The government hopes the establishment of an oil and gas state-owned enterprise (SGE) holding company will encourage gas infrastructure development and lower gas prices to boost growth in the industrial sector. lndonesia’s poor gas infrastructure has been a major stumbling block both for business players and the government as it causes high prices of domestic pipe gas and makes the country dependent on liquefied natural gas (LNG) imports despite being fossil-fuel rich.
The SOE Ministry’s deputy of energy, logistics, estates and tourism, Edwin Hidayat Abdullah, said gas infrastructure development, currently in the hands of state-owned firms Pertamina and PGN, would improve under the supervision of one holding company. The Upstream Oil and Gas Regulatory Special Task Force (SKK- Migas) has estimated that Indonesia will need to spend at least US$ 24.3 billion until 2030 to develop proper gas infrastructure, including pipelines, liquefaction and regasification facilities.
“This will boost domestic gas supply and enable effective and efficient gas distribution. Furthermore, it may lower gas prices because of a shorter distribution chain,” Edwin said during a meeting at the House of Representatives on Thursday. Since last year, President Joko “Jokowi” Widodo has called for reduction of gas prices to $ 6 per million British thermal units (mmbtu) to spur the development of the downstream industry, which can create a significant multiplier effect in the economy. At about $9 per mmbtu, Indonesia’s gas prices are higher than its Southeast Asian peers. Some ofthe main domestic gas fields are located far from Java, where most manufacturing facilities exist.
The government has approved LNG imports to meet gas demand, which is estimated to surge by 4 percent each year. Local gas production reached approximately 7,883 bbtud throughout 2016, while the demand for the industrial sector amounted to 2,750 bbtud. Despite the government’s hopes, the foundation of an oil and gas company may be difficult as a newly-issued government regulation faces challenges from the House of Representatives. Government Regulation (PP) No. 72/2016, which replaces the earlier version issued in 2005 and stipulates the mechanism of state capital participation and administration for SOEs, is supposed to act as a legal basis for any transaction mechanism dubbed “inbreng,” in which stakes and assets in one company are transferred to another and are treated as a capital injection.
The rule will allow the implementation of the inbreng mechanism without changing the state budget and therefore erase the requirement of obtaining approval from the House of Representatives beforehand. However, the House’s Commission VI overseeing trade, industry and investment continues to have serious doubts about the new regulation and has asked the government to pause implementation.
Commission VI deputy chairman Azam Asman Natawijana said the House was still unclear about the urgency of setting up holding companies of state owned firms because of the lack of communication with the government. “we think that PP [No] 72 may violate several laws by allowing the inbreng of all and any shares. Furthermore, we cannot treat all holding companies equally as there are different needs,” law maker said.
Jakarta Post, Page-15, Friday, Feb, 24, 2017
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