The establishment of the energy holding company is pending the issuance of a presidential decree that will enable the government to transfer its 57 percent stake in PGN to Pertamina.

Politicians at the House of Representatives, which previously resisted the merger when proposed by the then state-owned enterprises (SOEs) minister Dahlan Iskan, should support the consolidation plan.

After the merger between Pertamina and PGN, the latter will acquire Pertamina’s gas subsidiary PT Pertamina Gas (Pertagas) either through a merger or acquisition. It will combine the gas transmission and distribution networks of about 7,500 kilometers currently operated by PGN and other gas-transmission and distribution-networks of about 3,000 km.

Needless to say, the merger is the most effective way of consolidating the operation of two state gas distributors under a single entity. It is hoped the consolidation will put an end to long-standing uncertainties plaguing gas distribution and gas prices in the country.

The merger will improve efficiency, create stronger synergy in production, marketing, procurement and financing and strengthen internal control, especially in gas production and distribution. The synergy resulting from the consolidation of the two gas distributors will not only increase their financial capacity but also reduce inefficiency in the distribution of gas, particularly to industrial users. Consumers, especially in industry, who have long complained about high gas prices, will ultimately benefit from the merger.

The price of gas for industrial customers in the country ranges from US$6 to $9 per million British thermal units (mmbtu), the highest in the world, although Indonesia is among the largest natural gas producers. Singapore, which has no gas resources, only infrastructure, sells gas at only $4 to 5 per mmbtu.

To help gas-using domestic industries to remain competitive, President Joko “Jokowi” Widodo signed a decree in January 2016 to cap the gas prices for certain industrial users at $6 per mmbtu. Only state-owned fertilizer, cement and steel companies enjoy this price, which only proves that the state is barely able, and perhaps should not, control prices.

The merger could curb the high distribution costs from gas wells to industrial users that have been blamed for the high gas price. However, many have also attributed the high prices to the still unaddressed role of middlemen, or rent seekers, who have lengthened the supply chain.

For publicly listed PGN, the merger will transform it into one of the largest gas-distribution companies in Southeast Asia. The increase in the value of its assets will certainly benefit its stakeholders. However, its planned acquisition of Pertagas should involve an independent appraiser so as not to inflict losses on its public investors.