Perusahaan
Gas Negara (PGAS), or you can say National Gas Company, reported that their net profit has increased
4.0% for Nine Months period in 2013, and in
general, its
performance was very good. However, this fact is not the interesting point that
I will disscuss. In the last few days, it was issued in media that
Government through BPH Migas (the Oil and
Gas Regulatory Agency) would impose an open access policy, where all gas infrastructures
which are gas pipes in Indonesia
can be used not only by PGAS but also by all parties.
When the open access policy will be imposed or has already been imposed, PGAS will lose its idiosyncrasy as a company who monopolizes the distribution and transmission of gas in Indonesia. As the result, its performance will be decreasing. This matter causes PGAS’ stock later covered by negative sentiment, and so far, it has gone down 8.7% in the last three weeks.
However,
is it true that the open access policy will depress PGAS’s performance? Or as
an observer said, PGAS will be bankrupt? Before we answer that question, like always, let’s see PGAS from its starting
point.
As
we know, PGAS is a company which works in gas distribution and commerce, where the gas is bought from
some producers such as Pertamina and ConocoPhilips. What I mean by gas
distribution is gas canalization
through tanker, gas cylinder, etc
to the costumers in industrial, commercial and housing area. The gas
distribution can also be done through small pipe network between the gas
storage station owned by the company,
and consumer’s factories, offices,
and houses.
Beside
the distribution business,
PGAS also own the gas transmission business or gas
transportation,
which is the gas channeling service through high pressured and big sized
pipes, where the company gets its earnings from the fee of producer companies
who conduct its gas through PGAS’s pipes. In this case, PGAS seems similar with PT
Jasa Marga
who built toll road and collected payment from cars who pass the toll road.
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| Scheme of the Line Business of PT Perusahaan Gas Negara (Persero), Tbk |
Unlike the distribution
pipes,
transmission pipes were designed with an ability to continually channel the gas in the big amount. Because of that, the cost of
its construction was very expensive, so that till now,PGAS has only had several
transmission pipe networks in Indonesia. PGAS ussualy shares the
cost with another company. The first transmission pipe network which was built
in 1998, connected ConocoPhillips’s gas field in Grissik, South Sumatra,
and the power plants in Duri, Riau. Due to build the pipe network, PGAS
cooperated with ConocoPhillips itself. The second transmission pipe network own by the company was finished in 2007. This pipe network connected the
gas field of Pertamina in Pagardewa, South Sumatra,
and the power plants of Krakatau Steel in Cilegon, Banten.
Because PGAS has not owned many transmission pipe networks, about
80% of the company’s earning comes from gas distribution
business, and less than 20% comes from the transmission
business. Till third
quarter of 2013, PGAS noted that its earning
was around US$ 2.2 billion, which US$ 2.0 billion came from the gas distribution business,
and only US$ 141 million came from the transmission business (the
rest income was from oil and gas exploration). In the future, the income portion
probably will not change, considering that the company is more focus at the
effort to obtain its own gas supply, rather than to build a new
transmission pipe network.
Okay, now we move on to
the open access case.
I had mentioned that for gas transmission business,
PGAS got its income from the fee, paid by gas producer companies who conducting their gas through
the pipes. This case is what I mean by open
access. The gas producers are allowed to use PGAS’s transmission pipe to conduct their gas, it
is of course with paying 'turnpike fare'. Previously, when the open access was not
yet in force, gas producer may
be forced to sell their gas to PGAS, and
PGAS sold the gas to the consumers. But
after the open access policy is in effect, the gas producers can directly sell their
gas to consumers, and only pay the
pipe usage fee to
PGAS as transmission pipe service provider.
During this time, the open access policy has only been applied to the transmission
pipes. However, since 1 November 2013, the policy has also been applied for the distribution pipes. This means that gas producers, who
have sold their gas to PGAS during this time, can directly sell their
gas to consumers with only pay the fee of the pipe
usage to PGAS.
The problem is if we take a look at the last two years
data (2012 and 2013), the PGAS’s gas transmission business which has
applied open access policy, has
experienced of loss, where the
earnings was smaller than depreciation expense etc. During this time, PGAS
always noted a big profit every year, in fact, that is because its gas
distribution business reported a profit with significant margin which is almost
50% from its income. The large margin can be reached because the company almost
monopolized the gas distribution market in Indonesia, with the market
share reached out of 83% in 2012.
