Gas firms wary of rule on domestic output sales

The government is seeking to require gas producers in the country to sell 25 percent of their output in the domestic market, a move that is likely to irk investors as prices at home are considerably lower than international levels. The Jakarta Post reported on Thursday.

The new requirement is contained in the proposed amendment of Law No. 22/2001 on oil and gas.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Wednesday the price for the locally allocated portion of the gas output would be determined by producers and consumers.

“If consumers cannot (afford to) pay, the government will intervene,” said Purnomo. “There may be incentives for producers for the 25 percent (allocation) of gas.”

The Constitutional Court ruled in December 2003 that three problematic articles in the oil and gas law needed to be amended to avoid misinterpretations. Among them is Article 22, which stipulates that oil and gas producers are obligated to dedicate up to 25 percent of their share of output to meet domestic demand.

Head of the energy minister’s law bureau Sutisna Prawira said the wording would be changed to “obligated to dedicate 25 percent of their share of output to meet domestic demand”.

Chairman of the Indonesian Petroleum Organization (IPA) Chris Newton warned that the policy would discourage investors from making new investment in the sector if the pricing under the domestic market obligation (DMO) scheme turned out to be low.

“What’s the base of the pricing? The prices of fertilizer and electricity are regulated by the government, which reflect on domestic gas prices,” Newton, also CEO of the country’s second largest oil and gas firm PT Energi Mega Persada, said in referring to two industries with considerable gas demands.

Spokesman of Total E&P Indonesie Ananda Idris said the DMO would only be applicable for contracts signed after the law came into effect.(*)