Government asked to lift gas subsidies for fertilizer plants
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)