Pertamina to build $9b oil refinery in Bontang

JAKARTA. State-owned oil and gas giant PT Pertamina is preparing to auction off development of an oil refinery that will be built with investments of up to US$9 billion.

The construction of the oil refinery, which will be located in Bontang, East Kalimantan, will be built under a public-private partnership scheme, according to Pertamina director for marketing, Ahmad Bambang.

A 500-hectare plot of land has been prepared and the government is ready to give incentives, such as tax holidays and import tax exemptions as well as a possible utility sharing plan with the liquefied natural gas (LNG) plant operated by PT Badak LNG. The incentives are expected to be able to push down the investment requirement.

“The documents are being prepared. The project value will depend on the investors, yet I think it will be $8 billion to $9 billion. Pertamina will be the off-taker of the products, but of course the price should be lower than import prices,” Ahmad said.

The refinery will have 300,000 barrels oil per day in capacity and will be able to produce better fuel products, such as gasoline with a registered octane number (RON) of 92 and Euro IV/V type diesel.

The new Bontang refinery will add to Indonesia’s oil refining capacity.

Currently, the country has six refineries operated by Pertamina that are located in Cilacap of Central Java, Balongan of West Java, Balikpapan of East Kalimantan, Dumai of Riau, Plaju of South Sumatra and Kasim of West Papua.

All of the refineries have a total capacity of over 1 million barrels per day. However, due to their age, the refineries are currently running below capacity. The latest refinery is the Balongan refinery, which was inaugurated in 1994.

Moreover, the refineries are only able to produce products with low specifications, such as the RON 88 gasoline and Euro II type diesel fuel.

Pertamina is currently working on upgrading five of the six refineries to boost their total capacity to 1.68 million barrels per day from the current effective capacity of 820,000 barrels per day. Following the upgrade, the refineries will be able to process more complex sour crude oil, better products of at least RON 92 gasoline and Euro IV type diesel fuel.

The upgrade, for which Pertamina cooperated with foreign partners, anticipates $25 billion in total spending.

Improving the capacity of its refineries is one of Pertamina’s current priorities.

“We are expecting that our capacity will improve significantly by 2019. Given the increase, we are hoping to be able to improve our energy security,” Pertamina president director Dwi Soetjipto said.

Indonesia has been suffering from growing imports of oil and petroleum products to meet the growing demand.

The capacity of the existing refineries can no longer meet growing fuel demands.

The government has invited foreign companies to build new oil refineries in the country. A number of foreign oil giants have expressed their interests, but none of their plans could be realized as a result of a lack of financial incentives from the government. (Raras Cahyafitri)