Uncertainty about Gas Price Undermines Investment in Indonesia
The high gas price in Indonesia is unattractive and therefore discourages investment realization in Southeast Asia's largest economy, especially investment in the Chemical, Textile and Miscellaneous Industries (CTMI) segment. The main contributors to investment in this segment are the chemical and pharmaceutical industries.
In the January-September 2017 period, investment realization in the CTMI segment reached IDR 66.7 trillion (approx. USD $4.9 billion), only equal to 60 percent of investment realization in full-year 2016. So far this year, foreign investment dominates the CTMI segment with IDR 44.5 trillion worth of investment realization.
Achmad Sigit Dwiwahjono, Director General for Chemicals, Textile and Miscellaneous industries, said the chemical and pharmaceutical industries are key sources of direct investment in Indonesia. However, uncertainty about the gas price makes investors wary. For example, several investors that are eager to develop petrochemical plants in Indonesia are awaiting certainty about Indonesia's gas price.
In 2016 Indonesian President Joko Widodo signed Presidential Regulation No. 40/2016 on the Determination of the Natural Gas Price. This regulation, which forms the follow-up of the government's third economic policy package (released on 7 October 2015), determined seven domestic industries that would be allowed to pay lower gas price prices "by a maximum of USD $2 per 1 mmbtu if gas prices are higher than USD $6 per mmbtu". These seven industries are the fertilizer, petrochemical, steel, rubber glove, glass, pleo-chemical, and the ceramic industries.
However, only the fertilizer, petrochemical and steel industries are now paying lower gas prices, while the others are still waiting for the government to keep its promise. Even though the petrochemical industry saw a reduction in the gas price, stakeholders remain wary as regulations and circumstances tend to change fast in the country.
Indonesia's petrochemical industry is eager to use gas as the main fuel source (rather than being dependent on the more volatile naphtha price).
Indonesian Deputy Energy Minister Arcandra Tahar said many local industries request for low gas prices. However, Indonesia cannot sell its gas at too low prices to these industries because it would mean (1) the government will generate less revenue from the gas sector, and (2) it will undermine investment in Indonesia's gas industry.
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