It has been many months since Indonesian President Joko Widodo signed Presidential Regulation No. 40/2016 on the Determination of the Natural Gas Price in the second half of 2016. However, most businesses in Indonesia still need to pay a high price for gas. Therefore, businesses are again urging the government to be committed to its gas price policy.
Aforementioned Presidential Regulation No. 40/2016 determined that seven domestic industries will be allowed to pay a lower gas price. Lowering the gas price is important because currently Indonesian industries pay a much higher price (sometimes even more than double) compared to counterparts in other Southeast Asian countries. This causes higher production costs and therefore undermines Indonesia's competitiveness on the international market.
For example, Indonesian rubber glove producers need to pay a USD $12.2 mmbtu gas price, while foreign counterparts in the region can enjoy a USD $4.5 per mmbtu price. This is one of the main reasons why Indonesian rubber glove producers have difficulty to compete with foreign players. This is problematic because this industry is highly dependent on the export performance (Indonesia exports about 90 percent of its rubber glove production, mainly to the United States and Europe). Over the past couple of years several rubber glove factories in Indonesia needed to cease operations due to the unconducive circumstances.
Presidential Regulation No. 40/2016, which is the follow-up of the government's third economic policy package (that was released on 7 October 2015), stipulates lower gas prices "by a maximum of USD $2 per 1 mmbtu if gas prices are higher than USD $6 per mmbtu".
It is important to note that the government only selected seven industries that can enjoy the lower gas price. They are the following:
• Rubber glove
However, only the first three industries (fertilizer, petrochemical and steel industries) are in fact paying a lower gas price now, while the others are still waiting to enjoy the same advantage and urge the government to keep its promise. For example, Unilever Oleochemical Indonesia is currently still paying USD $10.2 mmbtu for the supply of gas in the special economic zone of Sei Mangkei in North Sumatra.