The government has added the power-generation industry to a list of industries eligible for cheap gas, a nonfiscal incentive intended to improve the competitiveness of the country’s key industries
he government has added the power-generation industry to a list of industries eligible for cheap gas, a nonfiscal incentive intended to improve the competitiveness of the country’s key industries.
The Energy and Mineral Resources Ministry issued on April 6 Regulation No. 10/2020, which stipulates that state electricity firm PLN and independent power producers (IPPs) can buy gas at US$6 per million British thermal unit (mmbtu), below the market average of $8 per mmbtu.
The incentive, which has also been given to nearly 200 companies engaged in key industries, is subject to ministerial approval on a case-by-case basis.
Energy ministry spokesman Agung Pribadi said on Monday that the government would slash nontax state revenue from upstream and midstream gas operations to reduce gas prices.
“The price adjustment will not affect contractors’ income,” he said in reference to upstream oil and gas companies.
He gave an assurance that Indonesia’s largest midstream gas player, Perusahaan Negara Gas (PGN), a subsidiary of state-owned energy giant Pertamina, would also receive “proportional incentives” in reducing gas distribution costs.
Indonesia plans to launch 8,823 megawatts (MW) worth of new power plants this year. Of the total, gas-fired power plants will account for 42.9 percent and coal-fired power plants will account for 49.6 percent.
While PLN has been waiting for the incentive to enable it to production costs, upstream and midstream gas players have expressed concern over the impact of such a plan on their respective balance sheets, even with compensation.
“If PLN can receive lower gas prices, government subsidies to PLN can be reduced and this can benefit other sectors,” said PLN strategic procurement 2 director Djoko Rahardjo Abumanan in January, when the government was still deliberating the electricity company’s inclusion in the gas incentive.
Meanwhile, PGN president director Gigih Prakoso told the House of Representatives during a virtual hearing on April 24 that the company was still crunching numbers related to the incentive.
“We are calculating the potential economic losses for PGN. This will be our basis to request government compensation,” he said.
Gigih said the company, on average, sold industrial gas at $8.4 per mmbtu, which comprised $6 in revenue costs and $2.4 in profit. Pushing down selling prices to $6 per mmbtu meant the publicly listed company needed compensation to maintain profit margins.
Prior to power producers, the government approved earlier 197 companies from seven industries to receive such cheap gas. The industries are those related to rubber gloves, ceramics, glass, steel, fertilizer, petrochemicals and oleochemicals.
Finance Minister Sri Mulyani Indrawati, concerned over the fiscal incentive’s effect on overall state revenue, moved last month to tighten eligibility requirements for recipients of such cheap gas. Initially, as many as 770 companies were proposed as recipients.
The Energy and Mineral Resources Ministry’s commitment that upstream oil and gas producers’ incomes would not be affected by the incentive was welcomed by the Indonesian Petroleum Association (IPA), the members of which include many top gas producers such as BP, Premier Oil and ConocoPhillips.
“What we want to know is the mechanism to lower prices, because we believe that an improper mechanism will affect oil and gas companies’ incomes,” said IPA executive director Marjolijn Wajong.
The Upstream Oil and Gas Regulatory Special Task Force’s (SKKMigas) deputy for finance and monetization, Arief Handoko, said two weeks ago that his team was drafting a guideline on calculating the deductions for relevant companies.
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