Ministry to limit gas trading margin at 7%

The Ministry of Energy and Mineral Resources plans to limit margins of gas traders at 7 percent as part of measures to help bring down gas price for end users including power plants and manufacturing industries.

The limit on gas trading margin and the other planned measures will be included in the new ministerial regulation on gas price for downstream industries, which is currently being finalized and set to be issued soon. Until now, there has been no limit on the gas trading margin.

Director General of Oil and Gas at the ministry IGN Wiratmaja Puja said on Tuesday that the new ministerial regulation will also limit the internal rate of return (IRR) of companies developing and operating gas pipeline at 11 percent from current average of 12 percent to help lower the so-called toll fee, which in turn would help bring down gas transportation cost.

?For instance, a pipeline with 700 meter in length currently takes a fee of US$1 per mmbtu. If it is set based on 11 percent IRR, the fee could probably be under $1 per mmbtu,? he said.

He added that the depreciation period of the pipeline will be extended to 15 years so as to also help reduce the toll fee. A shorter depreciation period forces the pipeline operators to set higher fee.

?To date, the depreciation period has not been regulated, so it is merely set based on the (period of gas transport) contract. If, for instance, the contract is only five years, then the depreciation period is set five years. As a result, the fee is high, while in fact if the contract expires, the pipeline can always get new contracts in the future,? Wiratmaja explained.

Minister of Energy and Mineral Resources Ignasius Jonan previously said that the planned new measures could hopefully bring down price of gas for the end users by up to 10 percent.

Head of the Indonesia Natural Gas Traders Association (INGTA) Sabrun Jamal said that the planned new policy would further undermine the business of gas traders in the country. He said that limiting the margins at 7 percent would make it difficult for the traders to survive.

He said that gas traders have already been under pressure by past government policy of cutting down the duration of gas sales and purchase contract from 10 years in the past, and has since 2008 declined gradually to five, three, and now only one year. He claimed that currently traders could only obtain average margins of 7.2 percent used also to cover operating expenses and investment. (*)