The Minister of State-Owned Enterprises (BUMN), Dahlan Iskan, has officially clarified the government’s stance regarding the long-rumored merger between PT Perusahaan Gas Negara Tbk (PGN) and PT Pertamina Gas (Pertagas), a subsidiary of the state oil and gas giant PT Pertamina (Persero). Speaking at the Mandiri Institute event held at the Four Seasons Hotel in Jakarta on Monday, May 12, 2014, the Minister revealed that the discourse surrounding the acquisition and merger of these two entities was primarily a tactical "threat" designed to force a cessation of hostilities between the two state-controlled companies. According to Dahlan, the rivalry between PGN and Pertagas had become so counterproductive that it was actively harming the national interest and stalling critical energy infrastructure projects.
For years, the Indonesian energy sector has been characterized by a friction-filled relationship between PGN, which primarily operates as a gas transporter and distributor, and Pertagas, which serves as the midstream arm of Pertamina. This rivalry often manifested in overlapping infrastructure, disputes over gas allocation, and a lack of cooperation in building the national gas grid. Minister Dahlan Iskan emphasized that the history of these two companies was marred by "unhealthy competition," which necessitated a firm intervention from the Ministry of State-Owned Enterprises.
The Origin of the Conflict: A History of Corporate Friction
The friction between PGN and Pertagas is rooted in the liberalization of the Indonesian gas market. PGN, originally a state monopoly for gas distribution, found itself in direct competition with Pertamina after the latter established Pertagas to capitalize on the growing domestic demand for natural gas. This resulted in a scenario where two state-owned entities were essentially fighting for the same market share, often at the expense of efficiency.
Minister Dahlan Iskan noted that the state frequently became the victim of this internal bickering. When two government-backed companies compete aggressively rather than collaborating, it leads to a duplication of investment. For instance, instead of sharing a single pipeline to transport gas to an industrial hub, both companies might propose separate, parallel lines, leading to a waste of state capital and higher costs for end-consumers.
"The history is that these two companies liked to fight; they liked to compete unhealthily," Dahlan stated. "Because of that unhealthy competition, the country became the victim." The Minister admitted that he had previously summoned the boards of directors from both companies on multiple occasions to demand a resolution and a shift toward synergy. However, these meetings initially yielded little progress, as both parties remained entrenched in their respective corporate interests.
The Cirebon-Semarang Pipeline: A Case Study in Stagnation
One of the most prominent examples of this rivalry’s negative impact is the Cirebon-Semarang (Cisem) gas pipeline project. The project, intended to connect the gas sources in East Java with the industrial demand in West Java and Central Java, remained stalled for years. The delay was largely attributed to the inability of PGN and Pertagas to reach an agreement on who would lead the construction and how the infrastructure would be managed.
Before the "merger threat" was issued, the two companies were locked in a stalemate, with each side eyeing the other’s moves suspiciously. This lack of coordination meant that while the demand for gas in Central Java grew, the infrastructure remained on paper. Dahlan Iskan pointed out that after the threat of a forced merger was placed on the table, the tone of the negotiations changed significantly.
"Now, it has been agreed who will build what," Dahlan said, referring to the recent breakthroughs in infrastructure planning. He noted that the two companies have started to yield to one another and seek common ground. "They have become ‘good’ now; they are willing to give in to each other and cooperate. Therefore, the urgency for a merger no longer exists."
The Strategic Use of the "Merger Threat"
The concept of a merger or acquisition between PGN and Pertagas has gone through several iterations. Initially, there was a proposal for Pertamina to acquire PGN, which would have effectively turned PGN into a subsidiary of the national oil company. Later, the discourse shifted toward folding Pertagas into PGN, making PGN the primary national "aggregator" or "transporter" of gas.
Dahlan Iskan’s revelation that these plans were essentially a management tool—an "ancaman" or threat—highlights his unconventional approach to corporate governance. By creating the possibility of a total organizational overhaul, the Ministry forced the executives of both companies to realize that their continued autonomy depended on their ability to work together.
