11 October 2019 (closed)
USD/IDR (14,139) -18.00 -0.13%
EUR/IDR (15,578) +16.98 +0.11%
Jakarta Composite Index (6,105.80) +82.16 +1.36%
The government of Indonesia wants to construct the Bontang oil refinery in East Kalimantan through a private-public partnership (PPP). Sudirman Said, Minister of Energy and Mineral Resources, said construction of the Bontang oil refinery is scheduled to commence in 2017. State-owned energy company Pertamina will be in charge of the project and is now searching for investors to participate in the project which is estimated to require a total of USD $14.5 billion in investment.
In order to see groundbreaking in 2017 Pertamina should manage to find an investor before October 2016. Indonesia's Finance Ministry will hire a team of international consultants to assist Pertamina finding the right partner. The state-owned energy company will hold an auction to select the investor. Given the large capital required (estimated at USD $14.5 billion) Pertamina cannot realize this project by itself. However, given the low global oil prices it may be tough to find a partner.
The Indonesian government also announced it offers incentives to lure investors. These incentives are the free use of existing infrastructure at the refinery site (hence reducing investment costs). Currently, there already exist adequate roads and ports in the area. Furthermore, there is sufficient electricity supply. The government also assures that there will be no trouble related to the land certification process. Lastly, it offers a tax holiday to the investor (that can be extended up to 15 years).
This Bontang oil refinery is one of the government's ten priority projects. It is designed to have a production capacity of more than 235,000 barrels of petroleum per day. Provided construction can commence in 2017, the refinery could be operational by 2022.
Due to increasing fuel demand in Indonesia, output of the Bontang refinery will be consumed domestically. Not only in Indonesia's upstream oil sector but also in the downstream sector there has been a lack of investment over the past decades, hence resulting in an increasing amount of oil and fuel imports from abroad. Today, Indonesia's total oil refinery capacity (estimated slightly below one million barrels per day) is roughly the same as 15 years ago, indicating that there has been limited progress in development of the downstream oil sector in Indonesia. The country currently has six oil refineries, all operated by Pertamina. However, Southeast Asia's largest economy is estimated to demand 2.6 million barrels of oil per by 2025. Without adding new refineries , Indonesia is on track to become the world's largest fuel importer.
Some time ago it was reported that Japanese petroleum firm JX Nipon Oil and a Saudi Arabian-based investor named Syekh Said Al Husaini were interested in this project.