Cut in gas prices might affect new investments

BP Migas, the government's agency in charge of oil and gas exploration and production activities, has warned that additional cut in gas prices for domestic market might hamper flow of new investments in gas exploration and production activities, Neraca daily reported on Thursday.

"The government's decision to lower gas prices in the domestic market to US$1.5 per MMBTU is still OK. But a further cut could affect investment activities," BP Migas' Vice Chairman Kardaya Warnika, said.

He said if the price of gas was no longer attractive, it would certainly affect new investment activities. "The halt in new investment will reduce exploration activities, and its impact can be seen within the next five to 10 years," he added.

He said that average gas production ranges between US$1 and US$2 per MMBTU. In order to provide more conducive investment climate, gas producers should be allowed to negotiate the price directly with their buyers, he said.

Wardaya also criticized the mechanism in the provision of subsidy for fertilizer producers. "If the purpose of the subsidy is to help farmers, the most effective way is to raise rice prices so that the farmers will receive higher income," he said.

The government recently reduced the price of gas sold to fertilizer producers so that farmers can buy fertilizer at cheap prices. (*)