PGN seeks soft loan from Japan to build Sumatra-Java pipeline

JAKARTA (JP): State gas distribution company PT Perusahaan Gas Negara (PGN) is seeking about US$765 million in a soft loan from Japan to finance the development of a gas pipeline linking South Sumatra and West Java.

Company finance director WMP Simanjuntak said on Wednesday total investment for the project was estimated at $900 million, $135 million, or 15 percent, of which would be provided by PGN funds.

"The soft loan we are seeking is part of the special loan package being offered by Japan's Overseas Economic Cooperation Fund (OECF) for Southeast Asian countries," Simanjuntak told The Jakarta Post after a ceremony to award the International Standard Organization (ISO) 9002 certification for the company's Jakarta division.

According to Simanjuntak, OECF had allocated a soft loan package amounting to $6 billion to support the development of infrastructure in the region for three years.

The soft loan, with a maturity period of 40 years, including a grace period of 10 years, carries an interest rate of 1 percent per annum.

OECF has not yet decided the loan amount to be given to Indonesia.

The Indonesian government has proposed three infrastructure projects -- Mass Rapid Transport in Jakarta, the double track railway linking Jakarta and Surabaya and the natural gas pipeline linking South Sumatra and West Java -- receive monies from the fund.

"Thus far, only PGN has submitted an implementation program to the fund. We have received information saying the fund is considering our program," Simanjuntak said, expressing optimism the company could secure the loan in the near future.

PGN data says the South Sumatra-West Java gas pipeline will be divided in three sections measuring 900 kilometers (km) in total length. The pipeline will channel gas from South Sumatra to a multitude of manufacturing companies in West Java.

The first section of the pipeline is a 370 km pipeline linking the South Sumatra capital of Palembang with Cilegon in West Java.

The second section is a 150 km pipeline from the gas corridor block of Canadian oil and gas company Gulf Resources to Palembang.

The third section is a 280 km pipeline from Cilegon and Subang, also in West Java.

PGN president Abdul Qoyum Tjandranegara said he hoped PGN would receive the soft loan by September so that the company could start the project early next year.

Qoyum said PGN would build a pipeline to channel natural gas from central Sumatra to Singapore through Batam Island.

He said PGN, though ready to build the pipeline, had delayed the project because the gas producer -- state oil and gas company Pertamina and its contractors -- had not reached an agreement with the buyer -- Singapore Power -- on the price of the gas.

Last year, PGN finished the construction of a 544 km gas pipeline to channel gas from South Sumatra to PT Caltex Pacific Indonesia's oil field in Duri. (jsk)