Download - 181107 ERIA-PYC Focus Group Discussion on Manufacturing … · 2019. 4. 16. · 1 ERIA-PYC Focus Group Discussion on Manufacturing Industry Review: Energy Perspective The FGD was

DISCUSSIONREPORTERIA-PYC FOCUS GROUP DISCUSSIONON MANUFACTURING INDUSTRY REVIEW: ENERGY PERSPECTIVE

WEDNESDAY, 29 OF AUGUST 2018PURNOMO YUSGIANTORO CENTER, JAKARTA

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1 ERIA-PYC Focus Group Discussion on Manufacturing Industry Review: Energy Perspective

The FGD was led by Mr. Luluk Sumiarso as the Supervisory Commissioner of Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) with a presentation from Dr. Mohammad Khayam as the Director of the Upstream Chemical Industry of the Ministry of Industry of Republic of Indonesia. The FGD also invited Dr. Shaleh Abdurahman as the General Secretary of the National Energy Council (Dewan Energi Nasional, DEN). Each presentation was then followed by a discussion session with the audience.

Purnomo Yusgiantoro Center (PYC) held a Focus Group Discussion (FGD) on August 29, 2018, as a part of the collaborative research between PYC and Economic Research Institute for ASEAN and East Asian (ERIA). The research aims to discuss the recommendations regarding energy issues in the manufacturing industry in Indonesia for the National Medium Term Development Plan (Rencana Pembangunan Jangka Menengah, RPJMN) 2019 – 2014. The objective of the FGD was to gain inputs, suggestions, and various perspectives from different stakeholders in the industry and energy sector.

SESSION 1Oil and Gas PolicyDiscussion

Regarding the mismatch issue between the industry and energy source location, he suggested that the gas-based industry, such as fertilizer and petrochemical industry, to be developed near the natural gas source, Masela and Tangguh Gas field. He also highlighted that the high natural gas price could be affected by two aspects; upstream gas price and downstream gas price. One measure to reduce the upstream gas price is by lowering the contractor cost via tax reduction. Tax reduction, especially for the gross split scheme, has been regulated in Government Regulation No. 53/2017. Other forms of incent ives should also be considered to reduce the natural gas price in

Dr. Rahmat Sudibyo

Mr. Rahmat Sudibyo addressed an additional recent issue regarding Oil and Gas Holding Company. The establishment of the Holding Company will be advantageous in avoiding natural gas infrastructure development overlap between PT. PGN and PT. Pertagas. He also appreciated the clarity and detail of the Gas Balance (Neraca Gas) document issued by the Ministry of Energy and Mineral Resource (MEMR). The document provides a comprehensive reference for Indonesia's current natural gas condition. The Natural Gas Transmission and Distribution National Master Plan (Rencana Induk Jaringan Transmisi dan Distribusi Gas Bumi Nasional) document could also serve as an extensive reference for Indonesia's natural gas infrastructure development plan. It contains complete information on the length of gas pipes, and the capacity of the pipes, natural gas distribution scheme. Additionally, the industry, as the energy consumer, should also have the complete energy data which is essential for its planning purpose.

Former Director General of Oil and Gas of the Ministry of Energy and Mineral Resource (MEMR)

the upstream. The gas price could also reduce the government share by considering a higher government revenue gain from the multiplier effect of the industry growth. H o w e v e r , t h i s o p t i o n r e q u i r e s a comprehensive review from the Ministry of Finance.

Underuti l ization of gas infrastructure contributes to the higher toll fee. The customer should fully cover the capacity cost although the pipeline is running in lower capacity. MEMR Regulation No. 58/2017 regulates the idle capacity cost that passed to the customer. However, the level of idle capacity cost should be reviewed whether the amount is still relevant to the current condition. Additionally, the underutilization issue of Floating Storage Regasification Unit (FSRU) Lampung occurs because of lack of demand for the industrial sector. It requires the gas to be transmitted through long transmission pipes which lead to higher natural gas price. The price hence resists PT. PLN to end the gas trading contract. The issues may be solved by moving the FSRU Lampung to another region. Moreover, the special gas price program for specific industry faces complexity to be implemented as the distribution of the natural gas to the

