Indonesia: Govt to Cut Gas Price for Three Industries

Indonesia: Govt to Cut Gas Price for Three Industries

The Coordinating Ministry for Maritime Affairs Luhut Binsar Pandjaitan said
the government will prioritize three industries, namely fertilizer,
petrochemical and steel, to enjoy lower natural gas prices.

"Govt has to subsidize 11 industries, but we have identified that three
industries needed it the most, namely fertilizer, petrochemical, steel and
metal, because they have huge downstream value addition," he told reporters
Tuesday at BPPT building in Jakarta.

Luhut said that natural gas price cut for the three industries shall be
based on two criteria.

First, natural lower gas prices must result in greater multiplier effects in
the downstream sector to create employment opportunities, more investment
and state revenue.

Second, it would lead to reduced prices of products consumed by end-users or
reduced state subsidy.

Luhut explained that natural gas prices in Indonesia are reasonable. He
learned that landed price in Indonesia is roughly 4.22 US dollar per MMBTU,
similar to that of China, Korea and Japan, which are within the range
4.4-4.5 US dollar per MMBTU.

However, the price of piped-gas in Indonesia is formulated based on economic
price in the upstream with stable price escalation year over year so that
natural gas prices for industry in Indonesia does not depend on global oil
prices.

As a result, natural gas prices in Indonesia are higher compared to that of
other countries when global oil prices dropped.

"Compared to Malaysia [who sold natural gas] at around 4 US dollar/MMBTU,
why is it cheaper? Apparently its government does not work on upstream
subsidies. We are currently figuring out how to emulate it," he noted.

He said that 60 percent of gas price structure in Indonesia depends on
upstream sector, 22 percent on transmission and the rest on distribution and
trade.

Therefore, the ministry will push for efficiency in the upstream,
particularly in terms of cost recovery.

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Ref:
http://en.tempo.co/read/news/2016/10/19/056813318/Govt-to-Cut-Gas-Price-for-
Three-Industries

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com