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Jakarta Post

More companies sign deals to secure gas discounts

  • Norman Harsono
    Norman Harsono

    The Jakarta Post

Jakarta   /   Fri, June 5, 2020   /   07:46 am
More companies sign deals to secure gas discounts Energy mover: A technician of state-owned gas company PGN inspects gas pipelines at the company’s Pasar IX metering and regulating station (MRS) in Medan, North Sumatra, on Tuesday. (Antara/Irsan Mulyadi)

Seven more companies have signed deals with gas producers to receive gas at subsidized prices following similar agreements with 11 companies in May, as the government seeks to boost Indonesia's manufacturing sector amid the COVID-19 pandemic.

The companies, consisting of a fertilizer maker and six gas distributors, signed letters of agreement (LoA) on Wednesday to secure 231.2 billion British thermal units per day (bbtud) of gas, according to the Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas).

“These agreements provide legal and investment certainty over adjusted gas prices following the issuance of several ESDM regulations,” SKK Migas head Dwi Soetjipto said in a statement, referring to the Energy and Mineral Resources (ESDM) Ministry.

The companies are set to receive gas that is priced below the domestic market average of US$8 per million British thermal unit (mmbtu).

Read also: 11 companies sign deals to buy gas at lower prices

For end users, the gas is priced at $6 per mmbtu, while the price is around $4 per mmbtu for distributors, which will resell the gas at $6 per mmbtu.

The move is part of the energy ministry’s plan to provide 1,188 bbutd of subsidized gas for 197 manufacturers to spur growth in Indonesia’s manufacturing sector, which makes up one-fifth of the country’s gross domestic product (GDP).

The manufacturers, which include gas-intensive industries such as producers of fertilizer and steel, are slated to receive the cheap gas from 2020 to 2024.

According to Wednesday’s signing event, fertilizer maker PT Petrokimia Gresik is to receive the largest share of gas, at 42.4 percent, while national gas distributor PGN and its subsidiaries are slated to receive the second-largest share at 28 percent.

Wijaya Laksana, spokesman of fertilizer holding company Pupuk Indonesia, which owns Petrokimia Gresik, told the Post on Thursday that two other subsidiaries were “still undergoing the process” to receive the gas, despite being among the eleven that signed deals the previous month.

The large-scale social restrictions (PSBB) enforced by the government to contain the COVID-19 pandemic have affected the productivity of the manufacturing industry, as factories have to limit the number of on-site workers to allow for physical distancing.

Read also: Explainer: What does the oil price crash mean for Indonesia?

Indonesia’s Purchasing Managers Index (PMI), a gauge of the nation’s manufacturing activities, hit 28.6 points in May, rebounding from 27.5 the previous month, but still far below the 50-point benchmark that indicates growth, market consultancy IHS Markit announced on Monday.

Meanwhile, Johnny Darmawan, vice chairman for industrial affairs at the Indonesian Chamber of Commerce and Industry (Kadin), pointed out that the incentive for cheap gas had yet to be enjoyed by the companies.

Johnny had a meeting earlier this week with officials from the Industry Ministry as well as business players from Kadin and the Indonesian Employers Association (Apindo).

“There are still many companies that have signed agreements but have not received the incentive,” he told The Jakarta Post by phone on Thursday.

PGN, in a separate statement on Wednesday, said it planned to distribute the below-market-price gas to industries and gas-fired power plants in Sumatra, Java and the Riau Islands.

Read also: Pertamina, PGN cut revenue targets as weak rupiah, lockdown severely hurt businesses

“We are confident that, as industries will receive gas at prices lower than before, this will have a positive impact on the domestic industry’s competitiveness,” said PGN president director Suko Hartono.

The company is slated to distribute the largest chunk of gas, 35 bbtud, to power plants in West Java, which is Indonesia’s industrial heartland.