This content is from: Local Insights

Indonesia: Gas for power generation regulation

Earlier this year, Indonesia's Ministry of Energy and Natural Resources issued a regulation to regulate the pricing of gas fed into the country's electric generators. PLN, the state's electricity company, is the largest operator of these generators, although the regulation also applies to other electricity producers supplying electricity to PLN.

Under the new regulation, development of generators running off wellhead gas may be done without a tender if the agreed gas price does not exceed eight percent of the Indonesia Crude Price (ICP). If the wellhead gas price is higher than eight percent of ICP, a tender is required.

PLN may also obtain gas from other sources, including domestically sourced or imported LNG. The new regulation gives preference to domestically sourced LNG, provided that the price is not higher than 11.5% of ICP per million british thermal units (MMBTU) - in other words, parity price to oil. If the domestically sourced LNG is not available, imported LNG may also be brought in. The price of the imported LNG may not exceed 11.5% of ICP per MMBTU.

If the target price described above is not available, PLN may source its gas needs from domestic providers (including piped gas) at a price higher than the target price.

In all cases, the regulation stipulates that although price escalation is discouraged, it is not prohibited.

The prices discussed above exclude any piping tariff, which is also regulated, or other downstream transportation costs (if the means of gas transport is not via pipelines).

The regulation was effective as of January 27 2017.

Oene-MarseilleEmir-NurmansyahOene Marseille and Emir Nurmansyah

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