Pertamina to pay compensation of Rp 1.4 trillion to PLN

State-owned oil and gas company Pertamina estimates that it will have to spend about Rp 1.4 trillion as the compensation for the shortage of natural gas supply from BP Indonesia to the East Java unit of state owned electricity company PLN, Suara Karya reported on Wednesday.

Manager of Pertamina?s production sharing operation, Effendi Situmorang said in Jakarta on Tuesday that the compensation would be made because BP Indonesia, which operates the Kangean gas field in Pegerungan, East Java, failed to meet the long-term contract to sell its gas to the state electricity company.

"As stipulated in one of the clauses in the contract, BP Indonesia should pay a penalty if it fails to meet the long-term contract. As the consequence, Pertamina should provide fuels as the compensation of the gas shortage from BP," he was quoted as saying.

In addition, Pertamina should also replace all the gas, which should have been supplied by BP to other industrial users. "We will soon meet industrial buyers to explain the gas supply crisis in the province," he said, adding that Pertamina would meet soon the BP management to solve the gas shortage problem.

In the planned meeting, Pertamina would offer two options to BP Indonesia, which has so far held the exclusive rights to supply natural gas to East Java. One of the options is to ask the oil company to surrender the exclusive rights in the sale of gas in the province, while the second option is to allow the company to extend its contract.

The shortage of the gas supply takes places because the depletion of the company?s gas reserves is faster than estimated. According to initial estimate, the gas reserves will start to decline only in 2004. But in the reality, the gas production has dropped sharply since 2001. Gas production, for example, dropped to 250 million cubic standard cubic feet per day (MMSCFPD) this month (April) from about 289 MMSCFPD in December, last year, while the demand has reached about 500 MMSCFD.

In a bid to help cope with the gas shortage, the government has asked Pertamina?s other production-sharing contractors such as Codeco and Lapindo Brantas to meet the gas demand in the province. At present, Codeco produces 40 MMSCFD while Lapindo about 20 MMSCFD but the two companies are still reluctant to meet the order until Pertamina removes the exclusive rights given to BP Indonesia. (*)