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tate-run gas distributor Perusahaan Gas Negara (PGN) says it has agreed to provide loans of up to US$250 million for its affiliate, Kalimantan Jawa Gas (KJG), to finance construction of the Kalimantan-Jawa gas pipeline network project.

The publicly listed company said in an announcement posted on the Indonesia Stock Exchange (IDX) website on Saturday that the company signed a facility agreement on Nov. 11, agreeing to a $250 million loan for KJG to develop the first phase of the inter-island gas network.

PGN is collaborating with PT Bakrie & Brothers, which was awarded the project in a tender to develop the pipeline. KJG, meanwhile, will act as the operator of the project.

PGN has targeted to acquire an 80 percent stake in the project through its newly formed subsidiary, Permata Graha Nugraha.

PGN spokeperson Ridha Ababil told The Jakarta Post over the weekend that his company expected the loan '€” which would be used to fund KJG'€™s capital expenditure (capex) '€” to be channeled this year, pending further development on the project.

'€œWe have agreed on the loan commitment but the timing of the disbursement depends on development in cooperation with the project because we don'€™t work alone in constructing the network,'€ he explained.

'€œWe are still calculating the portion of the stakes for this project,'€ he said, adding that the $250 million loan was convertible to 80 percent of KJG'€™s shares.

The loan agreement was made after PGN signed another agreement on Nov. 5 that transfers the right to collect a $5 million loan payment from KJG to PGN'€™s wholly owned subsidiary, Permata Graha Nusantara. The $5 million loan was made in August last year.

In providing the loan to KJG, PGN would resort to funds pooled from the company'€™s corporate actions that took place earlier this year, he added.

PGN previously issued $1.33 billion dollar-denominated bonds in the second quarter of this year, the proceeds of which are to be used to support its long-term business expansion. The bonds will mature in 10 years.

The gas distributor also secured $650 million in loans in August from bank syndication.

PGN has allocated up to $500 million to develop gas distribution infrastructure this year, as part of the government'€™s effort to accelerate the fuel conversion program, which includes the construction of the Kalimantan-Jawa gas network.

The first phase of the network is designed to deliver gas from the Kepodang field in the Muria block off Central Java to the Tambak Lorok power plant, also in Central Java, through a 200-kilometer pipeline.

The pipeline, also known as Kalija I, is expected to be ready to deliver gas to the power plant beginning in August 2015, with a capacity of between 116 million standard cubic feet per day (mmscfd) and 120 mmscfd.

Construction of the pipeline is part of efforts to prepare for an energy crisis, which has the potential to hit Central Java in 2017.

PGN previously calculated that total investment needed for the 1,200-kilometer Kalimantan-Jawa gas network would hit around $1.7 billion, with the first phase absorbing around $200 million.

The Kepodang-Tambaklorok project itself had been delayed for years before it resumed earlier this year, as the initial plan was for Malaysia'€™s Petronas Carigali Muriah Ltd. to build the pipeline under the upstream scheme.

However, in 2009, Bakrie & Brothers wanted to incorporate the Kepodang-Tambaklorok pipeline into the state'€™s Kalija project under the downstream scheme.