The decision to reduce the price of raw material gas for the fertilizer industry shows the government's great concern for the agricultural sector. In an effort to achieve food security, the government has placed the fertilizer sector as a strategic industry.
Currently, the fertilizer industry has been affected by the decline in world gas prices. However, the price of gas for the fertilizer industry did not immediately fall. This is because the fertilizer industry in Indonesia buys gas with a take or pay (ToP) mechanism, namely the minimum payment for gas in 1 year during the contract period even though the gas usage is below the minimum amount.
President Director of PT Pupuk Indonesia, Aas Asikin Idat said, "We thank President Jokowi for his policy of lowering gas prices. This policy coincided with conditions that were experiencing difficulties due to the decline in industrial competitiveness as a result of high production costs due to high gas prices.
The current high price of gas makes Indonesia's urea production unable to compete because the production cost of urea in Indonesia has already exceeded the international market price. Based on the latest Fertecon data, the purchase price of gas for the fertilizer industry in Indonesia ranks 5th most expensive out of 33 other fertilizer producing countries.
Currently, the average price of gas for fertilizer factories in Indonesia is US$ 6.26 per MMBtu, while the average world gas price is currently only around US$ 3 per MMBtu. The decline in gas prices has made the world's fertilizer factories operate optimally and as a result, there is an oversupply of fertilizer in the world. If the gas price can be lowered to a level of US$ 3, the fertilizer industry will be able to compete again with imported urea fertilizer, which is currently starting to oversupply the market in Indonesia.
Media Indonesia, Page-18, Monday, Oct 24, 2016
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