August 16, 2023
JAKARTA – Businesses in Indonesia have urged the government to drop its planned natural gas price hike, saying the policy lacks immediate necessity and carries significant risks to the economy.
The Indonesian Employers Association (Apindo) laments the unfortunate price escalation conducted by the state-owned gas distributor Perusahaan Gas Negara (PGN), citing the steady global liquefied natural gas (LNG) price over the past four months as compelling evidence against the proposed increase.
Apindo chairwoman Shinta W. Kamdani warned that the gas price increase would erode the competitiveness of the domestic industry. The existing price paid by local firms is one of the highest among ASEAN countries.
“There is a potential risk that investments will shift to neighboring countries,” Shinta told Kontan on Monday.
“We’re hoping that the government will reassess the plan and consider either delaying or canceling the proposed natural gas price increase,” she added, noting that the government should discuss the plan with the relevant industries beforehand.
Read also: PGN awaits regulator’s clarity to secure more gas supply
The government separates gas prices into two distinct groups.
One involves government intervention to cap the price at no more than US$6 per million British thermal units (BTU), which applies to seven gas-intensive industries. This May, the government raised the cap to a maximum of $7 per million Btu (MMbtu).
Industries that do not fall into this category must pay the market price, and PGN recently unveiled its plans to raise the gas price for regular industrial customers on Oct. 1.
The hike will require customers in these industries to pay between $11.89 and $12.52 per MMbtu, whereas the fare previously hovered between $9.16 and $9.78 per MMbtu, according to a summary made by FIPGB, a forum for industrial gas users.
Meanwhile, Shinta said that to remain competitive, at least within ASEAN, gas prices should hover at between $6 and $7 per MMbtu.
Considering Indonesia’s potential for self-sufficient LNG production and supply, she said that the country should be able to better ensure affordable gas prices compared to its neighbors.
If the price surge materializes, Shinta expressed her concern for the consequences, underscoring the lack of preemptive measures accessible to related industry players.
“Industries heavily dependent on LNG cannot easily substitute it with other energy sources because of the potential impacts to production machinery,” said Shinta.
Read also: Industries demand certainty on gas prices
Separately, according to PGN corporate secretary Rachmat Hutama on Monday, the company claims the increase in the industrial gas price was because of changes in the upstream gas industry, as quoted from Kontan.
One such change is a new fare imposed by gas producers along with declining supply to PGN, which needs to secure more gas sources, he said.