Gas prices for fertilizer producers set at $1.30 per MMBTU

The government finally approved the reduction of gas prices for fertilizer producers to US$1.30 per Million British Thermal Unit (MMBTU) from between the current range of $1.00 to $2.00 under the so-called called Domestic Gas Incentive (IGD) scheme.

The director general of farm, chemical and forest product industries at the Ministry of Industry and Trade, Gatot Ibnusantosa, said that Finance Minister Prijadi Praptosuhardjo had signed a decree that set the gas price for fertilizer producers at $1.30 per MMBTU.

"The letter from the finance minister has been sent to Minister of Energy and Mineral Resources Purnomo Yusgiantoro and Minister of Industry and Trade Luhut B. Pandjaitan, and to fertilizer producer PT Pupuk Sriwijaya (Pusri)," Gatot said in Jakarta on Wednesday (Dec. 6).

With the approval from the finance minister, Gatot said, fertilizer producers under holding company PT Pusri would buy gas from state oil and gas company Pertamina at the set price of $1.30 per MMBTU, starting next year.

"Gas purchase contracts with gas price set at $1.30 is likely to be implemented next year after the existing contracts expire," he said.

While for fertilizer producers that had gas purchase contracts with gas price set at US$1.00 per MMBTU would not follow the new gas pricing of $1.30. They include PT Pupuk Iskandar Muda and PT Pupuk Kaltim.

Pusri president Suhadi said recently that the establishment of the new gas prices at $1.30 per MMBTU would not affect the government's revenue from gas sector.

Suhadi noted that fertilizer companies' spending for natural gas constituted the largest portion of the company's cost, accounting for around 60 percent to 70 percent of the production cost, as gas served as the main raw materials for fertilizers.

Currently gas prices differ among fertilizers companies, basically ranging from US$1.00 to $2.00 per MMBTU. Pusri and PT Pupuk Kujang, for instance, pay $1.80 per MMBTU of gas to state oil and gas firm Pertamina.

PT Petrokimia Gresik pays $2.00 per MMBTU of gas, PT Pupuk Iskandar Muda and PT Pupuk Kaltim pay only $1.0 per MMBTU.

Suhadi said most local fertilizer producers lost potential profits because of the high gas prices and the low selling prices of fertilizers to farmers as the government had set the fertilizers selling prices at Rp 1 million per ton.

He noted that offshore fertilizer companies mostly enjoyed low prices of gas, mostly below $1.00 per MMBTU. Meanwhile, international prices of fertilizers currently stood at Rp 1.08 million per ton with an exchange rate of Rp 8,000 per U.S. dollar. (*)