The export oriented gas policy in the past had been driven more by the need to earn as much foreign exchange as possible failing to foresee possible difficulties with the rapid growth in domestic consumption. The country has been bound under long term contracts to export the bulk of its gas production. It is not free to use its natural wealth to feed its industries such as fertilizer factories. At least one major fertilizer factory PT Asean Aceh Fertilizer (AAF) has been closed over scarcity in supplies of gas feedstock. PT Pupuk Iskandar Muda (PIM) was forced to suspend operation for the same reason. Ironically the two factories are located in area of one of the country's largest gas fields in Nanggroe Aceh Darussalam.
Fertilizer factories could not buy gas from producers at a price prevailing in international market as they sell their production at a government set price, which is much below the market level. With the highest retail price (HET) set by the government, a fertilizer factory could pay not more than US$2 per MMBTU of gas.
PT Pupuk Iskandar Muda (PIM) until now is not yet secured in gas supply. It still relies on a swap arrangement with PT Pupuk Kaltim for only 3 cargoes or 8,806,515 MMBTU or gas or enough to meet only 25% of its requirement.
PT AAF has been liquidated after being left idle since 2003. Now around 70% of production facility has been out of function and became a heap of scrap.
The government, which has a target to make the country self sufficient in food supplies in 2015, has announced plan to launch revitalization program for fertilizer factories. The country hopes to increase fertilizer production with program, which is estimated to cost around Rp49.01 trillion.
The program, however, will not succeed without any guarantee in gas supplies. Banks demand the government to give a 20-year guarantee before they are ready to funnel money to the project. They would not risk spending money on project with doubtful prospects.
The country's fertilizer production capacity has not changed significantly since 2003. Capacity expansion was made for urea in 2005 to 8.03 million tons from 7,517,000 tons earlier.
The expansion of the production capacity depends much on the government policy which determines the quantity of fertilizers to be supplied to the far and plantation sectors in line with the subsidy it provides.
The government encourages the use of NPK to increase productivity. The price of the compound fertilizer is relatively expensive but it will improve the productivity of plants. In 2005, PT Petrokimia Gresik, the producer of NPK, expanded its NPK production capacity by 100,000 tons. The production capacity was raised again later to reach 910,000 tons a year. Meanwhile, the country's production capacity for ZA and TSP/SP-36 has remained unchanged in the past five years.
PT Pusri is the oldest fertilizer producer in the country. It now has six factories with a total production capacity of 2.28 million tons a year. PT PKG is the only producer of ZA, phosphate and NPK fertilizers in Indonesia with a total production capacity of 2,583,000 tons a year.
PT Pupuk Kujang is a producer of urea with a production capacity of 1.140 million tons a year. PT Pupuk Kaltim has a production capacity of 2.98 million tons a year and the largest producer of urea fertilizer in Indonesia.
PT Asean Aceh Fertilizer, which is a joint venture between the founding member countries ASEAN stopped operation in 2003 and was finally liquidated in 2006. It had production capacity of 627,000 tons urea. PT PIM, which suspended operation for some time has production capacity of 1.17 million tons of urea and urea granule.
Major Fertilizer Producers
Indonesia has six fertilizer producing companies including five state companies under a Holding Company, PT PUSRI as the Leading Company. PT Asean Aceh Fertilizer was liquidated in 2006, after lying idle starting 2003 over scarcity of gas feedstock supplies.
PT Pupuk Sriwijaya (PUSRI)
PUSRI was established in 1959 in Palembang, South Sumatra. It was built specially to produce urea fertilizer. Its first factory started operation in 1963, with a production capacity of 100,000 tons. Later it built four more factories - in 1974, 1976, 1977 and 1994 - that production capacity totals 2.28 million tons a year.
Based on a decision of the industry and trade minister No 70/MPP/Kep/2/2003 on 11 February 2003 on procurement and distribution of subsidized fertilizers PT Pupuk Sriwidjaja (business unit) is to be responsible for fertilizer distribution to West Sumatra, Jambi, Riau, Bengkulu, South Sumatra, Bangka Belitung, Lampung, Banten, Jakarta, Central Java , Yogyakarta and West Kalimantan.
