Government Ready to provide subsidies
"There are 11 industries that need to be subsidized, but we have identified three industries that must be provided, namely fertilizer, petrochemicals, steel, and metals because those industries have a large added value downstream,".
Luhut Binsar Panjaitan
Luhut said the focus of reducing gas prices for the three industries was based on two criteria. First, a reduction in gas prices should create a larger multiplier effect in the downstream sector in job creation, increased investment, and state revenue. Second, it results in a decrease in the price of products consumed by end consumers or reduce state subsidies. Luhut explained that gas prices in Indonesia are not bad.
Based on the data he has collected, the price of landed gas in Indonesia is around the US $ 4.22 per MMBtu, not much different from China, South Korea, and Japan which are also still around the US $ 4.4-4.5 per MMBtu. The price of piped gas in Indonesia is formulated based on economic prices at the upstream level with a constant escalation of price increases every year so that the price of industrial gas in Indonesia does not depend on world oil prices.
As a result, when the oil price drops, the gas price at the industrial level in Indonesia is higher than the gas price in other countries, which refers to the price of oil.
"If we compare it to Malaysia, which is around the US $ 4 per MMBtu, why is it cheaper? It turns out that the government does not take the upstream part of the subsidy. So we are thinking about which part we can apply like that,".
With a similar pattern to Malaysia, Luhut admitted that he would continue to make efforts to reduce industrial gas prices according to President Jokowi's request. Businessmen assess that the decline in industrial gas prices to the level of US $ 6 MMBtu will boost the utilization of the installed production capacity (utilization) of the gas user manufacturing industry by up to 20%.
Production costs can also be cut by up to 30%, so that industrial competitiveness increases and is ready to compete with imported products. Therefore, business circles have asked the government to fulfill the promise of lowering industrial gas prices in November. This policy is not only beneficial for the industry but also for the national economy. Based on calculations by the Indonesian Chamber of Commerce and Industry (Kadin), Indonesia's economy could increase by up to 7%, once gas prices are cut by the US $ 1-2 per MMBtu.
Executive Director of The Indonesian Iron and Steel Association / IISIA Hidayat Triseputro said that the steel industry is looking forward to the realization of the decline in industrial gas prices. This policy, he said, could make the national steel industry competitive, thereby increasing competitiveness. He said utilization could increase to 60%, more than the current 40%. The installed production capacity of the national steel industry reaches 9 million tons per year.
"The increase in utilization was also driven by the implementation of the Program to Increase the Use of Domestic Products (P3DN), the application of compulsory Indonesian National Standards (SNI), control of invasion of imported steel at low prices," he said.
Currently, he said, the contribution of gas costs to total production in the steel industry varies widely, depending on the technology and production processes of the upstream, intermediate, and downstream industries. On average, the contribution is around 5-50%.
He has not yet been able to put together the percentage reduction in production costs resulting from the correction in gas prices. Because it depends on the policies of each factory. In the steel industry, gas is used in the iron-making process with direct reduction technology. The iron is then processed into semi-finished steel for further processing into steel.
Investor Daily, Page-8, Wednesday, Oct 19, 2016
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