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Jakarta Post

PGN signs deal with two fertilizer producers for cheap gas

  • Norman Harsono

    The Jakarta Post

Jakarta   /   Tue, September 1, 2020   /   06:58 pm
PGN signs deal with two fertilizer producers for cheap gas Headquarters of state-owned gas holding company PGN (Courtesy of/State-owned gas subholding company PGN )

Two of Indonesia’s biggest fertilizer producers have signed deals to receive cheap natural gas as part of a long-delayed government incentive to push industry growth.

PT Pupuk Kujang Cikampek and PT Pupuk Iskandar Muda (PIM), subsidiaries of fertilizer holding company PT Pupuk Indonesia, signed the deal for gas – a key ingredient in fertilizer production – with state-owned gas distributor PT Perusahaan Gas Negara (PGN) on Monday.

Under the agreement, PGN will sell gas to the two companies at US$6 per million British thermal unit (mmbtu), cheaper than the domestic market price of around $8 per mmbtu. The price adjustment has been mandated by Presidential Regulation No. 40/2016.

“This gas price adjustment completes a years-old issue over gas pricing and supplies for the fertilizer industry,” said Pupuk Indonesia president director Bakir Pasaman.

Pupuk Indonesia’s other subsidiary, PT Pupuk Sriwidjaja, had signed a similar deal in May.

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

The fertilizer producers are among more than 100 gas-hungry enterprises, including industrial heavyweights like Krakatau Steel and Unilever Indonesia, that receive cheaper gas as part of a government scheme to boost manufacturing sector growth.

Indonesia’s manufacturing sector performance hit 46.9 on IHS Markit’s monthly Manufacturing Purchasing Managers’ Index (PMI) in July, which is up eight points from 39.1 in the preceding month but still indicates a contraction (any value below 50 indicates contraction).

Read also: Indonesian manufacturers not out of the woods despite improvement

PGN said separately that it would channel 12 bbtud worth of cheap gas to Pupuk Kujang’s factory in West Java starting in the fourth quarter of this year.

“We hope, of course, that this will fulfill gas demand and add efficiency to Pupuk Kuang’s production,” said PGN commerce director Faris Azis.

Pupuk Kujang is slated to receive, overall, 102 bbtud of cheap gas this year, both from distributors and directly from the gas producer, state-owned oil and gas giant Pertamina, as per Energy and Mineral Resources Ministerial Decree No. 89/2020.

Meanwhile, PIM is slated to receive 42.7 bbtud of cheap gas for its factory in Lhokseumawe, Aceh, this year, according to the same decree.

The gas channeled to PIM will come from Aceh’s oil and gas Block A, which is operated by privately-owned PT Medco Energi Internasional.

“We hope this additional upstream gas supply can boost gas absorption,” added Fatar Yani Abdurrahman, deputy head of the Upstream Oil and Gas Special Regulatory Task Force (SKK Migas), which often speaks on behalf of gas producers in Indonesia.

The ongoing pandemic has cut deeply into domestic gas demand as PGN, the country’s biggest gas distributor, expects gas consumption to fall 3.23 percent below this year’s target of 980 bbtud, mainly as gas-using industries have slashed or halted operations.

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

Worldwide, gas consumption is expected to fall by 4 percent this year because of the pandemic, according to the International Energy Agency (IEA). The fall is double that recorded during the 2009 financial crises.

The Energy and Mineral Resources Ministry previously estimated that the cheap gas could cut fertilizer subsidy spending by Rp 7.3 trillion over the next four years, which is the decree’s lifespan, as producers reduce costs.

“We hope that, going forward, these industries' priorities are creating value-added products and [employing people],” said Energy and Mineral Resources Minister Arifin Tasrif, also on Monday.