PT Petro Kimia Gresik (PKG)
The Indonesia government established PKG in Gresik, East Java, in 1972 to produce ZA (Zwavelzuur Ammonia or Ammonium Sulfate), with a production capacity of 200,000 tons a year. The factory copes with the scarcity in supplies of nitrogen-based fertilizers, which are cheaper. Construction of new units of factory followed in 1985 and 1986 increasing its ZA production capacity to 650,000 tons a year.
PKG also built two (Triple super phosphate)/SP-36 factories in 1979 each with a capacity of 500.000 tons to reduce dependence on imports
In 1994, its urea plant came on stream with an annual capacity of 460,000 tons. PKG is also the only producer of NPK (Nitrogen-Phospor-Kalium). The NPK plant was built to reduce dependence on imports of NPK fertilizer. The types of NPK fertilizers produced by that factory include NPK Phonska, NPK Blending, NPK Granulation. The production capacity of the NPK factory is 910,000 a year.
PT Pupuk Kujang (PKC)
PKC was built in 1975 in Cikampek, West Java, with a production capacity of 570.000 tons a year. The factory was built to cope with shortage in urea fertilizer supplies in the country, especially in Java.
The production capacity of PKC has increased with the construction of new production unit , which came on stream in 2005 with the same capacity bringing its production capacity to 1.14million tons a year .
PT Pupuk Kalimantan Timur (PKT)
The company with factory in Bontang, East Kalimantan came on line in 1984 with a production capacity of 700,000 tons. For new factories including a Popka factory were built and came on stream in 1985, 1989, 1999 and 2002 respectively raising its total capacity to 2.98million tons. PKT is now the country's largest producer of fertilizers. Its fifth urea factory is expected to come on line in 2011 to meet a surge in demand in 2015.
PT Asean Aceh Fertilizer (AAF)
An Asean declaration in Bangkok in 1979, a joint venture fertilizer company was established PT Asean Aceh Fertilizer (AAF) in Lhokseumawe (Aceh) to produce urea fertilizer. PT AAF is 60% owned by Indonesia's PT PUSRI (60%), 13% by Thailand's Finance Ministry, 13% by Malaysia's Petronas and another 13% by Philippines's National Fertilizer Corporation and 1% by Singapore's Temasek Holding Pte Ltd.
The factory started production in 1983, with an installed capacity of 627,000 tons a year. Its entire production was for export to other founding countries. The company stopped operation in 2003 after its received no more gas supply from Arun gas field operated by ExxonMobil Indonesia (EMOI). EMOI stopped gas supply after failure to reach agreement on gas. EMOI wanted to raise the gas price to US$ 1.5 million per Brtitish Thermal Unit (MMBTU) under a new contract but PT AAF wanted the price remaining at US$ 1 per MMBTU.
Finally after long lying idle, the company was liquidated in 2006.
PT Pupuk Iskandar Muda (PIM)
PT PIM was the latest factory built by the government producing urea fertilizer in Lhokseumawe in 1982. The company started operation in 1984 with a capacity of 600,000 tons a year. The company is responsible for urea supplies in Nanggroe Aceh Darussalam and North Sumatra. Part of their production is exported.
Its second factory came on line in 2005 with a capacity of 570,000 tons a year bringing its total production capacity of 1.17million tons. The two factories temporarily suspended operation in 2005 on scarcity in gas supplies. One of its factories was able to resume operation after receiving gas under swap arrangement from PT Pupuk Kaltim.
PIM still relies on ExxonMobil for gas feedstock until 2009. It hopes to start receiving supplies from the off shore A Block in Aceh operated by Medco E&P. PT PIM has signed a long term contract with Medco for gas supply starting in 2010 until 2020.
Fertilizer production depends much on the government policy as al producers are owned by the state and they are all established mainly to support development of the farm and plantation sectors.
However, production is also determined by the availability of gas feedstock especially for urea fertilizer. Shortage in gas supplies for domestic consumption has caused difficulty in increasing and maintaining production lately. Production has remained stagnant in the past several years.
Production of urea fertilizer in 2003 reached 5,733,121 tons and it remained unchanged until 2007. Increase in production capacity in 2005 resulted in a decline in capacity utilization to 70.4% in 2006, down from 76.3% in 2003.
Production of ZA fertilizer rose substantially from 479,281 tons in 2003 to 625,000 tons in 2006, and that of NPK surged from 113,842 tons in 2003 to 412,663 tons in 2006.
