Glass Manufacturers in Indonesia Urge Government to Cut Gas Price
Indonesian glass manufacturers are still waiting for the Indonesian government to cut the gas price. Yustinus Gunawan, Chairman of the Float and Safety Glasses Association (in Indonesian: Asosiasi Kaca Lembaran dan Pengamanan, or AKLP), says the high gas price undermines Indonesian glass producers' competitiveness as foreign counterparts can produce their glass output with lower production costs, hence being able to offer more competitive prices on the international market.
In fact, Gunawan says Indonesia's glass industry is at risk of deindustrialization with no new investment arriving, while a glass manufacturer in Central Java recently had to close its doors. As a result Indonesia's overall annual installed glass production capacity fell to 1.22 million tons (from 1.5 million tons previously).
In Indonesia's glass industry the gas price is currently at an average of USD $9.2 mmbtu, while in regional peers (Singapore, Thailand and Malaysia) industries can enjoy gas prices below USD $6 per mmbtu. For example, in Malaysia the gas price stands at a more competitive USD $5.5 per mmbtu.
Therefore, Indonesia has seen rising imports of glass products. Gunawan said especially imports from Malaysia show marked growth after a Chinese glass manufacturer invested in a new factory (in Malaysia) that has a production capacity of 700,000 tons per year. Other Chinese glass companies are currently also interested to build new glass manufacturing facilities in Malaysia.
According to data from Indonesia's Statistics Agency (BPS), imports of glass products into Indonesia rose 19.0 percent (y/y) to 292,393 tons in the January-July 2017 period.
Glass producers are among those that are highly affected by natural gas price movements as this energy source accounts for about 20-25 percent of their total production costs.
The Indonesian government does acknowledge the importance of cutting gas price. Last year 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 (that was released on 7 October 2015), determined seven domestic industries that will 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 first three listed industries above (namely 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 therefore urge the government to keep its promise.