Pertamina to supply natural gas to ammonia plant in East Kalimantan

JAKARTA (JP): State oil and gas company Pertamina signed on Wednesday a 20-year contract to supply natural gas to a large ammonia plant, which is partly controlled by Mitsubishi Corp of Japan, in East Kalimantan.

Under the deal with PT Kaltim Parna Industri, Pertamina will supply 55 million cubic feet per day of natural gas as feedstock for the ammonia plant in the industrial town of Bontang.

The US$240-million plant, with an annual production capacity of 500,000 tons, is currently under construction at the Pupuk Kaltim Industrial Estate and expected to begin commercial production in 2002.

The gas will come from nearby fields operated by Total Indonesie of France, Virginia Indonesia Co. of the United States and UNOCAL Corp of the United States under production-sharing contracts with Pertamina.

"This is one of the concrete measures carried out by Pertamina to increase the usage of natural gas for industrial feedstock," Pertamina president Martiono Hadianto said during the contract- signing ceremony.

Although Indonesia has become the world's leading gas producer and exporter, natural gas utilization by local industries was below optimum levels, Martiono said.

Kaltim Parna Industri is a joint venture involving Mitsubishi Corporation, with 55 percent of the equity, Asahi Chemical Industri Co. Ltd. of Japan, with 10 percent and PT. Parna Raya of Indonesia, with 25 percent. The remaining 10 percent is held by the foundation which runs the pension fund for employees of PT. Pupuk Kalimantan Timur, a state-owned fertilizer company with a major operation in Bontang.

"This gas contract is indeed a very important foundation of our long-prepared ammonia project," Naohiko Munakata, president of PT Kaltim Parna Industri, said at the signing.

Kaltim Parna Industri had earlier said that at least 75 percent of the ammonia would be exported to Japan, Thailand, the Philippines, China and other Asian countries, and the remaining 25 percent would supply the local market.

Wednesday's agreement came more than two years after the company signed a memorandum of understanding with Pertamina and the production-sharing contractors on May 30, 1997.

The financial crisis prolonged the discussion as the parties haggled over how to price the gas. They eventually agreed on a market-oriented price formula linked to the prices of Indonesian crude oil and ammonia.

"The negotiation was a little tough and time consuming for everybody involved, but we could end all this with a big and nice reward," Munakata said.

Pertamina is expected to sign a separate agreement with the three contractors on the supply of gas from their fields.(02)