Govt to get huge revenue from gas pipeline project

Govt to get huge revenue from gas pipeline project

Fitri Wulandari, The Jakarta Post, Jakarta

The government is projected to receive around US$11 billion in
revenue for 20 years from the massive gas pipeline project
linking East Kalimantan with the heavily populated Java island,
according to a feasibility study report.

The government's portion represents 36 percent of the total
$31.1 billion in revenue expected from the gas pipeline project,
which will start operation in 2008, said the report, made by
consulting firm PT Pendawa.

"The government would get the bulk of the revenue," WMP
Simanjuntak, president of state-owned natural gas distribution
company PT Perusahaan Gas Negara (PGN) said on Thursday.

PGN will start construction of the 1,780-kilometer pipeline in
2005. The pipeline will distribute gas from producers in East
Kalimantan mainly to industrial users in East Java and West Java.
According to the study, the gas producers will be charged a toll
fee of 89 U.S. cents per metric cubic feet (MCF) of gas
distributed through the pipeline.

The study also said that 27 percent of the revenue would go to
the investors financing the project, while the remaining 37
percent would be used to pay costs.

The pipeline project would be carried out in two phases.
First, constructing a 1,100-kilometer transmission pipeline from
East Kalimantan to East Java, with a planned capacity of between
700 million cubic feet per day (MMSCFD) and 1,000 MMSCFD.

The second phase would be the construction of a 680-kilometer
transmission pipeline from East Java to West Java, with a planned
capacity of between 300 MMSCFD and 350 MMSCFD.

The project requires an estimated investment of around $1.7
billion.

Simanjuntak said PGN would try to get commercial loans of
around $1.2 billion, while the remaining $500 million would be
from PGN's own equity, investors and multilateral lenders.

He added that PGN had approached companies who operate natural
gas fields in East Kalimantan asking them to sell their gas to
PGN.

Iin Arifin Takhyan, director general of oil and gas at the
Ministry of Energy and Mineral Resources said that the project
was timely given the increasing demand for natural gas on Java
island and the need to replace oil as fuel.

The report said, that if the country's economy grew at between
3 to 6 percent, natural gas demand in Java would also grow by
between 4.9 percent to 8.3 percent annually.

The study projects gas demand in Java would reach between 1.8
billion cubic feet per day (BSCFD) to 2.4 BSCFD by 2010 and
between 3 BSCFD to 6 BSCFD by 2025.

Natural gas demand in Java in 2002 was 1.48 BSCFD, mostly for
power plants and industry. Major natural gas consumers in Java
include steel company PT Krakatau Steel, fertilizer company PT
Pupuk Kujang, Muara Karang and Muara Tawar power plants.

Despite plenty of natural gas resources around Java,
the supply would not be able to keep up with the surging demand,
according to the report.

Previously, Simanjuntak had said that developing a natural gas
transmission pipeline was economically viable as one option for
tackling the lingering fuel-shortage problem in Java.

Compared to liquefied natural gas (LNG), natural gas
distribution through a pipeline is less costly as there is no
need to build an LNG terminal. Natural gas can be distributed
directly through a pipeline straight to consumers.