The government has apparently forced state-owned energy firms Pertamina, Perusahaan Gas Negara (PGN) and PLN to bite off more than they can chew to make a number of gas projects financially viable amid a poor investment climate in the sector.
The Energy and Mineral Resources Ministry raised in late July the price of gas sold by United States energy giant ConocoPhillips to PGN, which will distribute the energy to its customers in Batam, Riau Islands.
The price for 22.73 billion British thermal units per day (bbtud) of gas has effectively stayed at US$ 3.5 per million British thermal units (mmbtu), up from $ 26, starting from early August to 2019 when the contract ends.
“The price increase is necessary to maintain the fairness of the oil and gas business both in upstream and midstream sectors, While it will also push up state revenue. So, it’s a positive change,” Minister lgnasius Jonan said recently.
The price change may lead to $ 4.3 million in additional state revenue in the form of income tax (PPh) and non-tax revenue from July this year to November 2018, according to the ministry’s estimate. The figure is bigger than $ 2.3 million in additional revenue the ConocoPhillips may pocket in the same period.
However, PGN will be the one suffering from this policy because the ministry prohibited the company from adjusting the price of gas sold to its customers, including state-owned electricity firm PLN and a number of independent power producers (IPPS), to ensure its affordability.
Consequently, the gas firm must bear an extra cost of Rp 120 billion ($ 8.9 million) a year because of the price hike in the upstream sector. As of March, PGN’s total liabilities had risen 5.9 percent year-on-year (yoy) to $3.7 billion, While its net profit had fallen 3.79 percent to $96.8 million.
In another move in early August, the ministry fixed the price of gas produced at the Jambaran-Tiung Biru (JTB) Field in Central Java at $7.6 per mmbtu Within a 30-year period. The field is partly owned by PT Pertamina EP Cepu (PEPC), a subsidiary of Pertamina. The JTB field is expected to produce at least 172 million standard cubic feet per day (mmscfd) within 16 years after it goes on stream in 2020. PLN is set to buy 100 mmscfd of the total to support its operations in Gresik, East Java.
Initially PLN was only willing to pay $7 per mmbtu for the gas at its plant gate in Gresik, While PEPC wanted $7 per mmbtu at its wellhead in the J TB field. Deputy minister Arcandra Tahar said the measure was part of efforts to offer the available gas at an affordable price not only to PLN but also its customers.
As a result, Pertamina was forced to make another sacrifice amid its mounting financial burdens. By the end of last year, the government still owed Pertamina Rp 22 trillion in subsidies for the sale of subsidized 3-kilogram liquefied petroleum gas (LPG) canisters and subsidized diesel.
Its total liabilities had risen 1.07 percent yoy to $26.3 billion as of June, while its net profit had fallen sharply by 23.65 percent to nearly $1.4 billion. Adding to the aforementioned woes of state energy firms. the ministry recently pushed up the price cap of piped gas at the plant gate to 14.5 percent of Indonesian Crude Price (ICP) from 11.5 percent through Ministerial. Decree No. 45/2017. In July, the ICP stood at $45.48 per barrel, up 4.16 percent from June.
While the new benchmark enables various gas projects to be more economically feasible, PLN and IPPs, on the other hand, must spend more for gas. As of June, PLN’s liabilities climbed 9.8 percent yoy to Rp 420.5 trillion, while its net profit plunged 71.7 percent to Rp 2.24 trillion.
Nevertheless, executive director of Jakarta-based energy think tank Reforminer Institute, Komaidi Notonegoro, viewed the measures takenby the government as necessary to guarantee the sustainability of upstream projects in the country.
“If it can’t maintain development in the upstream sector, the midstream and downstream sectors will be negatively affected as well,” said Komaidi.
Jakarta Post, Page-13, Monday, August 28, 2017
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