Gas distributor PT Perusahaan Gas Negara (PGN) saw its net profit fall 87.6 percent year-on-year (yoy) to US$6.72 million in the first half of the year as a result of weak energy demand and government gas incentives.
The publicly listed company’s revenue fell by 17.9 percent yoy to $1.47 billion in the January-June period, dropping more sharply than its expenses, which declined by 16.7 percent yoy to $1.01 billion following operational cuts.
PGN finance director Arie Nobelta Kaban said the company was affected by a “triple-down effect” of weak global gas prices, low domestic gas demand and a disadvantageous rupiah exchange rate during the COVID-19 crisis.
“Low oil and gas prices lowered upstream revenue, while operational costs did not follow suit,” said Arie in a statement.
PGN shares, traded on the Indonesia Stock Exchange (IDX) under the symbol PGAS, had fallen 1.22 percent on Tuesday as of 9:56 a.m. Jakarta time.
PGN’s upstream oil and gas business unit, while not its largest income contributor, had the sharpest fall in profit, declining nearly 50 percent yoy to $101.8 million.
PGN’s channeled gas volume for end users dipped by 31.4 percent yoy to 2,016 billion British thermal units per day (bbtud) in the first half of the year, according to company statements, as businesses and industries slowed operations during large scale social restrictions (PSBB).
As with PGN, parent company Pertamina cited a “triple shock” to explain its multimillion dollar net loss in the first half, reversing a net profit in the same period last year.
“Natural gas has, so far, experienced a less severe impact than oil and coal, but it is far from immune to the current crisis,” said International Energy Agency (IEA) executive director Fatih Birol in a statement on June 10.
PGN lost an estimated $22.86 million in revenue between April and June as a result of government gas incentives for industries and state-owned electricity company PLN.
PGN has been required to sell gas to select industries and PLN power plants for about $6 per mmbtu, instead of the market rate of about $8 per mmbtu.
The IEA wrote that Indonesia’s gas incentives, coupled with electricity subsidies in Thailand and Malaysia, countries whose power production is heavy on gas, helped boost Southeast Asian gas demand in the year’s first half.
PGN reported that it was in talks with other stakeholders over the government’s regulations but would “not expect a material impact to the interim consolidated financial statements”.
In response to the financial challenges, Arie of PGN said the company would “optimize cash flow by prioritizing the investment budget” for strategic projects.
The company, which had $1.24 billion in cash reserves as of June 2020, said it would cut its annual capital expenditure by up to 60 percent. PGN plans to focus on developing the Pangkah Block and constructing new pipelines in the Rokan Block.
The company booked a notably large fixed asset impairment loss of $12.4 million as a result of lower tolling fee revenue with its affiliate gas transmission company PT Kalimantan Jawa Gas (KJG) after negotiating with buyers.