Refineries upgrade to start in December

JAKARTA. Work to increase the capacity and quality of two aging refineries will start as early as this December after state-owned oil and gas PT Pertamina and its partners reached detailed partnership plans, an executive has said. 

Pertamina said that it had agreed with Saudi Aramco and JX Nippon Oil & Energy Corp. to upgrade the Cilacap and Balikpapan refineries. 

“We expect to sign an agreement in November and start work in December. We hope to finish the projects within five years,” Pertamina president director Dwi Soetjipto said.

Under the deal, Pertamina will organize 70 percent of the development project for the Balikpapan refinery while JX Nippon will maintain the remaining 30 percent. Meanwhile, for the Cilacap project, Pertamina will own between 55 and 65 percent, and the remaining 35 to 45 percent will be held by Saudi Aramco.

Dwi added that each of the upgrades would need US$5 billion in investment.

Pertamina is now seeking external financing to support the projects, according to finance director Arief Budiman.

“For big scale projects, project financing schemes are the ideal option. We have started to introduce the development plan to the market. Moreover, our partners are supported by their own governments,” Arief said.

Following the upgrade, Balikpapan refinery will have a processing capacity of 360,000 barrels per day from the current capacity of 220,000 barrels per day. Meanwhile, Cilacap refinery’s capacity will be lifted to 370,000 barrels per day from the current level of 270,000 barrels per day.

Pertamina director for refining Rachmad Hardadi said that while the partners would likely have crude oil supplies to feed the refineries, the company would still be able to source the supplies from other suppliers. 

“It depends on the price. If we can get cheaper crude, we will take it,” Rachmad said.

Prior to the deal, talks of a partnership between Pertamina and Saudi Aramco was hampered by the Saudi’s firm request to be able to take part in the downstream oil-and-gas business in Indonesia. However, the company later abandoned the plan, Arief said.

“Saudi Aramco intended to enter the market. However, after looking at the profitability, they now feel comfortable with deals in the refinery business,” he said.

The upgrading of the Balikpapan and Cilacap facilities are part of Pertamina’s road map to increasing the capacity of its refineries. In addition to the Balikpapan and Cilacap refineries, Pertamina currently operates four refineries, namely the Plaju refinery in Sumatra, the Dumai refinery in Riau, the Balongan refinery in West Java and the Kasim refinery in Papua. The six refineries have a combined capacity of more than 1 million barrels of oil per day. Due to their old age, however, the facilities produce around 800,000 barrels 
per day

Late last year, Pertamina entered into deals with a number of international companies to improve the refineries. 

Apart from the Cilacap project, Pertamina and Saudi Aramco also plan to team up to upgrade the Dumai and Balongan refineries. (Raras Cahyafitri)