Sat, 11 Apr 2009
From: The Jakarta Globe
By Reva Sasistiya
Following conflicting signals, intrigue and confusion - and despite the risk of straining trade relations with Japan - Indonesia seems set to repudiate the provisional gas sale agreements signed by the Donggi Senoro liquefied petroleum gas project, with the energy minister now insisting the gas is needed to supply the domestic market.

The government has appeared unsure of how to respond to the agreements, which envisage the sale of 1 million tons of gas each to Japanese buyers Chubu Electric Power and Kansai Electric Power. The deals must be approved before the PT Donggi Senoro LNG consortium, comprised of state oil and gas firm PT Pertamina, Japan’s Mitsubishi Corp. and
PT Medco Energi Internasional Tbk, via its subsidiary PT Medco E&P, can actually start work on developing the project.

Speaking on Thursday, Energy and Mineral Resources Minister Purnomo Yusgiantoro said the agreements ran contrary to government policy, which had prioritized the gas for domestic fertilizer plants.

“I’m disappointed with the consortium,” he said. “They were the ones who signed the agreement with the Japanese buyers and they set the gas-sale agreement targets last month. Now they are trying to force the government to give its approval.”

I could be hit with a corruption indictment if I were to approve the agreements’

Purnomo Yusgiantoro

Should the ministry give the green light for the project, he said, it would be contravening the government’s policy of prioritizing gas supplies for domestic needs.

“I could be hit with a corruption indictment if I were to approve the provisional agreements,” Purnomo said. “I will have to have the approval of the head of state before I give my endorsement.”

Indonesia is facing a one-million-ton deficit in urea fertilizer because the country’s 14 fertilizer plants are suffering from inadequate gas supplies. Natural gas is a raw material in the production of ammonia, which in turn is used to produce urea.

National demand for fertilizer this year is likely to reach more than 7 million tons, but production is expected to only amount to about 6 million tons, according to figures from the Agriculture Ministry.

The government has been desperately trying to increase LNG supplies to the domestic market, often by diverting gas from overseas buyers, despite the existence of purchase contracts. The government argues that many of the contracts signed in the 1980s and 1990s are no longer relevant to today’s market.

Raden Priyono, chairman of upstream oil and gas regulator BPMigas, said on Wednesday the Donggi-Senoro consortium had offered the gas at a price that was below the government’s expectation of $3.80 per million British thermal units, which was why approval for the gas agreements had not been forthcoming.

Aside from the gas price, Priyono said BPMigas was also waiting for the Business Competition Supervisory Commission to hand down a ruling on April 27 on the dispute between Mitsubishi and PT LNG Energi Utama over the project.

The government previously said that approval for the provisional gas sale agreements would depend on the Donggi Senoro consortium’s willingness to fulfill a number of preconditions, including acceptance of a government-set floor price for the gas, the resolution of the Mitsubishi-Energi Utama dispute, agreement on the domestic market obligation, a revision of the development plan for the plant and BPMigas approval for the gas sales.

The consortium, however, argues that all of the government’s requirements have been fulfilled.



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