PGN proposes gas price hike to fund expansion

The Jakarta Post, Jakarta

In a bid to cover its operational costs and expand its distribution network, state gas distributor PT Perusahaan Gas Negara (PGN) has proposed a gradual increase of gas prices for households, social facilities and small industries by almost 50 percent.

"Current prices have to cover all costs," said PGN marketing advisory Rudiatmoko after a public hearing on the planned price hike on Thursday, organized by the Oil and Gas Implementing Regulatory Body (BPH Migas).

He added that current prices only covered production and infrastructure costs but not operational costs.

"We will reach breakeven point if the price of gas is at least Rp 1,600 (17 U.S. cents) per cubic meter."

Current prices for households and small consumers range from Rp 1,000 to Rp 1,700 per m3, depending on subclass and city.

"We plan to raise our internal rate of return to 12 percent in 2005, but it will be carried out in several stages," Rudiatmoko said.

BPH Migas will make a decision on the price hike after the Ministry of Energy and Mineral Resources' Directorate of Natural Gas gives its recommendation based on Thursday's public hearing. The regulatory body is scheduled for a committee session on Feb. 7.

"Our recommendation to BPH Migas will be based on the people's purchasing power," Director of Natural Gas Nafrizal Sikumbang said. "BPH Migas will issue a decree on the first phase of the gas price hike after its committee session."

Meanwhile, Indonesian Consumers Foundation (YLKI) chairwoman Indah Suksmaningsih said an improvement in PGN services should accompany any gas price increase.

PGN is distributing 2.25 billion m3 of gas monthly to households, social facilities and small industries but they only account for 2 percent of the firm's total distributed volume.

"We still see a great potential market in households, but we will need a lot of investment to expand the distribution network," Rudiatmoko said.

PGN targets around 25 million households as potential customers in the Greater Jakarta cities of Jakarta, Bekasi, Tangerang and Bogor as well as Karawang, Surabaya, Sidoarjo, Pasuruan, Medan and Palembang. Currently, PGN is serving only 60,000 households in the 10 cities.

"The installation cost for outdoor pipes for each household is only Rp 4 million," said Rudiatmoko. "A customer only needs to pay for Rp 1 million for indoor installation."

If the price increase is approved, PGN hopes to increase its customers by 10,000 households yearly by expanding the distribution network.

"If 10 percent of the fuel subsidy is allocated for building gas distribution infrastructure, half of the country's population could be using natural gas within 10 years," said another PGN representative at the hearing.

Indonesia still relies on oil, which last year required US$59.2 trillion of the fuel subsidy. According to BPH Migas, the country's gas reserves stand at 182 trillion cubic feet, 58 percent of which is exported.

In comparison, Japan imports natural gas from Indonesia for domestic consumption, with almost all of the country's households relying on gas for fuel. (003)