The government is inviting the private sector to invest in the development of urban gas infrastructure projects, saying that the government has a limited budget to develop the projects.
"We are inviting private investors to invest in the projects, because the government budget is from the state budget and is very limited," Energy and Mineral Resources Minister Purnomo Yusgiantoro said Thursday during a seminar about urban gas projects.
The government began a study on the development of urban gas transmission in 2006 in a bid to replace kerosene, thus reducing subsidies.
The government has begun to build two pilot projects of urban gas transmission projects in Palembang and Surabaya.
"But, due to our limited budget, the infrastructure only covers two subdistricts for each area," Purnomo said.
The urban gas distribution infrastructure pilot project in Palembang covers the subdistricts of Lorok Pakjo and Siring Agung, supplying 4,200 households.
The other pilot project in Surabaya covers Rungkut Kidul and Kalirungkut subdistricts, transmitting gas to about 3,200 households.
The two projects are expected to be finished by the end of this year.
"The government is spending about Rp 100 billion (US$9.3 million) for the two pilot projects," Evita H. Legowo, the director general for oil and gas, said.
According to data from Downstream Oil and Gas Regulator BPH Migas, the development of an urban gas infrastructure serving 1,000 households would require an investment amounting to Rp 4.83 billion.
BPH Migas added that the internal rate of return (IRR) for such a project stands at around 12 percent, provided that the gas is sold at prices of between US$11.34 and US$12.38 per million British thermal units (Btu).