Almost two years after it was first proposed, the first moves to have Indonesian state firms Pertamina and Perusahaan Gas Negara (PGN) merge to form a new state energy holding company has taken place. In late November, the Minister for State-Owned Enterprises (SOE) asked PGN to hold an extraordinary shareholders meeting, directing them to pave the way to creating the new holding company.
From many perspectives, this move makes sense. Indonesia has some 150 state-owned companies, many of which have assets and businesses that overlap with each other. A legacy of the deeply-rooted state patronage system, consolidating these firms into larger, strategic holding firms makes a lot of sense. In this case, Pertamina (through its gas arm Pertamina Gas) and PGN collectively own the entire national natural gas pipeline system. For Pertamina, this is just another part of its vast business. For PGN, its large network – nearly 80% of the national total – is its bread-and-butter, and is reluctant to give up its independence. Pertamina and PGN have clashed in the past – over the recent sale of uncommitted Bontang LNG cargoes – but have also worked together well as well – banding together to supply LNG to Perusahaan Listrik Negara (PLN).
Creating a new holding company, which would see PGN first absorb Pertamina Gas, then in turn become the new gas arm of Pertamina, would see many obstacles eliminated and many synergies created. There is, however, the issues of bruised egos and loss of political cash cows. However, the government of Joko Widodo seems intent on seeing this through, banking on his political capital. Widodo has already pushed through the creation of an all-encompassing state mining company, and after energy will come financial services, public housing, construction and toll roads. PGN might complain, but with the government holding a 57% stake, will have to acquiesce.
This can only be a good thing in the long run. But creating a merged entity is only half the battle. In 1995, President Soeharto approved the creation of a national cement holding company; inertia and infrastructural challenges only saw PT Semen Indonesia begin operating in 2012.
Pertamina Gas assets
PGN gas assets
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