The question is, after this open access policy went into effect
for the distribution pipes, can PGAS still get a big profit from its
distribution business? or will it experience a loss like those
which were experienced by the transmission business line during this time?
The
related regulations of open access policy for this
distribution pipes have been signed by Minister of Energy and Mineral Resources, Purnomo Yusgiantoro, in 2009.
However, its enforcement was delayed till the deadline, 31 October 2013. This matter probably
has pushed
PGAS to get its own gas supply for several years, so the company can not only be a gas distributor but also be a
gas producer. And so far, the effort begins to fruition. On June 2013,
successfully, PGAS acquired 25% ownership of share (or here called ‘participating interest’) at Ujung Pangkah Block, with acquisition value of US$ 265 million. Ujung
Pangkah Block is an oil and gas block
which located in the east part of Madura
Island, 50 kilometers from Surabaya. The block is managed by Hess Corp. who
held 75% of the share. Until third quarter of 2013, the block has earned US$ 17 million for PGAS, but it does
not rule out the possibility that in the future the block will earn a bigger
income.
In conclusion, these are some points which you need to pay
attention if you are interesting to buy, or have already bought the stock of
PGAS:
- The open access policy almost certainly will eliminate PGAS’ status as a company who monopolies the gas distribution business because the gas producers do not need to sell their gas to PGAS anymore, but they can distribute it alone.
- Even this matter will possibly bother the PGAS’s performance, but it wouldn't cause bankrupt to the company because from the policy, PGAS still gets income from the gas pipe usage. What’s matter is how the company manages its expenditure efficiently in order to avoid loss.
- On the other side, since June, PGAS has had a new line of business as the oil and gas producer from its ownership share of Ujung Pangkah Block, and this new line of business should give positive contribution to the company’s profit. Besides, if there is an opportunity to acquire the other oil and gas block, PGAS will not find difficulties from financing side because of its big number of cash, ie US$ 904 million per third quarter of 2013.
One thing you need to consider, this is not the first time that the PGAS’s
share was
punched by a negative issue regarding to its share movement. In January 2007,
the share of PGAS was rapidly dropped 23% in one day because of an issue that the
company management was late in executing the commercialization on one of its new transmission
pipe. In September 2011, the share of PGAS had also dropped in a long term till
almost 50% from its top position, because of an issue that said the company
found difficulties in obtaining gas supply to
be sold (I had discussed it in http://www.teguhhidayat.com/2011/09/perusahaan-gas-negara.html).
In fact, until now, PGAS has noted
good performance as well as its springing up. One of the booster of growth,
exclude the company’s acquitition to oil block, is PGAS continues to extend its distribution pipe
network. During 2013, the company is constructing pipe networks in at least
three regions namely Batam, Semarang, and Bitung - Cimanggis (West Java). In
the end, the growth potency of gas industry in Indonesia is still very open,
where from the tip of Sabang until Merauke the amount of gas pipe network owned by PGAS or other companies still few. As the first and oldest gas distributor company in Indonesia (PGAS founded by Dutch East Indies government in 1859),
of course the company will always become the leader to develop the gas pipe network.
However, if the
negative sentiment related
to the open access still continues and does not have an
'happy ending', the share
of PGAS will
continue to fall, because PBV PGAS at the moment is noted 4.4
times, and if I’m not mistaken, in 2011 PGAS have
ever fallen down until its PBV around 2 times. But I can say that in normal condition, basically, PGAS is
worthed to be valued as same as the price of the companies whose PBV is 5 times. So apart
from the concerns that PGAS performance will be depress, its stock
valuation at the moment can be categorized as undervalue.
In addition, I think since the Minister of ESDM (the
Minister of Energy and Mineral Resources) is not Mr. Purnomo Yus but Mr. Jero Wacik,
there is still a possibility that
the open access policy can benegotiated again, or even canceled. If we
read in newspaper, it is
issued that BPH Migas cannot force PGAS
to apply the open access
policy, but it can only arrange (arranging
or 'arranging'??). But
yeah, this is merely an assumption.
PT Perusahaan Gas Negara (Persero)
Tbk
Rating Performance at Q3 2013: AA
Rating Share at 4,975: A
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