REPUBLIKA.CO.ID, JAKARTA -- Indonesia's state energy firm Pertamina signed on Wednesday preliminary agreements with global energy firms to upgrade five oil refineries in a new push by the former OPEC member to modernize its creaking energy infrastructure.
President Joko Widodo has launched sweeping energy reforms aimed at curbing corruption and meeting ballooning energy demands. Pertamina, whose entire board of directors was replaced last month as part of the reforms, signed Memoranda of Understanding (MOU) with China Petroleum and Chemical Corp (Sinopec) , Saudi Aramco and Japan's JX Nippon Oil & Energy Corp.
The firms will first assess the feasibility of the upgrades, with binding agreements expected within six months to bring the refineries up to international standards within four years, according to Pertamina Chief Executive Dwi Soetjipto.
"This alone won't be enough to fill the demand gap," Soetjipto said, adding that Pertamina was also looking at building new refineries.
The energy minister has said ageing refinery infrastructure costs Indonesia 10 trillion rupiah (811 million USD) a year because processing costs mean global fuel prices are cheaper. Expanding domestic refineries and storage is also key element of energy proposed reforms, allowing Pertamina to shift to buying petroleum in more stable long-term contracts.
But Southeast Asia's largest economy has struggled to attract investment in its refining sector and its newest facility is 20 years old. Government talks with Kuwait Petroleum and Saudi Aramco stalled last year over tax issues.
"In the past our refinery (investments) were not too economically attractive," Soetjipto said. Pertamina has recently said it would offer partnerships in marketing and other areas to sweeten deals for investors.
Crude supply agreements, however, would remain separate from refinery investments, Soetjipto said, because Indonesia wanted to retain flexibility to find the lowest energy costs. Indonesia's Refinery Development Master Plan aims to double the country's crude processing capacity to 1.68 million barrels per day from 820,000 bpd at present, Soetjipto said.
According to Pertamina data, the plan aims to more than triple gasoline output from Indonesia's refineries to 630,000 bpd by 2025 from 190,000 bpd in 2012, and more than double diesel output to 770,000 bpd by 2025 from 320,000 bpd in 2012.
Pertamina said it is prioritizing the upgrades of the Cilacap refinery in Central Java, Balongan in West Java, and Balikpapan in East Kalimantan. Pertamina senior vice president for business development, Iriawan Yulianto, said the expected rate of return for investors on the upgrades would be "good" but declined to elaborate.
Michio Ikeda, executive vice president of JX Nippon Oil & Energy Corp, said Indonesia was attractive because its demand for oil products was increasing at up to 5 percent a year, in contrast to declining demand at home.
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