On the downstream side, the price of natural gas is influenced by the toll fee. The newly issued MEMR Regulation No. 58/2017 regulates the maximum total fee of 7% regardless of the number of players involved in the series of distribution of the natural gas from the upstream side to the end user. The regulation also stated that the maximum internal rate of return (IRR) for the investment is 11%. The implementation of the regu la t ions can a lso e l im ina te multilayered trader issue in the natural gas industry. Moreover, MEMR Regulation No. 6/2016 implicitly allows three players in a distribution series, namely producer, transporter, and end user.


industry requires multi-client, especially for the small customer.Indonesia's plan for gas infrastructure development has been documented in the Gas Balance Report. The document suggests that the development is divided into two regions, namely east and west region. For the west region, integrated pipeline concept is utilized with a virtual pipeline system as the support. Virtual pipeline system employs mini LNG or mini CNG system. While virtual pipeline concept is preferred for the base in east region with the locally clustered scheme as the support, furthermore, virtual pipeline attracts players, especially from a logistics company such as PT. Pelindo.

4ERIA-PYC Focus Group Discussion on Manufacturing Industry Review: Energy Perspective

SESSION 2ELECTRICITY POLICYDISCUSSION

cogeneration for the industrial customer by issuing a specific regulation.

Regarding the organization of the electricity industry, Malaysia gives a good example by separating the system operator and national electricity company. Malaysia's system operator is now under Suruhanjaya/Energy Commission which makes the day-to-day operation is under control of Suruhanjaya. On the contrary, Center for Electricity Control (Penyaluran dan Pusat Pengaturan Beban, P3B), Indonesia's system operator, is under PT. PLN, a national electricity company which potentially results in a conflict of interest issue. The issues can be avoided by separating P3B with PT. PLN. This strategy may accommodate the cheaper excess power from a private generator and broader utilization of cogeneration in industry. Generation cost covers 60% of electricity tariff with 70% of the cost come from the primary energy utilization process. So, it is essential to save the energy cost on the

Indonesia's regulation suggests that the integration of the renewable energy power plant requires its generation cost lower than local generation cost. Ideally, PT. PLN will approve all the renewable energy power plant that meet the criteria. However, the lack of mandatory renewable energy target or performance index causes unutilized renewable energy potential. PT. PLN's responsibility to integrate more renewable energy sometimes conflicts with its objective of sales performance.

Regarding the integration of renewable energy into the electricity system, some countries have a concern regarding whether the integration of renewable energy will distort the current electricity price, such as India and China. This concern leads to change in Indonesia's renewable energy integration policy which now set local generation cost as the reference for renewable energy power plant integration.

Former Director General of Oil and Gas of the Ministry of Energy and Mineral Resource (MEMR)

Mr. Jarman started the discussion by comparing the electricity price of ASEAN countries for the industrial customer. The lower electricity price in Vietnam is the result of a government subsidy program. However, V ie tnam is p lanned to do subs idy rationalization to save the government budget . Moreover, in Malaysia, the government cap the price of the natural gas supplied to the power plant which results in lower electricity price. The same capping price scheme is implemented in Indonesia for the coal price in Domestic Market Obligation (DMO) scheme.

The main concern for the industry is a competitive electricity price as it will affect the industry investment decision. Lowering electricity price will subsequently attract investment. In Indonesia, the regulation forbids energy price subsidy to industrial sector as the subsidy can only be given to the unprivileged people. The electricity price could also be affected by lower availability factor (AF) of the power plant.

The electricity oversupply occurs as the result of lower economic growth (5%), compared to the predicted level (7%). Furthermore, the change in consumer behavior followed the subsidy rationalization in 2013. The industry implemented energy efficiency actions to respond to the higher electricity price which resulted in lower electricity demand. Also, some industries also built their efficient power plant, such as cogeneration plant built by Toyota. Utilization of a cogeneration plant for industrial customer gives the advantage of supplying electricity and heat efficiently. Moreover, the Thailand government drives the use of

Dr. Rahmat Sudibyo



purpose. Natural gas could be sold or exported in the form of LNG which give the government revenue stream. On the other hand, the utilization of natural gas for the chemical industry brings added value to the natural gas which may results in higher r evenue fo r t he gove rnmen t . Th i s consideration should be discussed among respons ib le government en t i t ies in deve lop ing the count ry 's economic development plan.

