VP admits renegotiation of Tangguh LNG contract not easy

Vice President Jusuf Kalla admitted on Friday that it would not be easy to renegotiate the Tangguh LNG export contract because the price of the commodity had already been set, Antara news agency reported.

However he said through a mutual understanding, renegotiations might be possible.

?The situation has changed and I believe the Chinese government understands the mutual benefits of the two countries. Indeed, it would not be so easy to revise the contract, but with mutual understanding things could be arranged,? he told reporters.

The vice president also said the two countries were aware of the fact that the two countries need each other and therefore no threats would be made on each other during the renegotiations.

He said the Chinese government understood the Indonesian for renegotiating the contract.

?Negotiations will always start with matters of mutual benefit. One thing is clear, namely that Beijing is already for the talks,? he added.

Indonesia signed a contract in 2002 to supply China?s Fujian province with 2.6 million tons per year of LNG from the Tangguh LNG plant for a period of 20 years starting next year.

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. However, the 2002 contract capped the crude reference price at $25 per barrel. In 2006, China agreed to revise upwards the ceiling crude reference price to $38 per barrel -- still much lower than the market price. Crude has been traded above $100 per barrel since the beginning of the year and hit above $140 two months ago. (*)