JAKARTA: Following a barrage of complaints from the industry over high gas prices, the government is currently working on a mechanism to settle the issue by lowering revenues receivable by both the state and related companies.
The Energy and Mineral Resources Ministry’s oil and gas directorate general IGN Wiratmaja Puja said on Monday that all parties would likely see their profits reduced in order to support the industry in the northern part of Sumatra. The reduction will involve lower state revenue from gas sales and taxes as well as a lowering of the permitted margins companies could charge for delivery.
“We all have to sacrifice together. We are now formulating various scenarios to make reductions. In the upstream side, we will reduce the government’s take from gas sales. We will ask Pertamina and PGN to increase their efficiency,” Wiratmaja said.
Wiratmaja said that his office would ask for Finance Ministry assistance with taxation matters.
Wiratmaja added that discussions regarding the new mechanisms were underway and were expected to reach an agreement on terms as early as December. The mechanism is expected to be able to reduce the price by as much as US$2.5 per mmbtu (million British thermal unit).
Industry players in the northern part of Sumatra currently pay up to $14 per mmbtu of gas, which is far higher than prices in other areas. State-owned gas distribution firm PT Perusahaan Gas Negara (PGN), which is responsible for delivering gas for the industry, said that it only took a minor fee of 20 US cents per mmbtu as it purchased gas from Pertamina at $13.8 per mmbtu.
Pertamina said the high prices were particularly attributable to fact that the gas supply comes from liquefied natural gas (LNG), meaning that additional costs are necessary for re-gasification at the company’s Arun plant. According to Pertamina, PGN has also received supplies from nearby fields so that the latter would be able to sell the supplies at a lower price.
Pertamina president director Dwi Soetjipto said that a thorough review would be necessary for Pertamina to be able to reduce costs and in turn offer lower prices.
“The company can reduce gas prices in line with its review of disbursed investment, partly by changing the IRR [internal rate of return],” Dwi said, suggesting that the government shoulder the cost of developing gas infrastructure.
Pertamina spent around $500 million to modify the Arun plant and develop a pipeline network from Arun to Belawan. The company financed the investment by loans, according to subsidiary Pertamina Gas (Pertagas) president director Hendra Jaya.
“There must be incentives for enterprises so that they will continue investing,” Hendra said.
According to Hendra, Pertagas has been developing the pipeline through corporate loans from its holding firm, which has looked for global bonds to finance the project.
Wiratmaja said the government would also try to secure contracted LNG supply for the North Sumatra area that would be processed at the Arun re-gasification plant and delivered by PGN.
Arun re-gasification plant has started early this year and received LNG cargo from the Tangguh plant in Papua and Donggi Senoro LNG (DSLNG) plant in Sulawesi. LNG cargo from Tangguh is dedicated to electricity generation for PT Perusahaan Listrik Negara. Meanwhile, supply from DSLNG, which is excess cargo, has been delivered to industry players in the northern Sumatra area.
“We will try to maximize the LNG excess cargo for the domestic market,” Wiratmaja said.