With the improvement in relations and the signing of several cooperation agreements regarding pipeline usage and gas distribution, the Minister concluded that the drastic measure of a formal merger is no longer a priority for the government. The focus has now shifted toward ensuring that the "Open Access" policy—which requires pipeline owners to allow third parties to transport gas through their infrastructure—is properly implemented to ensure national energy security.
Expert Analysis and Contrasting Views
While the Minister views the de-escalation of the merger plan as a success of his "threat" strategy, some energy analysts remain skeptical of the flip-flopping policies coming from the Ministry of BUMN. Sofyano Zakaria, an observer of energy policy and Director of the Center for Public Policy Studies (Puskepi), expressed concerns that the shifting discourse creates uncertainty in the investment climate.
Sofyano argued that the plan to merge Pertagas into PGN actually contradicted the government’s own long-term roadmap for state-owned enterprises. "This plan was quite surprising because it clearly contradicted previous agreements, which aimed to combine PGN and Pertagas under a Pertamina holding structure," Sofyano explained.
According to Sofyano, the Ministry’s roadmap should focus on building strong, unified "holdings" for similar business sectors. By oscillating between merging PGN into Pertamina and merging Pertagas into PGN, the government risked confusing stakeholders and investors. He suggested that a clear, definitive structure is necessary to ensure that Indonesia can meet its domestic gas obligations and reduce its reliance on expensive imported oil.
Data and Economic Implications of the Gas Rivalry
The economic stakes of the PGN-Pertagas relationship are massive. According to data from the Ministry of Energy and Mineral Resources (ESDM), Indonesia’s domestic gas consumption has been steadily rising, yet infrastructure development has often lagged behind. In 2013 and early 2014, several industrial sectors in West Java and North Sumatra reported gas shortages, despite Indonesia being a major producer of Liquefied Natural Gas (LNG).
The "unhealthy competition" mentioned by Dahlan Iskan contributed to these shortages. When infrastructure is not integrated, gas cannot be moved efficiently from surplus areas to deficit areas. Furthermore, the lack of an integrated "National Gas Grid" means that Indonesia’s gas prices remain less competitive compared to neighboring countries like Thailand or Malaysia, where gas infrastructure is more unified.
By forcing PGN and Pertagas to cooperate, the government hopes to:
- Reduce Infrastructure Duplication: Saving billions of dollars in capital expenditure that can be redirected to other energy projects.
- Accelerate the Trans-Java Pipeline: Ensuring that the Cirebon-Semarang and other segments are completed to create a seamless flow of energy across Indonesia’s most populous island.
- Lower Logistics Costs: More efficient gas distribution directly translates to lower energy costs for the manufacturing, fertilizer, and electricity sectors.
The Path Forward: Cooperation Over Consolidation
As of mid-2014, the Ministry of BUMN appears content to let the two companies operate as separate entities, provided they maintain the current spirit of collaboration. The "threat" of a merger remains in the background as a deterrent against a return to the "gas wars" of the previous decade.
The immediate focus for the government will be monitoring the progress of the Cirebon-Semarang pipeline and the implementation of open-access regulations. The Ministry of BUMN and the Ministry of Energy and Mineral Resources are expected to work closely to ensure that Pertamina and PGN do not just coexist, but actively contribute to the national goal of energy sovereignty.
Dahlan Iskan’s closing remarks suggested a sense of relief that the "threat" achieved its goal without the need for a complex and legally taxing merger process. "They have obeyed. The urgency is no longer there," he concluded. However, for the Indonesian public and the industrial sector, the true measure of success will be whether this newfound cooperation results in a steady, affordable, and reliable supply of natural gas across the archipelago.
Conclusion
The saga of the PGN and Pertagas merger serves as a unique case study in Indonesian corporate governance. It reflects the challenges of managing large, powerful state-owned enterprises that have overlapping mandates. While the formal merger has been sidelined, the underlying issues of national energy policy—such as the creation of a national gas aggregator and the completion of the national pipeline grid—remain critical tasks for the government. For now, the "truce" brokered by Dahlan Iskan provides a window of opportunity for both companies to prove that they can prioritize the nation’s energy needs over corporate pride.
