Speeding Up LPG Replacement
The gas pipe networks for homes infrastructure project and the supply of electric cookers as an alternative to LPG have shown little progress. Commitment and resolution from the government are needed.
he government does not have many choices if it wants to immediately reduce the subsidies for liquefied petroleum gas or LPG for households. Persuading people to switch to electric induction cookers and the construction of city gas pipeline networks in housing areas are two policies that the ministry of energy and mineral resources must implement immediately. If not, the ever-increasing cost of imported LPG will worsen Indonesia’s trade deficit and current account balance.
At present, around 70 percent of the 8.8 million-ton annual LPG demand has to be met through imports. This not only increases the trade deficit but also means the government has to spend more and more subsidizing LPG sales to the public. This year spending on the LPG subsidies will reach Rp50 to 60 trillion.
The government should have anticipated this when it launched the kerosene-to-LPG conversion program 13 years ago. At that time, the government enthusiastically pushed for people to abandon kerosene by distributing free 3-kilogram LPG cylinders and gas cookers. In three years, 50 million families switched to LPG. There was a saving on kerosene subsidies, but now the government is hostage to LPG subsidies and imports.
The government policy to place state electricity company PLN and state gas company PGN at the forefront of the program to switch from LPG to electric induction cookers and city gas pipeline networks needs to be reexamined. The conversion has proceeded at a snail’s pace. Since 2009, PGN has only connected 500,000 homes to gas pipelines, or 0.9 percent of the total number of homes in Indonesia. This is despite the fact that the target is for four million homes to be connected to gas pipelines in 2024 and 30 million homes by 2035.
The performance of PLN in the LPG conversion has also been less than impressive. It has only just begun introducing electric induction cookers to a number of regions in Java and Bali. The target is that by next October 1 million households will have switched from LPG to electricity. In the next 10 years, PLN has set a target of 15 million households no longer cooking with LPG because they will already have electric cookers. Hard work and government support will be needed to ensure this target is met.
Therefore, the responsibility for building city gas pipeline networks should be taken over by the government, in this case the ministry of energy and mineral resources. State-owned enterprises like PGN and PLN cannot be forced to construct extraordinarily expensive infrastructure that could worsen their corporate financial positions. Although the majority of their shares are held by the government, both companies still have to try to make a profit.
The plan to involve the private sector in the construction of gas pipelines is not the right policy. In the hands of the private sector, as well as the potential for monopolies, households will be forced to pay too much for gas. This is unavoidable because the companies will have to recoup their initial investments. After the gas pipeline infrastructure has been built by the government, private companies could become operators supplying gas to households.
Like highways or railroads, the construction of public service infrastructure like gas pipelines should be the responsibility of the government, both in local and national level. The funding must also come from the state. Without this type of support, the conversion from LPG to gas networks and electricity will never move forward.