GOVERNMENT'S APPROACH TO LOWER INDUSTRIAL GAS PRICE

"Fiscal policies, creation of DMO, and simplification of import procedure are the options" 

By SBI Team

Surabaya, 2020 - Indonesian president, Joko Widodo, will take into account three options to lower the high industrial gas price: fiscal incentives, the creation of a domestic market obligation (DMO), and simplification of import procedure. These three options are expected to boost the economic environment of Indonesia, which experienced slowdown in 2019. During Q3 2019, the economic growth of Indonesia experienced its lowest rate since 2017 at 5.02%.

 

One of the options to lower the industrial gas price is by reducing the government’s share of earnings from gas sales. The government hopes that by lowering the government's share of earning from gas sales by about US$ 2.20 per 1 million British thermal units, it could lower the gas price overall, and thus the business condition in Indonesia could grow gradually.

 

The second possible option that could be done is imposing a DMO policy for gas producers in order to manage the prices of gas. That kind of policy has been applied on coal miners; they have to sell a quarter of their production domestically for a maximum of $70 per ton.

 

Last but not least, the third option is to ease the imports of gas. However, the government has yet to specify whether this will be done through fiscal or non-fiscal measures.

 

President Jokowi added that there are seven domestic industries which are highly dependent on gas, they are electricity production, chemical, food, ceramic, steel, fertilizer, and glass industries. Interestingly, these industries collectively consumed around 80% of Indonesia’s gas supply.

The seriousness of President Jokowi could be seen from his words: “I’ve asked my ministers to carefully calculate how to make gas prices more competitive. Look at the issues from the upstream, midstream to downstream sectors”.

In addition, the President himself has requested an update on the implementation of Presidential Regulation No. 40/2016 on determining natural gas prices. His intention is to watch out for field problems with the implementation of the regulation by the seven highly gas-dependent industries.

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