The Indonesian government has just announced that it is continuing the Certain Natural Gas Price Incentive (HGBT) program, based on the Decree of the Minister of Energy and Mineral Resources issued last week. In this latest policy, the gas price applicable to certain sectors has been adjusted, from the range of 6-7 US dollars per MMBtu to 6.5-7 US dollars per MMBtu. Interestingly, this price will apply retroactively from January 2025 and this incentive period will last for 5 years.

What Are the Sectors That Benefit?

This HGBT incentive remains valid for 7 industrial sectors, including ceramics, fertilizers, petrochemicals, olechemicals, steel, glass, and rubber gloves. The Commissioner Chairman of the Indonesian Ceramic Industry Association (Asaki), Edy Suryanto, revealed that this step is very important to increase the competitiveness of the ceramic industry in the country.

Why Is HGBT Extension Important?

Edy emphasized that the extension of this incentive is considered crucial to provide business certainty and create a more conducive investment climate in the country. According to him, the HGBT incentive, which has been running from 2020 to 2024, has succeeded in increasing the national ceramic tile production capacity to 90 million square meters and attracting foreign investment of around 20-23 trillion rupiah, which has also absorbed around 15,000 new workers.

Expansion Plan and Production Target

With the continuation of the HGBT incentive, Edy continued that Asaki members plan to increase the production capacity of ceramic tiles by 45 million square meters per year through an investment of 4 trillion rupiah, which is expected to absorb an additional 5,000 new workers. The plan is targeted to be completed by the second half of 2026 at the latest.

Gas Supply Issues

Although Asaki supports the increase in HGBT tariffs, Edy emphasized that they hope that the implementation of this incentive will be carried out well in the field. One of the important points he raised was the supply of gas which must be in accordance with the needs of the industry, as stated in the Decree of the Minister of Energy and Mineral Resources.

Discourse on Surcharge Increase

Previously, Edy also expressed concerns regarding the increase in surcharges by the State Gas Company, which increased the additional cost of using gas from 13.85 US dollars per MMBtu to 16.77 US dollars per MMBtu. If this happens, HGBT’s goal of increasing the competitiveness of the manufacturing industry and supporting economic growth could be threatened.

Positive Impact for Issuers

This HGBT incentive is believed to bring positive sentiment to issuers who are sensitive to gas prices, especially Arwana Citramulia ($ARNA). With the extension of the HGBT incentive, Arowana is certain to be able to continue to access gas at a lower price. So, how does it affect them?

• Ease of Access: The extension of HGBT ensures that Arowana can still access gas at a more competitive price, considering that energy costs contribute around 32% of its total production costs in 2024.
• Retroactive Pricing: The new price will be in effect from January 1, 2025, so during January-February 2025, Arowana will not be charged a higher market rate.
• Measurable Increase: The increase in HGBT tariffs will only increase Arowana’s gas costs by around +10%, while they can increase the average selling price by around +2% to cover the cost of the gas, which is considered to be within reasonable limits after the implementation of anti-dumping duty regulations on ceramics.

With the extension of HGBT incentives and moderate price increases, the stability of production costs for Arowana can be maintained. This affects growth projections that are believed to reach double-digits by 2025, with net profit estimated to reach around 500 billion rupiah, an increase of more than 17% year-on-year.

Conclusion

With all the benefits presented by the extension of the HGBT incentive, Indonesia’s natural gas and manufacturing industries seem to get a breath of fresh air. Can we hope for sustainable growth in the midst of these challenges? HGBT is one of the keys to unlock great potential in this sector, provide certainty for industry players, and open up opportunities for greater investment in the future.