Based on its activity, the industry can be divided into three groups, namely upstream, intermediate, and downstream industry. The government has the responsibility to make sure the industry energy demand is met as previously said that the growth of country's economy depends on its industrial growth. The growth of industrial sector brings revenue, job, and foreign exchange. For the industrial sector, the focus of energy provision is for the intermediate and downstream industry, especia l ly for electricity. Meanwhile, the upstream industry can afford to build its power generation due to its massive investment scale.

Clean energy could be achieved by the application of Integration Gasification Combined Cycle (IGCC) and Dimethyl Ether (DME) technology. IGCC technology can reduce the sulfur substance of the coal to make its cleaner utilization. Clean energy should be put forward in developing the future of Indonesia's energy. Clean energy should be broadly applied in all energy source, namely coal, gas, and oil.

The government should also consider the portion of natural gas for industry and energy

Head of the Committee of Chemical and Petrochemical of the Chamber of Commerce (Kadin)

Rauf Purnama

generation side. The saving could come from efficient day-to-day operation scheme which runs by P3B.

Power wheeling tariff calculation should be finished soon as it will be the enabler of green production in industry. Finally, the development of renewable energy could be pushed further by some means: (1) giving incentive to RE investment and (2) implementing renewable quota for PT. PLN by taking local generation cost into account.

In 2013, the government arranged the National Industrial Development Master Plan (Rencana Induk Pengembangan Industri Nasional/RIPIN). The document suggests three industry bases, namely agro-industry; oil, gas, and coal-based industry; and metal and mineral based industry. Nowadays, the development of industry put more concern in the strategic industry, especially the State Own Company operated industry. The development of industry is essential for a country as the growth of a country's economy is strongly affected by its industrial growth. For example, Indonesia's GDP was higher than in China and Korea in 1995 as a result of the industrialization era.

A s i d e f r o m i t s r e n e w a b l e e n e r g y development, China electricity supply still relies on its coal power plant. However, China's environmentally driven measures lead to the shutting down of small and inefficient coal subcritical power plant. China government now prefers developing supercritical power plant which emits lower emission.

Moreover, comprehensive planning should be arranged to accommodate and match the need of both the industry and energy sectors. The high economic growth assumption is somehow perceived as an unrealistic number by local government. This condition resists the local government to put a serious effort into achieving the energy development target. Realistic and doable data and target are preferred in developing the energy sector for the industry, especially in the local government level.

planning. Development of renewable energy could be focused in the area where electrical infrastructure is lacking and dominated by high-cost generators, especially outside the Java region.

Discussion

Energy and industry development planning should be done as an integrated unit among the responsible entities by considering the country's objective. Nowadays, some industries, such as RE100's industry, are committed to producing or demanding green products. Hence, the development of green energy and its enabler should be prioritized to cope with rising green industry demands. Moreover, the government should consider long-term multiplier effect in the increasing industry's productivity which may follow the reduction of energy price. One of the measures is to reduce government-take from the energy production process. Furthermore, incentives such as tax allowance and tax holiday are needed to support and to ease the investment and production of the industry and energy player. In return, the government may get higher tax revenue from the production increase of the incentivized industry.

Energy should be the enabler of economic growth. Manufacture industry's growth will be essential to support Indonesia's economy and improve Indonesia's balance of trade. The chal lenge is , however, on the dependency of imported raw materials. The considerably high production cost of local content leads to this problem to happen. Imported raw materials should be gradually substituted with the local content to avoid price volatility and reduce dependency on import. However, it will need a long time and consistent regulation. Moreover, consistent regulation and its implementation are also necessary to attract more investment in the energy and manufacturing industry.

The paradigm should shift from supply-dr iven to demand-dr iven in energy development planning. To support industry development, the demand-driven approach should consider RIPIN as the base of energy


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CHAIRPERSON:

Akhmad Hanan

Diwangkara Bagus Nugraha

I Dewa Made Raditya Margenta

Massita Ayu Cindy

Febria Oroh

LAYOUT & DESIGN

Jusa Junaedi

Nurmasyidah

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RESEARCHERS:

Filda Yusgiantoro

Pingkan Serafien

Rahmantara Trichandi

Galih Panuntun

EVENT:

Anggun Alfina Zakia