A plan to cut gas prices for several sectors has been put on hold as the government is concerned about the significant decrease in state revenue such a move would result in.
Although the current administration issued a government regulation to allow lower gas prices for certain industrial sectors in January last year, Deputy Energy and Mineral Resources Minister Arcandra Tahar said the government was still studying which industries would provide the largest multiplier effect to make up for the possibility of lower state revenues from the oil and gas sector.
“We need to see which [industry] has the biggest multiplier effect. For every US$ 1 per mmbtu [million British thermal unit] of gas, how much would it contribute to non-tax revenue?” he said recently.
“lf a reduction of $ 1 does not provide a multiplier effect, then it would mean that the state is simply subsidizing the industry” Last year, President Joko “Jokowi’ Widodo instructed his Cabinet to cut end-user gas prices to below $ 6 per mmbtu for seven industrial sectors in order to develop the downstream sector and create a significant multiplier effect in the economy.
However, only state-owned petrochemical, fertilizer and steel industries have been party to the price cut starting Jan. 1 this year, following the issuance of a decree by the Energy and Mineral Resources Ministry late last year. Meanwhile, gas prices for the four other sectors consisting of the oleochemical, glass, ceramics and rubber glove sectors - and all industries from the private sector remain in limbo.
Some have suggested that gas prices could easilybe cut if the government was willing to lower its expectations of revenues from the gas sector. The government estimates a revenue target of Rp 124.6 trillion ($9.2 billion) from the oil and gas sector in next year’s state budget.
The government is also working to cut costs in the midstream sector to ensure lower gas prices at the plant gate. The Energy and Mineral Resources Ministry will soon issue a regulation limiting the internal rate of return to 11 percent and the margin for traders to be at 7 percent.
However, gas users from the industrial sector say that price cuts are not being made fast enough. The Forum for Natural Gas-Using Industries (FIGB) claim that the national gas price remains at about $ 9 per mmbtu.
Moreover, the high prices have led to many factories operating at a much lower capacity, or even going bankrupt, including eight in the ceramic sector, one in the sheet glass sector and 35 in the glove and latex sectors.
The industrial sector’s sluggish operations have only made it easier and cheaper for imports of similar goods to enter the country. Jusmery Chandra from the lndonesian Ceramic Industry Association (Asaki) said gas made up 35 percent to 40 percent of production costs, and that the ‘high, prices had forced factories to operate at only 70 percent capacity.
This led to losses that factories could only burden for a short period of time, Jusmery explained. Indonesia is struggling to boost manufacturing, which has expanded at only a single digit rate for more than a decade, in contrast to that before the 1997-1998 financial crisis when it outpaced economic growth.
The Jakarta Post, Page-13, Monday, October 23, 2017
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