Pupuk Sriwijaya asks for lower natural gas price
JAKARTA (JP): PT Pupuk Sriwijaya (Pusri), the holding company of the country's state-owned fertilizer companies, has asked the government to further lower the current price for natural gas, the main raw material for fertilizer production.
Zaenal Soedjais, chairman of the company, said on Tuesday that the current price for gas supplies from state-owned oil and gas company Pertamina should be reduced to allow them to sell fertilizer to farmers at low prices yet still earn a profit.
"It was the government who gave us the obligation to provide the farmers with fertilizers at low prices.
"But with the current price it's difficult for us to do so," Zaenal said on Tuesday on the sidelines of the 2001 Indonesia International Chemical Exhibition and Conference.
The ideal price of natural gas for a fertilizer firm was $1.3 per million British thermal unit (MMBTU). Increasing the price from $1 per MMBTU would result in an increase in the cost of fertilizer production by approximately $30 per ton, he said.
Any increase in the price of fertilizer would also result in an increase in the cost of rice production, which would subsequently incur a "social cost", he warned.
Pertamina now sells gas to the country's fertilizer firms at prices ranging from $1 and $1.85 per MMBTU, according to him.
He said Pusri in Palembang, South Sumatra and PT Pupuk Kaltim in Bontang, East Kalimantan, are both charged between $1.5 and $1.85 per MMBTU by Pertamina, while PT Petrokimia Gresik in Gresik, East Java pays $2, PT Pupuk Kujang in Palembang, South Sumatra $1.55, PT Pupuk Iskandar Muda in Lhokseumawe in Aceh $1 and PT ASEAN Aceh Fertilizer $1 per MMBTU.
All the firms are owned by the state, except for ASEAN Aceh Fertilizer, which is jointly owned by ASEAN member countries.
The call for the government to reduce the price of gas has actually been long standing but the government has thus far remained reluctant to the call, fearing that it would receive lower revenues from the gas industry.
Under the production-sharing contract (PSC) system, oil and gas contractors have to deliver 70 percent of their gas output to the government and keep the remaining 30 percent.
Pertamina could only lower the price of gas if the government was ready to cut its share of gas output as contractors had refused to do so.
Zaenal admitted that the lowering of the price of gas would result in a decrease in the government's revenue from the gas industry but he said the move could cause a multiplier effect, which in the end would bring more benefits to the government.
He said the industry would be encouraged to use gas rather than oil-based fuel if the price of gas was cheap. The wider use of gas would enable Pertamina to cut its fuel imports, thus enable the country to cut its foreign exchange expenditure.
It will also enable the fertilizer industry to cut the price of its products and thus boost the country's agricultural production.
This will in turn enable the government to cut its rice imports and the increase in fertilizer production will also generate a higher tax revenue for the government from the fertilizer industry.
However, Dwi Kushartoto of Pertamina saw the matter differently, citing the current price of natural gas as normal because of its high operating costs.
"It costs a huge sum of money to produce gas nowadays, so I think the current price is normal," Dwi, also present at the expo, told The Jakarta Post. (10)