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Jakarta Post

11 companies sign deals to buy gas at lower prices

  • Norman Harsono

    The Jakarta Post

Jakarta   /   Tue, May 26, 2020   /   01:40 pm
11 companies sign deals to buy gas at lower prices Two workers of state-owned gas company Perusahaan Gas Negara (PGN) check gas at a gas meter station in Tambak Lorok, Semarang, Central Java, in the file photo. (JP/Suherdjoko)

Eleven companies have signed agreements with gas producers to buy cheap natural gas as part of the government’s incentive to boost Indonesia’s economic growth.

Four manufacturers and seven gas distributors will, respectively, purchase gas at US$6 per million British thermal unit (mmbtu) and $4 per mmbtu directly from oil and gas fields. The distributors will then resell the gas at $6 per mmbtu to manufacturers located farther away from the source.

The 11 companies will receive over 330 billion British thermal units per day (bbtud) worth of cheap gas, over half of which will be distributed to two subsidiaries of state-owned fertilizer producer PT Pupuk Indonesia, PT Pupuk Sriwidjaja and PT Pupuk Kujang Cikampek, the Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas)  announced on May 20.

Pupuk Indonesia spokesman Wijaya Laksana said Pupuk Sriwidjaka and Pupuk Kujang were working with the government to complete the administrative procedures for securing the cheap gas.

“We have no problems. We will follow the existing mechanisms,” he told The Jakarta Post on Monday

The Energy and Mineral Resources (ESDM) Ministry previously laid out plans to provide 1,188 bbtud worth of cheap gas for 197 manufacturers in spurring Indonesia’s manufacturing sector growth, which makes up one-fifth of the country’s gross domestic product (GDP).

Indonesia’s Purchasing Managers Index (PMI), a gauge of the nation’s manufacturing activities, fell to 27.5 from 45.3 recorded in March, the worst decline in the survey's nine-year history, market consultancy IHS Markit announced earlier this month. A number above 50 reflects an expansion and below 50 indicates contraction.

The manufacturers, which include seven gas-intensive industries such as fertilizer- and steel-making, are slated to receive the cheap gas from 2020 to 2024. The manufacturers are eligible to buy gas at $6 per mmbtu, below the market average $8 per mmbtu.

“For the remaining volume, we are finalizing agreements [with] buyers and sellers,” said SKK Migas head Dwi Soetjipto on Wednesday, reassuring that the incentive’s mechanism would not affect gas producers’ incomes.

The cheap gas incentive works by cutting state-owned tax revenue (PNBP) in the upstream oil and gas industry.

A representative from the Indonesian Petroleum Association (IPA), which groups major gas producers in the country, told the Post on Monday that members had held talks with SKK Migas over the incentive’s mechanism.

“Basically, the mechanism is already quite good; it does not reduce oil and gas companies’ revenues and for that reason, companies have to work closer with SKK Migas on the details,” said IPA executive director Marjolijn Wajong.

Gas distributor PGN signed an agreement with national gas producer Pertamina EP — one of Indonesia’s major gas producers — on May 20 to purchase gas at $4 per mmbtu, down from the usual $5.33 per mmbtu price tag.

PGN, which is Indonesia’s largest gas distributor, plans to sell the gas to industrial clients in South Sumatra, West Java and North Sumatra. PGN will distribute 90 bbtud to South Sumatra and West Java and 7 bbtud to North Sumatra until 2024. West Java province is the company’s biggest consumer of industrial gas.

“The period of this adjusted gas price may be extended, depending on the government’s decision,” said PGN commercial director Fariz Aziz in a statement issued following the agreement’s signing.

According to the government’s cost-benefit analysis, the incentive would cost the government Rp 121.78 trillion ($804.31 million) in forgone non-tax state revenue but generate Rp 125.03 trillion from energy subsidy savings.

Based on these estimates, the government will receive a net income of Rp 3.25 trillion from the cheap gas incentives, said Energy and Mineral Resources Minister Arifin Tasrif.