March 6, 2020 / 9:25 AM / 3 months ago

Indonesia to cap gas prices for PLN at $6/mmBtu to cut subsidies

JAKARTA, March 6 (Reuters) - Indonesia’s government plans to reduce the price of natural gas sold to power plants to reduce subsidies it has to pay to the state-owned utility, the energy minister said on Friday.

The government wants natural gas sold to power plants to be kept at a maximum of $6 per million British thermal units (mmBtu), Minister Arifin Tasrif told reporters. Power plants managed by state utility Perusahaan Listrik Negara (PLN) currently pay an average $8.4 per mmBtu this year.

The government is already working on a new gas pricing policy for industrial customers to bring down their prices to around $6 per mmBtu, from $8-$9 per mmBtu, to lower the energy costs of manufacturers.

Tasrif did not say when the price cap for PLN would take effect, but the policy for industrial manufacturers should be covered in a regulation to be implemented this month.

Under the pricing policy for industry, to compensate gas sellers when market prices for natural gas are higher than the cap, the government will slash the revenue it receives from the gas producers’ contracts.

The energy ministry’s director general of electricity, Rida Mulyana, separately told reporters that capping gas prices for PLN will reduce the utility’s costs significantly, as 38% of the company’s fuel expenditures are for natural gas.

PLN’s total fuel cost for this year is estimated to reach 146.67 trillion rupiah ($10.28 billion).

The government will lose some revenue from the share it receives from natural gas sales, but subsidies and compensations it must pay to PLN will also be reduced, Mulyana said, forecasting a net savings of 4.51 trillion rupiah.

The government had previously budgeted 54.8 trillion rupiah in subsidies for PLN in 2020, assuming the utility will begin charging some customers market prices in January.

The energy ministry, however, has recently decided not to raise electricity tariffs until June 2020, extending its policy of freezing rates since 2017.

Indonesia, Southeast Asia’s largest economy, grew 5.02% last year, the weakest in three years. Growth may slow further this year as the spread of coronavirus globally hit its tourism and trade, as well as its financial markets.

$1 = 14,270 rupiah Reporting by Wilda Asmarini; Writing by Gayatri Suroyo; Editing by Tom Hogue

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