President promises support for gas industry
Leony Aurora, The Jakarta Post, Jakarta
Despite the challenges faced by Indonesia's natural gas industry, the sector still had good prospects amid declining oil output here and should be attractive with the support of the government and investors, says President Susilo Bambang Yudhoyono.
Susilo said at the official opening of the IndoGas 2005 conference that the challenges mostly centered on the scattered locations of natural gas fields, most of which are geographically and far away from the major domestic market on Java.
"We still face a lack of infrastructure, and the ability of domestic consumers to purchase natural gas at an unsubsidized market price is very limited," Susilo told the hundreds of international and local participants.
Minister of Energy and Mineral Resources Purnomo Yusgiantoro also said that it was imperative that the country secure some large investments to develop the natural gas infrastructure.
Data from the ministry shows that as of 2003, the nation's gas reserves (proven and potential) stood at 176.59 trillion cubic feet (TCF) -- among the largest in the world -- but it is largely untapped due to the limited supporting infrastructure, including distribution and transmission pipes.
In 2003, the nation's total gas production by state oil and gas company Pertamina and production-sharing contractors reached just 3.3 TCF, and around 70 percent of that was exported.
Extensive infrastructure development is necessary in order to develop the sector. Six projects, connecting areas in Kalimantan, Java and Sumatra, worth nearly US$2.8 billion in total are currently on offer at the Indonesia Infrastructure Summit.
At present, the country has two liquefied natural gas (LNG) plants in operation, one is located in Arun, Aceh, and the other is in Bontang, East Kalimantan. The construction of a third and much larger plant, Tangguh in Papua, is planned to commence operations later this year.
Susilo assured the participants that as oil reserves became scarce, the demand for gas would rise and that the contracts already signed would be honored.
In order to create a more conducive investment climate, the government was synchronizing policies and regulations to make the process smoother, he said.
"Refunds for value-added tax (VAT) and exemptions for import duties in the upstream sector of the gas industry will be implemented," he said, referring to two major concerns of investors. The government was also reviewing the possibility of deferring the VAT during the exploration stage.
The ministry's Director General of Oil and Natural Gas Iin Arifin Takhyan said that his department was trying to persuade the ministry of finance to issue a joint decree to implement the VAT exemption during exploration, in lieu of a lengthy process to amend the law.
Having been the world's largest LNG exporter for years, Indonesia has been struggling to reach new markets like China and the U.S., aside from its traditional buyers Japan, South Korea and Taiwan amid increasing competition from other producing countries.
Citing outdated facilities, Japan's third largest power producer Chubu Electric Power Co. has said it might not extend a contract with Indonesia over concerns that it would not be able to meet its commitments.
"The equipment in Indonesian LNG plants is more than 20-years- old and needs upgrading," said managing director Hiroshi Makita, as quoted by Bloomberg.