Recently there have been market concerns about ability of PLN (state electricity company) to settle payables on its gas purchases from PGAS. Our check with PGAS suggests that such concerns are unfounded, though we have yet to obtain clarification from PLN. According to PGAS, until now payments from PLN have been received on time - as with other customers. Furthermore, as with other customers, PLN's payables to PGAS are secured by a bank stand-by letter of credit agreement for 75 days worth of gas deliveries. In addition, it is in PLN's interest to ensure payments to ensure security of supply, in our view. Any gas supply disruption would translate into reduced cost savings, as PLN realizes profits and significant savings when using gas in place of diesel (diesel plants operate at a loss). The conversion into 250 mmscfd at the Muara Tawar plant alone translates to some US$1bn in annual cost savings for PLN. Separately, PGAS announced it has commenced its first gas flow into PLN's Tanjung Priok plant (30 mmscfd) on 29 Sep 09, translating to some US $100mn annual cost savings for PLN. The firm volumes, the potential electricity tariff increase next year and PGAS potentially signing a new supply contract - should support the case for a gas selling price increase next year. Maintain Buy. This e-mail is confidential and intended only for the use of the individual or entity named above and may contain information that is priviledged. If you are not the intended recipient, you are notified that any dissemination, distribution or copying of this e-mail is strictly prohibited. You may from time to time be provided with investment and financial related information and reports, including but not limited to, research reports and market or securities specific analysis. Please note that the information is provided to you for information only. All of the information report and analysis made should be taken as having been prepared for the purpose of general circulation and without regard to any specific investment objective, financial situation or the needs of any particular person who may receive the information, report or analysis (including yourself). Any recommendation or advice that may be expressed in or inferred from such information, reports or analysis therefore does not take into account and may not be suitable for your investment objectives, financial situation and particular needs
