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State Gas Company Seeks to Thwart Price-Rise Plan
Ririn Radiawati Kusuma | August 23, 2011

A worker looks at an oil and gas rig at the West Madura Offshore Block in East Java. The upstream oil and gas regulator’s plan to renegotiate gas price contracts is facing resistance. (Antara Photo/Ismar Patrizki) A worker looks at an oil and gas rig at the West Madura Offshore Block in East Java. The upstream oil and gas regulator’s plan to renegotiate gas price contracts is facing resistance. (Antara Photo/Ismar Patrizki)
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londoner2011
7:45pm Sep 6, 2011

BPMigas and Government could remove uncertainty around PGN by giving PGN a fixed margin between its cost of gas, and its gas selling price. Currently this margins is around $4.00/mmbtu. That gives PGN sufficient return on capital to roll out a broader gas network. A broader gas network will reduce the need for oil imports, and the amount the state pays in subsidies. I hope the government are not short-sighted on this, and accidentally harm one of their best companies!

heq
6:12pm Aug 25, 2011

BPMigas make this sounds like its a choice between the state enterprise PGN's profit on one side and state revenue on the other. But in reality isn't this more about PGN's revenue on one side & Pertamina's revenue on the other? Both being state owned enterprises.

Instead of just trying to force PGN to abide by its demand, couldn't BPMigas

try to come up with a mutually beneficial plan or maybe even try mediating the price agreements by having a meeting with PGN's major buyers?

The picture being portrayed by BPMigas here shows that it intends to use

administrative power to intervene in a business where part of the stakeolders

are investors, both foreign & domestic.

Even if it is inevitable to pursue the issue, doesn't BPMigas have the wisdom

to do it in a more discreet manner? By even publicly suggesting this, BPMigas

has caused the PGN stocks to drop by more than 25% and in the proccess hurt the Indonesian investment climate and caused the the state to lose some of its enterprises' value.


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State-controlled gas distributor Perusahaan Gas Negara is resisting the regulator’s plan to renegotiate gas price contracts, fearing that its margins might be depleted, a company official has said.

The upstream oil and gas regulator, known as BPMigas, is trying to review gas sales price contracts so it can boost state revenue from profit-sharing contracts with producers amid rising prices for natural gas.

It is targeting several gas purchasers, including PGN, which distributes the gas that it buys from producers to its customers.

Wahid Sutopo, PGN’s director of investment, said the company was concerned the margin from gas distribution will be eroded if it has to buy gas at a higher price.

Wahid said the firm may find it difficult to raise the gas price to end-buyers, including retail customers, state-utility company Perusahaan Listrik Negara, and manufacturers.

PGN buys gas from several fields, including the Grissik block in South Sumatra province, operated by ConocoPhillip Indonesia. That contract was signed seven years ago. PGN receives delivery of up to 295 million cubic feet per day from the block, which is sold at $1.80 per mmscfd for a 17-year period.

Another 2004 contract requires the delivery of 250 mmscfd of gas from Pagardewa gas field in South Sumatra, operated by Pertamina EP, for $2.20 per mmscfd.

The head of BPMigas, Raden Priyono, this month said that the gas price should be about $5 per mmscfd because the oil price had increased since the contract was signed.

PGN was also concerned the return on investment from its substantial spending on gas distribution infrastructure could be hit. For example, PGN invested $1.2 billion on the South Sumatra-West Java pipeline. It expects to get a return on the investment within 20 years. “We couldn’t possibly achieve it if the gas price is increased,” Wahid said.

Furthermore, Wahid said the contracts did not spell out the terms of any future price review of the price.

However, BPMigas’ spokesman Gde Pradnyana urged the State Enterprise Ministry, which supervises PGN, to support BPMigas on the matter because “there is a bigger interest behind this — the state revenue.”

Pertamina EP spokesman Agus Amperianto said the increase in the gas selling price is needed to help cover its operational cost losses. “We would need to cut our budget on maintenance to cover our loss,” Agus said on Tuesday. “We urge the renegotiation contract to be completed by the end of this year.”

PGN delivered 780 mmscfd of gas to its customers in the first quarter. Last year, PGN increased its gas price by 15 percent after it signed new gas contracts for a more expensive buying price.