The capacity utilization of NPK industry rose from 31.6% in 2003 to 89.7% in 2006 In 2007, the country's production of NPK rose further to 746,347 tons, but the capacity utilization fell to 82.2% because of the expansion of NPK production capacity of PT Petrokimia Gresik. The capacity expansion was in line with the government's call to use more NPK to improve farm productivity.
The country's production of urea has been dominated by PT Pusri and Pupuk Kaltim, with production relatively stable from year to year. Production of PT Pusri reached 2,020,760 tons in 2007 down slightly from 2,053,410 tons in 2003.
An increase in urea production was recorded mainly by PT Pupuk Kujang, after the operation of Kujang 1B in 2005.
A decline has been recorded in production by PT PIM as a result of the scarcity in gas supplies in Aceh since 2003. It even was forced to temporarily stop operation. It could resume operation after receiving gas under swap arrangement with PT Pupuk Kaltim in addition to supplies from ExxonMobil,
PT AAF was finally liquidated in 2006 after being lying idle since 2003 also on problem in gas supplies.
Problem in gas feed stock supplies remain crucial
Gas accounts for 50%-60% of the urea fertilizer production cost structure. Therefore, scarcity in gas supplies have forced PTAAF to stop operation in 2003 leading to its liquidation in 2006.
Similarly PT Pupuk Iskandar Muda (PT PIM) was forced to temporarily stop the process of production for the same reason. PT PIM was able to resume operation although much below capacity with gas from PT Pupuk Kaltim and ExxonMobil.
The problem often faced by fertilizer producers is over gas price in addition to availability of supplies. Fertilizer producers including urea, ZA and NPK fertilizer producers could not easily follow the market mechanism as the selling prices for their products are set by the government with highest retail prices (HET) through a decision of the agriculture minister No. 107/Kepts/SR. 130/2/2004. The HET was Rp 1,050 /kg or US$ 100 per ton under the decision while the gas prices in international market has continued to soar.
Some of the producers have signed long term contracts with gas suppliers such as Pertamina, ExxonMobil and Medco E&P.
PT. Pupuk Sriwijaya (Pusri) has gas supplies from PT. Medco E&P Indonesia. Medco E&P totaling 259.2 billion British thermal unit (BBTU) over a period of 15 years starting January 2008. The contract is valued at US$ 866.3million under which Medco supplies 45 BBTU per day at a price of USD3.586 per million British thermal unit (MMBTU).
The gas is supplied from gas fields in South & Central Sumatra Extension (SSE) block, transported through pipeline of Pertamina spanning a distance of around 130 km to the factories of Pusri in Palembang.
PT Pupuk Kujang Cikampek (PKC) is supplied by BP Indonesia early January 2007, after its contract with Pertamina expired in April 2006. Under the contract with BP Indonesia, PKC receives 135 Billion British Thermal Unit (BBTU) over the period of 2007-2017. The gas is supplied from an offshore block, Offshore North West Java (ONWJ), with a price of US$ 3.63 per Mile Mile British Thermal Unit (MMBTU).
PT PIM is supplied gas under a swap arrangement with PT PKT. PIM II will have supplies from Malaysia's Petronas Petroleum National Berhard at a price of US$18 per million Btu (British thermal unit). For the period of 2010 - 2020 PT PIM already signed a contract with Medco E&P in March 2007 for gas supplies from the A Block.
Head of the Upstream Oil and Gas Executive Body (BP Migas) Kardaya Warnika said Medco E&P will have extra gain from the increase in gas price and incentive for supplying gas for domestic consumption.
Gas supply for Petro Kimia Gresik (PKG) also has not yet been fully secured as gas supplying capacity of EMP Kangean has declined around 5 mmscfd per month. PT Petrokimia Gresik receives gas supply from Kodeco Energy Co Ltd. Under contract effective as from January, 2007 Kodeco will sell 26.3 trillion British Thermal Unit (TBTU) to Petrokimia Gresik until 2011 valued at US$120.81million .
PT Pupuk Kaltim receives gas supplies form gas well in East Kalimantan including those of Total EP Indonesia, Vico and Chevron. The gas contracts for Kaltim-3 expired on 31 December 2007. Until now PT Pupuk Kaltim has not secured new contract after the present contracts expire. Kaltim-3 needs around 55 MMSCFD of gas. ..........................