Integration of Pertagas-PGN Internal Restructuring

By : Hariyanto And Aldo Bella Putra | Thursday, May 31 2018 - 21:30 IWST

INDUSTRY.co.id - Jakarta - The process of integration of PT Pertamina Gas (Pertagas) into PT Perusahaan Gas Negara (PGN) Tbk is a normal internal restructuring that does not include acquisition transactions based on market mechanism.

Investa Sarana Mandiri analyst, Hans Kwee in Jakarta, Thursday (5/31/2018), considers Pertagas integration into PGN into the internal restructuring category so it should be done as efficiently as possible and not involving large sums of money.

The affirmation is related to Pertamina Gas Workers Union (SPPG) refusal to plan the establishment of state-owned oil and gas company BUMN, especially at the merger stage of PT Pertagas to PT PGN Tbk and scheduled to be completed in August this year by the Ministry of SOEs.

SPPG disclosed a number of reasons for refusing the instructions of the Ministry of SOEs to merge Pertagas as a subsidiary of PGN, among others, the acquisition of shares and all assets of Pertagas by PGN is said to require substantial cash funds so they doubt PGN has sufficient funds to make the acquisition.

Hans continued, the initial goal of the integration process was to establish a strong holding with Pertamina as its parent. "So the process should not be spending money because it's an internal acquisition," Hans said.

He admitted that he cannot calculate the price of Pertagas shares based on the ideal book value to be redeemed by PGN because Pertagas is not a public company.

In addition to having to spend money, Hans said, the acquisition process using market mechanisms also raises the tax obligations that must be borne by Pertamina, PGN, and Pertagas so that the transaction should be avoided.

"I think the integration mechanism is better done by merger through 'share swap', Pertamina handed over its shares in Pertagas as government property, and then the government will distribute the shares as PGN's capital," he said.

The process according to Hans will not take as long as the government feared so far. More importantly, there is no need for much money to complete.

"It's liked the government just pulled out of the left pocket and went back to the right pocket," said Hans. Workers were worried Previously Binaartha Parama Securities analyst Muhammad Nafan Aji said the refusal of SPPG is a concern of Pertagas workers for the future of his livelihood in the company after the acquisition.

"From the side of the Workers Union I see they are worried there will be labor efficiency, so maybe they need clarity on job security and it is already guaranteed by the SOE Ministry that there will be no layoffs," Nafan said.

To that end, Nafan suggested that PGN's management take a persuasive approach and assure SPPG that after Pertagas becomes a subsidiary of PGN, the management of the gas subholding will not change the composition of the number of workers and the level of their welfare.

"This is a challenge that PGN management must solve peacefully, unless it turns out that SPPG is part of Pertagas' negotiation technique, so it can get a certain price in the deal," he said as quoted by Antara.

If this is the case, Nafan considers that the SOE Ministry as the manager of the state-owned enterprise in Indonesia must step in and make firm decisions.

The 2017 financial statements of both companies, it is known that PGN has a much better performance than Pertagas.

PGN recorded total assets worth 6.29 billion US dollars. Among them is the gas pipeline infrastructure network which until now reaches 7,453 kilometers (km). The amount of PGN assets is 3.3 times larger than Pertagas which only has assets worth 1.92 billion US dollars. The length of the pipeline managed by Pertagas is only 2,438 km which is used to distribute the gas to buyers.

While in terms of revenue, PGN managed to raise 2.97 billion dollars worth throughout 2017. The realization was 4.7 times greater than Pertagas revenue last year of 625 million US dollars.

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