T

he Energy and Mineral Resources Ministry decided to resume renegotiating of the price of liquefied natural gas (LNG) from the Tangguh LNG plant in Papua sold to Fujian province in China next year.

The ministry’s director general for oil and gas, Evita Herawati Legowo, said that the government would establish a renegotiation team by the end of this year. In 2008, a similar team had been assembled, but negotiations were going nowhere.

“We have prepared the team, but it has not been made official. We need a new team because the tenure of the old team has ended. We’ll begin the renegotiation in 2012,” she told reporters on the sidelines of a hearing session with House of Representatives Commission VII overseeing energy in Jakarta on Wednesday.

Responding to state oil and gas firm PT Pertamina’s plan to buy the LNG for three times higher than the current price, Evita said that it would become additional ammunition for the government in the renegotiation process.

“But Pertamina can only execute the plan after the renegotiation,” she said.

Tangguh is a massive project exploiting gas fields in the Bintuni Bay area of Papua, where a total of 14.4 trillion cubic feet of proven gas reserves have been identified.

In 2002, the administration of then President Megawati Sukarnoputri signed a deal to supply 2.6 million tons per annum (mtpa) of LNG from Tangguh to China’s Fujian province, in a contract that drew heated criticism over the low prices.

Under the contract, the price of LNG was pegged at US$2.40 per million British thermal units (mmbtu), regardless of increases in crude oil prices.

In 2006, the price was revised to $3.4 per mmbtu, but the government was still unsatisfied with the deal and aimed for higher prices.

An energy expert from the ReforMiner Institute, Pri Agung Rakhmanto, said that to get a fairer price, the new price should not be capped at certain amount, but allowed to fluctuate with the movement of crude oil prices.

“So the best way is not to change the price, but the formula to determine the price itself. The fluctuation of the crude oil price has to be taken into account,” he told The Jakarta Post via text message.

Regarding the government’s chances in the renegotiation process, Pri Agung argued that it depended on the government’s skill. “But, according to the contract, renegotiation is basically possible,” he said.

Satya W. Yudha, a legislator on Commission VII from the Golkar Party, said that the renegotiation might influence relations between Indonesia and China, therefore it should be conducted with a government-to-government approach rather than business-to-business.

He agreed with Pri Agung that the new price formula had to take into account the fluctuation of the crude oil price.

“By including the crude oil price, the LNG price will be fairer for both the gas producer and the buyer,” he said.

Learning from experience, the government should also closely supervise the work of the renegotiation team, Satya said.