Gas pipeline project will reduce subsidy up to Rp 4t

The gas pipeline project which will link West Java and South Sumatera will help the government to reduce subsidy for the diesel oil of up to Rp 4 trillion ( 1US$=Rp 9500) a year, according a senior executive of the state owned gas company PT PGN.

PT PGN's president Qoyum Tjandranegara said that the 555-kilometer pipeline network, which will transmit natural gas from South Sumatera to West Java, particularly to the industrial town of Cilegon would be able to significantly reduce diesel oil demand.

The government could at least reduce the subsidy allocated for the sale of diesel oil of up to Rp 4 trillion a year when the US$720 million pipeline project started its operation, said Qoyum as reported by Neraca daily on Tuesday.

He said that the gas pipeline project which is scheduled for operation in 2005, will be able to supply some 600 million meter cubic feet of gas per day (mmcfd) to West Java.

The project will be financed with a special yen loan from Japan, he said, adding that the special loan, which will have a maturity period of 40 years including a grace period of 10 years, will carry interest rate of 0.75 percent per annum.

According to him, the construction of the gas pipeline will be quite strategic given the fact that the supply of natural gas from West Java would start to decline by the year 2003. "That's why we need to build a pipeline network linking West Java and South Sumatera to anticipate the decline in the gas resource in West Java," he added.

Qoyum acknowledged that the price of gas was still relatively too expensive for industrial purposes at present. "In the future, the gas price should be lowered to encourage local industries to use gas as their main fuel," he said. (*)