President promises support for gas industry

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.