Government asked to lift gas subsidies for fertilizer plants

JAKARTA (JP): State oil and gas company Pertamina has asked the government to allow it to lift subsidies on natural gas supplied to fertilizer plants following the government's recent decision to end subsidies on fertilizers.

The head of the gas supply and utilization division at Pertamina, Isworo Suharno, said on Thursday that the gas subsidies had caused inefficiency in the use of natural gas at the country's fertilizer manufacturers.

The discounted prices on natural gas, the main raw material for the making of fertilizers, had also discourage gas contractors from developing their gas fields.

The government, through Pertamina, sells natural gas to fertilizer producers at discounted prices to allow them to sell the fertilizer to farmers at lower prices.

The government lifted subsidies on fertilizers earlier this month, raising the price of urea fertilizer up to 150 percent to Rp 1,115 (US$.14) per kilogram.

The move was taken because most of the subsidized fertilizers allocated for farmers were sold to plantation companies, which were supposed to buy the fertilizers at market prices.

Pertamina data says that the company sells natural gas to the country's fertilizer plants for between $1 and $1.85 per million British thermal unit (MMBTU).

In comparison, its sells gas to state electricity company PLN and private companies for about $3 per MMBTU.

Isworo did not reveal how high fertilizer prices were expected to rise if subsidies on natural gas were lifted.

Isworo said that the low price of natural gas had caused inefficiencies in the country's fertilizer manufacturers utilization of gas.

He said that the country's fertilizer plants currently need about 33 MMBTU to produce one ton of urea fertilizer, compared with African countries where fertilizer plants can produce one ton of urea fertilizer with 28 MMBTU.

"If gas subsidies were lifted, the country's fertilizer plants will have no choice but work efficiently to compete in the market," he said.

Gas contractors would also be encouraged to explore for gas if the gas sells at higher prices, he said.

Isworo argued that under the existing scheme, the gas subsidy provided by Pertamina was not only enjoyed by farmers, but also state and private fertilizer companies and consumers abroad, where the country's fertilizer manufacturers export their products.

"Thus, under the current system, Pertamina not only subsidizes farmers as fertilizer consumers, but also conglomerates who produce fertilizers," Isworo said.

"That's why the government should find schemes to ensure that only farmers enjoy the subsidies," Isworo said.

Minister of Agriculture Soleh Solahuddin earlier said that the government had raised the producer floor price of unhusked rice to between Rp 1,400 and Rp 1,500 per kilogram from Rp 1,000 per kilogram, to compensate for the removal of subsidies

The government had also raised the minimum value of subsidized farming loans to Rp 2 million per hectare from Rp 1.49 million to encourage farmers to take advantage of the scheme, which was set up to help farmers procure equipment and fertilizers.

The government had also lowered interest rates attached to the loans from 14 percent to 10.5 percent. (jsk)