PGN introduces new hybrid pipeline

PGN introduces new hybrid pipeline

To increase its competitiveness, state-owned natural gas
distributor Perusahaan Gas Negara (PGN) is introducing a pipeline
system called hybrid in its massive 493 kilometer gas pipeline
projects across Sumatra, which allows the company to offer and
distribute natural gas before the completion of the pipeline
construction.PGN President Director W.M.P. Simanjuntak explained the idea
recently to a small number of reporters including The Jakarta
Post's Fabiola Desy Unidjaja.

The following is an excerpt of the discussion:

Question: To lure investors to participate in the project from
Riau to Belawan in North Sumatra, is PGN offering something new?

Answer: We have a new innovation called the hybrid system.
Previously, there was the point-to-point concept, where we can
only distribute the gas after we finish the entire project.

With the hybrid system it will be different. We build the
pipeline, but if at a certain point there are indications of a
potential market, then we could immediately build an extra line
branching from the main line to tap the natural gas.

In this industry, we have two markets, distribution and
transmission. For the transmission of the Sumatra pipeline
project, we have the Belawan market with Asahan Power as our main
consumer.

But with this system, we could also simultaneously develop the
distribution market. If there is a potential market in the area
along the main pipeline, we do not need to wait until we finish
the project to tap the gas and begin the distribution.

Once we have the contract, we can distribute gas in that area.
Afterward, we could continue with the transmission project as we
seal off the main pipeline and continue with the construction.

Not only will this system allow us to generate income earlier,
it will also give us a chance to promote the use of natural gas
much earlier as an alternative source of energy to oil.

The Sumatra pipeline will be our first project with this
system. We are synchronizing both the transmission and
distribution markets. This will be much more efficient than the
traditional point to point construction.

But technically, it'll be more complicated, won't it? Could
you explain more about that?

From the engineering aspect, it is indeed more difficult, as
we have to build en extra terminal at each point where we open up
a new (distribution) market. It will also pose more problems on
the legal side as we will also be required to ink a new contract
with the gas supplier and the consumer at each point.

It will be much more difficult and eventually increase the
cost by 10 percent, because we are building a "spider web"
pipeline model along the main trunk. But, I assure you that it in
the end it will generate higher profit than the traditional
system.

How about the consumers for the transmission market, will the
new system bother them, knowing that the main pipelines will be
tapped by distribution pipelines along the way?

The capacity of the Sumatra pipeline project is 350 million
cubic feet per day, while the Kondur field needs around 100-150
million cubic feet. That opens the possibility for us to invite
other buyers because we still have more to spare.

Moreover, the gas reserves in Sumatra and Kalimantan islands
are much more stable than Java island. These islands have long-
lasting reserves that will ensure security of supply.

Where will the local authorities play the role, especially
since the hybrid system will require more land acquisition around
the areas?

We would offer them the opportunity to establish a joint-
venture firm with the regional administration, but they have to
distribute and provide customer services in accordance with our
standards.

It's similar to a franchise system, in which local authorities
will pay us a fee as we serve as a consultant to maintain the
quality of the distribution.

When will the PGN launch the concept and possible financial
scheme to the investors?

We are slated to finish the whole concept in March and begin
bidding for investors in April. We are keen to finish the entire
project by 2007 as originally planned.