Over the past two years, President Joko “Jokowi” Widodo’s administration has been working on the establishment of holding companies in six strategic business sectors to jack up the value, debt leverage and efficiency of state-owned enterprises (SOEs).

Since the restructuring of four firms — diversified miner PT Aneka Tambang (Antam), tin producer PT Timah, coal miner PT Bukit Asam (PTBA) and aluminum producer PT Indonesia Asahan Aluminium (Inalum) — into a holding company led by Inalum in late November, the government has been ramping up efforts to combine Pertamina and gas firm PT Perusahaan Gas Negara (PGN) into a holding entity within four months.

“This oil and gas holding firm aims to add value to Pertamina as the holding and PGN as the subsidiary,” Edwin Hidayat Abdullah, the SOE Ministry’s undersecretary for energy, logistics, estates and tourism, said Thursday.

Under the restructuring plan, the government will transfer its stake of just under 57 percent in PGN to Pertamina, paving the way for the latter to expand its financial capacity amid mounting tasks upstream and downstream.

The consolidation will increase Pertamina’s assets by 12.8 percent to US$55.58 billion, according to figures compiled from the financial reports of both companies from the first half of this year.

Thereby, its equity will climb by 13.5 percent to $26 billion, with a debt-to-equity ratio of 1.1.

Subsequently, the firm will be able to leverage its equity by two or three times to between $52 billion and $78 billion.

Pertamina has estimated the financing needs to support its expansion over the next decade at $120 billion, one-third of which is needed for refinery projects.

Under the restructuring plan, PGN is also projected to acquire Pertamina’s subsidiary PT Pertamina Gas (Pertagas) to create operational and commercial synergy. Both entities have long been criticized for their overlapping gas infrastructure.

As of last year, PGN operated gas pipelines spanning 2,283 kilometers and distribution pipelines totaling 4,994 km across the country, while Pertagas operated 2,164-km of gas pipelines.

The former has previously projected that the restructuring will enlarge its investment capacity in the gas sector to around $33 billion for the next 14 years.

“The establishment of this oil and gas holding firm is part of the attempts to avert duplication in the country’s downstream gas management,” PGN corporate secretary Rachmat Hutama said.

Furthermore, the consolidation is expected to allow both PGN and Pertamina to improve their financial performance, which has worsened recently.

In the January-September period, PGN’s net revenue was up by 0.4 percent year-on-year (yoy) at $2.16 billion, while its net profit plunged by 59.5 percent yoy to $97.9 million, in the wake of a 14.3 percent surge in distribution and transmission expenses.

During the same period, Pertamina managed to push up its revenue by 17.8 percent yoy to $31.38 billion. Nonetheless, its net income fell by 29.7 percent to $1.99 billion, driven by a 27 percent increase in the cost of goods sold and operating expenses.

The soaring expenses were blamed on the government’s decision to maintain the prices of Premium-branded gasoline at Rp 6,450 per liter and Solar-branded diesel at Rp 5,150 per liter since April 2016, forcing Pertamina to bear the burden as prices are below their real economic value

Popular

Volcano erupts in North Sulawesi, hundreds evacuated

Dubai roads, airport reel from floods after record rains

Ramadan boosts consumer confidence, retail sales