Gas reallocation to cost PLN $27m

Gas reallocation to cost PLN $27m

Leony Aurora, The Jakarta Post, Jakarta

State power firm PT Perusahaan Listrik Negara (PLN) will see
operating costs rising by more than US$27 million per year
following plans to set some of its natural gas supply aside for
various manufacturing plants in East Java, an official says.

The cost difference between using 10 million standard cubic
feet per day of natural gas as compared to the diesel fuel
equivalent was roughly $30,000 a day, PLN's deputy of primary
energy Tonny Agus Mulyantono claimed on Thursday.

"The calculation is based on the price of subsidized diesel
fuel at Rp 2,200 (about 23 U.S. cents) per liter," said Tonny.
And with PLN having to pay, according to the market prices, which
for August is set at Rp 5,480 per liter, the cost disparity will
more than double to over $27 million a year.

State gas distributor PT Perusahaan Gas Negara (PGN) has asked
PLN to reallocate 10 mmscfd of its gas supply for East Java's
industrial plants and use diesel fuel instead to generate power.

PGN has been forced to lower supply to industrial
manufacturers as the output from natural gas fields owned and
operated by Lapindo Brantas and EMP Kangean continue to decline.

State oil and gas firm PT Pertamina said that PLN would have
to pay market prices for the additional diesel to generate its
power.

"We will need to procure 100,000 kiloliters of diesel fuel a
year if the gas reallocation takes place," said Pertamina's fuel
sales and distribution head Achmad Faisal.

"It's what PLN, PGN, (the Oil and Gas Upstream Regulatory
Agency) BP Migas and Pertamina agreed upon in a meeting yesterday
(Wednesday)," said Faisal, adding that the government would be
asked to cover the disparity between PGN's compensation for the
gas and PLN's actual cost difference.

Although the gas reallocation is slated to start on Aug. 15,
PGN is yet to establish the formula to calculate the
compensation.

"We have not drafted a formula. There's no certainty as yet
whether the (gas reallocation) plan will materialize," said PGN's
finance director Djoko Pramono.

PLN has shown a lot of reluctance to change from natural gas
to the more expensive diesel, which, without sufficient
compensation, will make it even more difficult to return the
company to the black.

PLN booked another year of net losses in 2004 at Rp 2.02
trillion.

PGN started applying a quota-system on larger industrial
manufacturers in East Java in July, reviewing the allocation
monthly, as supply from gas fields decline to only 73 mmscfd from
the expected 120 mmscfd. PGN will stop its gas flow if a company
exceeds its respective quota.

Industry players, particularly ceramic manufacturers, feared
that the new quota would further hamper the ailing industry.
Spending for gas accounted for almost a third of ceramics'
manufacturers total costs.