Mandiri Sekuritas Perusahaan Gas : Cancels its plan to ration gas among Indonesian industries (PGAS, Rp4,250, Buy, TP:Rp4,350)

􀂄 Following the government’s intervention, state-owned gas company Perusahaan Gas Negara (PGAS) has backed down from a plan to reduce the amount of natural gas it allocates to domestic industry and to charge them drastically higher prices if they wanted to buy more than their allotted amount. Benny Wahyudi, director general of agriculture and chemical industries at the Industry Ministry, said on Saturday that PGAS would not proceed with a plan to cut the allocation to domestic industry by 20% and to charge industrial buyers three times more than the regular price if they wanted more gas than they were allocated, he said

􀂄 Domestic industrial buyers are due to sign two-year gas-supply contracts with PGAS today. Late on Thursday, the gas distributor announced it was cutting the allocations and pushing up prices, provoking a widespread outcry from industrial buyers. The reason for PGAS’s announcement is that the gas distributor is itself facing a gas shortfall. Two of its suppliers — PT Pertamina Hulu Energi and ConocoPhillips — are having difficulties securing enough gas to meet their supply contracts with PGN.

􀂄 PGAS said last week that ConocoPhillips might only be able to deliver 250 MMSCFD this year from its South Sumatra field, well below the 390 MMSCFD it was contracted to provide. PLN primary energy director Nur Pamudji said that Muara Karang power plant gas supply had dropped from 200 million cubic feet per day to 100 million cubic feet per day since March 1.The government has arranged for PGAS to secure additional gas from Pertamina Hulu Energi, a unit of state oil and gas company PT Pertamina, by extending a contract up to June 2010. Pertamina Hulu Energi spokesman
Ali Mundakir told that the contract, originally set to expire this month, was extended until June. (Jakarta Globe & various)

􀂄 Net tally a deficit of 75MMSCFD, to be compensated by price increase. The supply cut came from the expiration of ONWJ (-45 MMSCFD) and fall in ConocoPhillips supply (-140MMSCFD, contracted 390 MMSCFD, current supply 250MMSCFD). The solutions are ONWJ (+20MMSCFD, extended until June 2010), and Medco Singa field (+50MMSCFD), and ConocoPhillips pledge (+40 MMSCFD, to 290 MMSCF). Net deficit is 75 MMSCFD. Our FY0F distribution flow estimate is 893MMSCFD (deficit is 8.3% of our FY09 estimate).

􀂄 Deficit of 75 MMSCFD, a 18.5% drop in net profit, and 18.1% in operating profit. Running at 53% EBITDA margin impact on profitability around double the drop in volume assuming everything else remain the same. Our current forecast are 13.4% and 29.1% below Bloomberg consensus for FY10E and FY11E of Rp6,226bn and Rp7,327bn, respectively. Hence therefore we expect minimal changes to our forecast as we only assume a 5% price increase for 2010. At Rp4,250/share, PGAS is trading at 17.9x 2010F PER, and 18.6x 2011F PER.