Kalimantan-Java gas pipeline to go ahead as scheduled, vows official

The Jakarta Post, Jakarta

PT Bakrie & Brothers has finally received the green light from the government to continue work on its US$1.26 billion gas pipeline linking East Kalimantan and Central Java, despite earlier uncertainty over the gas supply for the project.

Downstream Oil and Gas Regulatory Agency (BPH Migas) chairman Tubagus Haryono said last week that the project would go ahead in line with the original schedule as there were no longer doubts over the gas supply for the country's longest pipeline project.

He said Bakrie would have sufficient supplies from the gas-rich region as most of the current Liquefied Natural Gas (LNG) export contracts from the province would have been terminated by the time the project comes onstream in 2011.

According to the government's gas balance figures, the East Kalimantan region will have a gas surplus of 1,629 million cubic feet per day by 2011 as demand is expected to drop to 1,413 million cubic feet per day while the supply will stand at 3,042 million cubic feet per day.

Up until to 2009, most of the gas produced in the province will be used to supply LNG exports to Japan and South Korea.

The government had earlier said it might cancel Bakrie's contract to construct the 1,115 kilometer pipeline should the company fail to secure a gas supply and sales contracts by July this year.

The project was also thrown into doubt after it became apparent that a gas block in Cepu which is being developed by ExxonMobil Indonesia in cooperation with Pertamina would likely be able to supply enough gas to meet increasing demand in Central and East Java.

However, Tubagus denied the project was danger, saying, "The project is still going ahead and there are no plans to terminate the contract,"

Kontan business daily reported that a number of international institutions, including Mitsui, Mizuho, both of Japan and Deutsche Bank have committed to providing loans worth about US$1.26 billion to finance the project. Bakrie alone will provide about $400 million to finance pipe procurement and construction works.

Bakrie won the tender to build the pipeline in July last year, outbidding two other local companies, PT Rekayasa Industri and PT Barata.

The project is opposed by gas producers as the pipeline will reduce their LNG exports and cut their revenues as the gas will be sold at a lower rate to domestic buyers.