Indonesia must honor Tangguh LNG sales contract: Hatta
Wednesday, June 16 2010 - 10:03 AM WIB
"We must honor this long term contract. It's about Indonesia's reputation," he told reporters in response to calls for the government to renegotiate the Tangguh LNG sales contract.
He said that the Tangguh sales contract must be seen with historical context when the country in the past had failed to reach deals with a number of buyers in other countries.
He added that previous renegotiation attempt led by ex finance minister Sri Mulyani had not succeeded, and that the government would try it again.
In May 2009, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that Indonesia is not pursuing efforts to renegotiate the price of LNG that will be delivered from the Tangguh LNG to the Fujian province. ?According to the contract, we can renegotiate the price of (LNG delivered to) Fujian every four years.(A renegotiation) is not necessary for the moment,? Purnomo said on May 14, 2009.
Indonesia signed a contract with China in 2002 to supply Fujian with 2.6 million tons per year of LNG from Tangguh for a period of 20 years starting 2009.
Under the contract, the LNG price is pegged to the crude price. So the LNG price will rise and fall along with the fluctuation of the crude price. The 2002 contract set the crude ceiling reference price at $25 per barrel.
In 2006, four years after the signing of the contract, China agreed to revise upwards the ceiling reference price to $38 per barrel.
In 2008, when the price skyrocketed to above $145 per barrel, Vice President Jusuf Kalla voiced loud criticism against the contract, saying the crude ceiling reference price is too low that Indonesia could not benefit from the rise in crude price. He thus called for a renegotiation of the contract price and President Susilo Bambang Yudhoyono later formed a renegotiation team led by Sri Mulyani.
The BP Plc-led consortium which owns the Tangguh LNG plant has signed a 20-year LNG purchase agreement with Korean companies POSCO and K-Power for a total of 1.15 million tons of LNG per year and a flexible contract to supply up to 3.7 million tons of LNG per year to the Sempra LNG terminal. (bernard)