The government is looking to roll out several liscal incentives, including a tax holiday, for the buyers of gas to be produced at the Masela block in the Arafura Sea at a fixed price of US$5.86 per million British thermal unit (mmbtu).
Japan-based oil and gas firm Inpex Corp., which holds 65 percent majority stake in the block, came with the fixed price proposal after conducting a preliminary study and submitted it as a Recommendation to the Energy and Mineral Resources Ministry.
The Industry Ministry’s director of upstream chemical industry, Muhammad Khayam, said Monday the government in addition to using the price proposal would also provide fiscal incentives, such as tax holiday.
“We will provide some incentives so that it will be more economical for them [buyers],” he said after attending a meeting on the Masela block with stakeholders at the Oflicc of the Coordinating Maritime Affairs Minister. Khayam said a team comprising officials from various ministries, including the Industry Ministry, Energy and Mineral Resources Ministry and Office of the Coordinating Economic Minister, planned to meet up on July 17 to further discuss the price of Masela gas.
Once it sets the price, the government expects to seal an initial agreement with the gas buyers within a period of three months before Inpex and Royal Dutch Shell Plc., thc latter of which holds the remaining 35 percent stake of the block, conduct a preliminary front-end engineering design (pre-FEED) for the Masela block.
The pre-EEED will determine the production capacity ofthe onshore liquefied natural gas (LNG) plant at the block, which is estimated to have an investment value of around $19 billion under an onshore scheme.
The government provided Inpex and Shell with two options on the LNG plant capacity: 7.5 million tons per annum (mtpa) with 474 million standard cubic feet per day (mmscfd) of gas or 9.5 mtpa with 160 mmscfd of gas. The gas-rich Masela block is estimated to be able to produce 1,200 mmscfd and 24,000 barrels of condensate per day for 24 years.
The Industry Ministry has proposed that three companies be the gas off-takers, namely state-owned fertilizer producer PT Pupuk Indonesia, petrochemical firm PT Elsoro Multi Pratama and plastic product company PT Sojitz Indonesia, with a total demand of 474 mmscfd of gas.
State-owned energy giant Pertamina previously expressed interest in buying 200 mmscfd of gas produced at the Masela block, but Khayam said the company had cancelled its plan.
State-owned electricity firm PLN has also stated its readiness to absorb 60 mmscfd of gas from the Mascla block, in line with its plan to develop a combined-cycle power plant (PLTGU) with a capacity of 300 megawatts (MW) of electricity.
The electricity will be used to support various businesses, including fertilizer and petrochemical plants to be developed near the Masela block.
“PLN could also develop a coal-fired power plant instead,” Khayam said. “It was just one of the options and it still depends on an economical calculation later.”
While the government is optimistic the block can start operating by 2023, the previous plan on development (POD) estimated that the gas field could start production by 2024 and start piping gas in 2026, just two years before lnpex’s and Shell’s contracts expire.
“The project is a large one that needs a large volume of investment for a long period of time. This means that it needs the support of all stakeholders. It also needs the hard work of all stake holders,” Inpex senior communications and relations manager Usman Slamet previously stated.
The government puts high hopes on the Masela block to help meet the increasing domestic demand for gas for years to come. Fitch Group’s BMI Research estimated Indonesia will become a net importer ol` LNG as gas demand will grow at an average annual rate of 4 percent over the next decade, with the biggest demand coming from the power generation sector.
At the same time, gas supplies are set to fall as a result of natural declines at various ‘mature gas Fields and delays in several major projects. Meanwhile, Finance Minister Regulation No. 159/2015 lays out nine industries that are eligible for tax holidays.
They are upstream metal, oil refinery, organic basic chemicals that originate from oil and gas, manufacturing that produces industrial machineries, processing using agriculture, forestry and fisheries products, telecommunications, information and communications, maritime transport, processing at special economic zones and infrastructure under public-private partnerships.
Jakarta Post, Page-13, Tuesday, June 20, 2017
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