Government will change gas subsidy formula in 2003

The government will adopt a new formula in the provision of subsidy given to the country?s fertilizer producers beginning January next year. Fertilizer producers will no longer buy their gas at subsidized prices but they will receive compensation from the sales of their fertilizer to farmers, Neraca reported on Thursday.

Zainal Sudjais, President Director of PT Pupuk Sriwijaya, the holding company of the country?s state owned fertilizer producers, said in Jakarta on Wednesday that the prices of the fertilizer sold to farmers would be fixed under the government?s regulation., while the price of gas, the main raw material for the production of fertilizer, would be purely based on negotiations between sellers and buyers.

The subsidy would be given for the sale of certain fertilizer products such as urea, ZA or ammonium sulfate, super phosphate SP 36 and NPK. Because the prices for such types of fertilizer could be lower than the market prices, fertilizer producers would receive the compensation from the price difference from the government.

He said that the amount of the fertilizer subsidy for 2003 was projected to reach Rp 1.31 trillion, and about 70 percent of the total would be given to fertilizer producers during the early part of the year. The remainders would be paid by the end of the year after the government?s audit body completed their assessment.

This kind of subsidy was adopted years ago but it was later removed because the subsidized price system was often abused by plantation or farm companies. The price of the fertilizer sold to farmers will be about Rp 1,150 per kilogram for urea, Rp 1,500 for SP 36 and Rp 1,750 per kilogram for NPK next year.

With the introduction of the new subsidy system, local fertilizer producers are required to prioritize the sales of their fertilizer products to the domestic market. "Fertilizer producers will be allowed to export some part of their products only after the local market demand is fulfilled," according to Omay K. Wiraatmadja, President Director of state-owned PT Pupuk Kaltim.

According to him, there will be about an oversupply of between 1.5 million tons and 2 million tons in the production of the country?s fertilizer production. Producers will be allowed to export them under a tight control from the Ministry of Industry and Trade, he said.

However, Omay said, that Indonesian fertilizer producers would face difficulties to compete in the international market because the prices of gas in the domestic market would be much higher than those sold to their overseas competitors. (*)