New Indonesian Oil Refinery Projects in Jeopardy

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Researched by Industrial Info Resources (Sugar Land, Texas)--As demand for oil in Indonesia continues to grow, plans have been announced for two new oil refineries in Tanjung Sauh on Batam Island near Singapore. However, another proposed refinery project, an extension to the Cilacap refinery in central Java, is under threat as the Indonesian government is attempting to obtain a greater share of the project.

The growing demand for oil has forced state-owned oil firm Perusahaan Tambang Minyak Dan Gas Bumi Negara (Pertamina) (Jakarta, Indonesia) to import more oil. The Indonesian government recently announced income tax incentives for investments in oil refineries. In March, the Mines and Energy Minister indicated that the government is looking to provide additional incentives for investments in oil refineries.

SETDCO Group (Jakarta Pusat, Indonesia) and PT Intan Megah, a local partner, have applied for a license to the Indonesian Department of Mines and Energy to build a refinery with a capacity of 300,000 barrels per day (BBL/d) on Batam Island, using oil sourced from the Middle East. SETDCO, owned by former rock star Setiawan Djody, is involved in diverse business interests, including oil, gas and shipping.

Backed by the Qatar Royal Family, Gulf Petroleum Limited (Doha, Qatar) has also indicated that it intends to set up an oil refinery on Batam Island and is preparing the requisite documents to obtain an investment license. Gulf Petroleum entered into a memorandum of understanding with PT Batam Sentralindo, which operates the Batam free trade zone (FTZ). According to the agreement, Gulf Petroleum will secure a 250-hectare site for the refinery, which will cater to the Indonesian and other Southeast Asian markets.

The Batam, Bintan and Karimun FTZ, which was officially launched in January this year by the Indonesian President, offers exemption from value added tax, luxury tax, and import duties. The FTZ is only 30 minutes by ferry from Singapore. Indonesia and Singapore have signed deals to ensure massive investments in the region.

In another development, a refinery project in Central Java involving a 20:80 joint venture between Pertamina and Mitsui & Company Limited (TYO:8031) (Tokyo, Japan), may be in jeopardy as a result of the Indonesian government's attempts to obtain a higher share in the project. The two companies had arrived at an agreement in which they would extend Pertamina's existing refinery at Cilacap by building a residue fluid cracking catalytic converter capable of producing up to 60,000 BBL/d. The project entails an investment of $1.5 billion.

State-owned Japan Bank for International Cooperation (Tokyo) has already approved funding for the project. However, the Indonesian government recommended that Pertamina obtain a higher stake in the joint venture.

Pertamina currently operates nine refineries in Indonesia with a combined production capacity of 1 million barrels per day. This accounts for 70% of the domestic oil consumption, while the remaining 30% is obtained through imports. Pertamina has proven reserves of 4 billion barrels of oil and 2.7 trillion cubic meters of natural gas. The firm is the world's largest producer and exporter of liquefied natural gas.

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