Moody’s Investors Service says that Perusahaan Gas Negara (PGN, Baa2 stable) gas distribution margins would remain weak in the next 1-2 years, consistent with the declining trend exhibited in last few years. Its expectation reflects the falling gas demand from the power generation sector and the reduction in PGN’s ability to price gas because of the new regulations.
Moody’s report explains that gas transmission and distribution volumes for PGN have fallen over the last four years because of a shift towards coal for power generation and weaker demand from industrial users. This situation has weakened PGN’s ability to pass on the increase in gas purchase costs.
PGN is also exposed to the risk of its customers not renewing gas-sales agreements, which are usually short-term in nature with a provision for automatic renewal.
