Photo by Pertamina

JAKARTA (TheInsiderStories) – The Indonesian government on Friday (9/3) issues Government Regulation on the Increase of the Government Equity in PT Pertamina, which provides legal foundation for the establishment of oil and gas holding entity.

Based on the article 2 of the Government Regulation (Number 6, 2018), the government’s shares in PT Perusahaan Gas Negara Tbk (IDX:PGAS) totaling 13.08 billion units of B-series shares are transferred to the state owned energy company PT Pertamina.

Furthermore, the article 3 of the regulation stated that the status of PGAS as a state company is changed to a limited liability company.

With the transfer of the B-series shares, the government control PGAS shares through Pertamina.

Under the current plan, Pertamina will act as the holding entity of state-owned oil & gas companies. The holding firm will comprise four sub-holdings, namely, Upstream, Processing, Retail and Gas.

The establishment of an oil & gas holding company tracks the creation of a similar mining holding company set by the government late last year.

Based on the regulation, the government integrate the gas companies through asset handover scheme (inbreng), and there is no cash transfers involved. As a result, the government is exempted from launching a tender for PGAS shares held by the public, as required by the Capital Market regulation.

Based on the study of the State-Owned Enterprise Ministry, the decision to create an oil & gas holding company is expected to provide more benefits than downsides for the companies, the government as well as the investors and general public.

The benefits of which will include helping create an efficient value chain in the gas industry from upstream, midstream and downstream; improving supply of gas, savings of expenditure, capital expenditure and operating procedures, increasing liquidity, increasing the investment capacity and financial structure and boost the growth

The creation of sub-holding will make the development of gas infrastructure in the country to be more effective as there is no need for the two companies to compete. As happened in the past, PGAS, as the largest national gas distributor, often competes with Pertamina’s Pertagas in developing gas infrastructure networks in various locations.

In addition, the holding company is expected to help boost government revenues and stimulate industrial growth. The integration of gas operators from upstream to downstream is expected to make gas distribution more efficient and ultimately help reduce gas prices.

By integrating the operation of PGAS and Pertagas, both companies could optimize their assets and avoid redundancy as well as creating larger entity. The integration of both companies is also expected to help boost development of gas infrastructure in the country and ultimately giving wider access to the public to get gas supply.

The integration of gas sector from upstream, midstream and downstream will provide optimum benefits to Pertamina, PGAS and the public at large. From financial perspective, the Oil & gas Holding is projected to increase investment capacity of the entities to Rp416 trillion or US$32 billion in the next 15 years as well as resulting in value creation Rp329 trillion or US$25.3 billion.