The Ministry of Energy and Mineral Resources of Indonesia plans to cap the price of gas sold to the national power utility PT Perusahaan Listrik Negara (PLN) at maximum of US$6/MBtu, against a current price of US$8.4/MBtu. Gas prices will also be lowered for industrial customers from around US$8-9/MBtu to US$6/MBtu, in order to reduce their energy costs. To offset gas sellers, the government intends to reduce the revenue it collects from gas producers’ contracts, when market prices for natural gas are higher than the cap.
The objective is to cut subsidies the government must pay to the state-owned utility, for which it set aside IDR54,800bn (US$3.8bn) in 2020. PLN’s total fuel expenditures are expected to reach IDR146,670bn (US$10.3bn) in 2020, with 38% of it for natural gas. The new price cap on gas is expected to result in a net savings of IDR4,510bn (US$310m).
In January 2020, the Ministry of Industry of Indonesia proposed to introduce mandatory domestic gas sales, a so-called domestic market obligation (DMO), after manufacturers complained of high prices. The proposed regulation would force gas producers to sell a part of their output to the domestic market at a set price, with the objective to ensure cheap gas to supplies to local gas distributors, which in return will maintain low gas tariffs. In late 2016, energy companies were already ordered to cut gas prices to US$6/MBtu for some strategic industrial branches, such as petrochemicals, steel and fertilisers. However, the rules would not have been fully implemented. The industrial sector accounts for 75% of Indonesia’s total gas consumption.
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