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Government gives green light to private refineries
Jakarta Post - November 18, 2016
Indonesia is in dire need of more oil refineries to minimize refined fuel imports in the next decade, which are set to skyrocket in order to accommodate rising demand.
At present, the country's refineries are only capable of processing around 830,000 barrels of oil per day (bopd), a little over half of the current refined fuel demand.
Although Pertamina has already set the ball rolling with plans to build two new refineries and upgrade three others in the next decade, progress has been slower than expected, increasing concern that the fuel supply deficit will remain large in the coming years.
To offset a possible shortfall, the Energy and Mineral Resources Ministry last Friday issued Ministerial Regulation No. 35/2016, which allows private companies to build refineries of their own as long as they use technology approved by the government and prioritize meeting domestic demand over exporting the final products.
Based on existing regulations, private companies that decide to build oil refineries may be offered fiscal and non-fiscal incentives, including the ability to integrate petrochemical production in the refineries built.
The regulation also allows companies to directly import crude for production and decide freely on the fuel they wish to produce.
The ministry's oil and gas director general, IGN Wiratmadja Puja, emphasized that the private refineries would be allowed to sell their fuel to off-takers other than Pertamina. "They can decide who to sell it to, it will mostly be based on competitiveness," he said on Thursday.
BMI Research, a subsidiary of Fitch Group, expects national fuel demand to increase by an average annual rate of 2.7 percent from 1.78 million bopd to 2.28 million in 2025. However, this estimate does not take into account any proposed greenfield refineries, due to the lack of a concrete time line and the risk of delays.
BMI Research also expects imports of refined fuels to skyrocket to 1.4 million bopd in 2025 from the current 941,000 bopd.
Unlike BMI Research, however, Pertamina projects that demand will only reach 1.8 million bopd by 2030. To accommodate that projected increase, Pertamina is set to upgrade refineries in Cilacap in Central Java, Balikpapan in East Kalimantan, Dumai in Riau and Balongan in West Java.
It will also build several new refineries, including one in Bontang, East Kalimantan, and Tuban, East Java.
Even though these measures are set to increase production to 2.6 bopd, Pertamina still expects to see a small deficit of 231,000 bopd in 2030 – comprising only of gasoline – if the projects complete on time.
Wiratmaja said the ministry had not set a total capacity target for private refineries, as that would depend largely on national demand at the time. Moreover, the ministry did not set a minimum capacity for each refinery.
"There have already been a lot of requests to invest in private refineries. Some have asked to build refineries with a capacity of 100 or 200 bopd," he said, declining to disclose the companies that had shown an interest in private refineries.
Meanwhile, ReforMiner Institute executive director Komaidi Notonegoro applauded the new regulation, saying it would expedite refinery development and support Pertamina's efforts to increase domestic production.
"Pertamina's refinery segment is more of an obligation, because as a business it's not that profitable," he said, adding that the private refineries could fill the production gap Pertamina projects for 2030.
Source: http://www.thejakartapost.com/news/2016/11/18/govt-gives-green-light-to-private-refineries.html.
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