contract to deliver LNG to China’s Fujian province in 2002 for $2.4 per mmbtu, regardless of any increases in crude oil prices. In 2006, the price was revised to $3.4 per mmbtu, which critics said was still too low.

Indonesia is the world’s third largest LNG producer, exporting most of its output to Japan, South Korea and Taiwan. Nearly half of the gas produced in Indonesia in 2010 was exported as the nation lacked proper storage and distribution infrastructure.

Three floating storage and re-gasification units (FSRU) in North Sumatra, West Java and Central Java are scheduled to start operation in 2012 and 2013 to address domestic gas shortfalls.

PGN even plans to build another floating receiving terminal in the Sunda Strait, located between Sumatra and Java, to supply gas to state steel maker PT Krakatau Steel.

PGN currently operates more than 5,800 kilometers of transmission and distribution pipeline networks across Indonesia.