The government on April 11 officially transferred its 57 percent share in PGN, which had a value of around Rp 38.13 trillion (US$2.66 billion), to Pertamina in an effort to transform the latter as a state-owned oil and gas holding firm.

While the government has completed administrative matters regarding the holding firm establishment, Pertamina still has to fully integrate PGN and Pertagas’ assets and operations in order to allow PGN to become a subholding firm overseeing midstream and downstream gas businesses.

Pertamina human resources director Nicke Widyawati said her side would have to calculate Pertagas’ value first before formulating the ideal integration program that would not burden PGN.

She said one of the options for PGN was to transfer its upstream subsidiary Saka Energi Indonesia to Pertamina to acquire Pertagas in return.

“But it still depends on the valuation of Pertagas. Later, we will see which mechanism will not negatively affect PGN’s cash flow,” said Nicke, who is also the head of the implementation team for the establishment of oil and gas holding firms, on Monday.

“Hopefully, all transactions will be completed in four months.”

As of 2017, PGN operated gas transmission and distribution pipelines spanning 7,450 kilometers, or about 80 percent of Indonesia’s overall downstream gas pipelines. Meanwhile, Pertagas operated 2,085 km of transmission pipelines.

The consolidation with Pertagas will increase PGN’s total assets by 27.5 percent to $8.7 billion, according to the two companies’ 2016 financial reports.

PGN commerce director Danny Praditya also concurred with Nicke, saying the integration program would fully depend on Pertagas’ valuation.

“Later we will decide how to finance this corporate action, whether through loans, rights issues or asset swap,” he said, adding that his side would choose the most efficient and least time-consuming option.

Furthermore, Danny said PGN would soon formulate and announce a new, integrated work budget and plan (RKAP) following its integration with Pertagas.

PGN originally planned to spend $400 million this year, up from $231 million in 2017, to expand its gas infrastructure nationwide, including by developing more distribution and transmission pipelines as well as household gas networks.

Data from PGN shows that Indonesia needs to operate gas pipeline networks spanning 57,093 km by 2025 in order to meet the targeted 22 percent contribution from gas to the national energy mix by then. The figure will jump significantly compared to the required 14,382 pipeline networks in 2016.

PGN has also set a target to distribute 775 million standard cubic feet per day (mmscfd) and transmit 665 mmscfd of natural gas throughout 2018.

“We will see later how big our capital expenditure target will be. One thing is for sure, we want to prevent any duplications in gas infrastructure development between PGN and Pertagas,” Danny said.

Global energy think tank Wood Mackenzie has welcomed the consolidation between PGN and Pertagas, especially considering their complementary gas businesses.

Wood Mackenzie said Pertamina as the holding firm could leverage PGN’s wide customer base to extend its reach and marketing, especially in finding customers for the former’s uncommitted liquefied natural gas (LNG) cargoes.

The merger is also expected to provide a head start for the government’s domestic price reforms.

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