Gas Pipeline Facility (Photo credit ESDM)

JAKARTA (TheInsiderStories) – The Indonesian government’s drive to depress the price of gas sold to strategic industries, as mandated by Presidential Decree Number 40, 2016, has proven to be a serious challenge.

The decree is yet to be implemented due to a disagreement between the government and industry players (or producers) as well as the complexity of the gas distribution network to end users.

On Wednesday, the government held a meeting led by the Coordinating Minister for Economic Affairs Darmin Nasution to discuss the gas price sold to strategic industries. The meeting was held to find a satisfactory way to drive down the gas price, because since the presidential decree was issued early last year, the gas price has yet to decline, as mandated.

The presidential decree, signed by President Joko Widodo on May 3, 2016, states that the gas price sold to strategic industries is to be determined by the Minister of Energy and Mineral Resources, based on production-sharing contracts.

The gas price takes into account the commercial viability of the gas field, domestic and international gas prices, the capability of domestic consumers and value added to the industries that rely on the gas price.

Under the ruling, the price of gas sold to strategic industries is to be cut to a maximum of US$6 per MMBtu. In addition, the toll fee will also be reduced. Currently, natural gas sold to industries is hovering above US$9 per MMBtu.

Deputy Minister for Energy and Mineral Resources Arcandra Tahar said Wednesday that in order to break the deadlock, the government is now considering cutting non-tax state revenues from the oil and gas sector. However, the level of the cut is being discussed by related ministries.

Tahar said there are seven industries that would qualify for a lower gas price, namely, steel, ceramics, gloves, oleochemicals, fertilizer, petrochemicals and gas glasses.

Arcandra Tahar did, however, note that the cut in non-tax state revenues would not necessarily push down the gas price to below US$6 per MMBtu.

Arcandra Tahar estimated non-tax revenues obtained by the government from gas sales at US$0.7 per MMBtu.

If the proposed cut of non-tax state revenues is agreed, that could reduce the government’s non-tax state revenues in the 2018 State Budget. Under the 2018 State Budget, the government targets non-tax state revenues at Rp267.9 trillion. Of this, Rp77.2 trillion will be contributed from the oil and gas sectors.

The Industry Ministry last year proposed 77 companies engaging in strategic industries to benefit from a lower gas price. However, the Energy and Mineral Resources Ministry then issued a Ministerial Decree last year with only 8 companies that would initially receive a lower gas price.

The eight companies are :

1. PT Kaltim Parna Industri
2. PT Kaltim Methanol Industri
3. PT Pupuk Kalimantan Timur
4. PT Pupuk Kujang Cikampek
5. PT Pupuk Sriwidjaja Palembang
6. PT Pupuk Iskandar Muda
7. PT Petrokimia Gresik
8. PT Krakatau Steel

Other companies to be accorded a lower gas price is yet to be determined.

Energy observers and industry players have stated that pushing down the gas price is not an easy task, given the complexity of the gas distribution network. The well-head gas price could be determined by gas producers; however, the gas distribution price is difficult to reduce as there are numerous players engaging in gas distribution.

Written by Roffie Kurniawan, email: roffien@theinsiderstories.com