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Opinion: Indonesia Needs New Oil Refineries |
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Issue 368
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Dr. Terry Lacey Indonesia has become a net oil importer, has left OPEC and lacks the refinery capacity to optimize downstream use of its own oil. President Susilo Bambang Yudhoyono (SBY) and state oil and gas company Pertamina recently announced ambitious plans to build two new refineries and expand a third. Just one new refinery at Banten will cost at least US$4.2 billion, accounting for about one quarter of the new installed capacity, so the whole package will easily cost US$15 to US$20 billion, between 2010 and 2015, with final cost estimates yet to be announced. The President confirmed PT. Pertamina will build two new oil refineries at Bojonegoro, Banten, West Java and at Tuban in East Java, while expanding its biggest refinery at Balongan, West Java. The aim is to increase refining capacity by 400,000 barrels per day, with half the new capacity at Tuban. The capacity of Balongan is already 125,000 barrels per day. (The Jakarta Post 13.02.09). Indonesia needed 364.8 million barrels of oil in 2007 and 369.2 million in 2008 so the country needs just over a million barrels a day. It supplied 62% of its own crude oil needs in 2007 and 61.5% in 2008. The President wants these refineries built in three to five years. Pertamina Director of processing Rukmi Hadihartini aims to start work at Tuban and expand at Balongan as soon as it finishes the Banten refinery in 2012. Pertamina is looking for partners for crude oil supplies and financing for the new refineries and considering Iran as a supplier and partner, but progress is too slow. These projects have been planned for a long time and held up over crude oil supply and financing. There are several reasons for Presidential intervention to try and kick start these projects. There is a general election in April and a Presidential election in June. Indonesians are fed up with inadequate infrastructure and slow progress in the energy sector. Pertamina has a reputation for slowness and inefficiency, with consumers sometimes facing fuel shortages in gas stations. The flagship government kerosene-to-LPG conversion programme was held up by lack of LPG canisters and gas supplies. A recent disastrous recent fire at a security-lax Pertamina fuel depot in Jakarta has not helped. The much promised new biofuels industry has almost hit rock bottom with Pertamina threatening to stop selling biofuels at a loss, while government struggles to push new biofuel subsidies through the House of Representatives to keep biodiesel on the market. Meanwhile the whole fuels and electricity subsidy scenario, as in several ASEAN countries, is a long term recipe for market distortion and disaster, its full potential cost hanging like the Sword of Damoclese over future state budgets (a sword in Greek mythology that eventually falls on those below). The main problem has been old fashioned management in state owned enterprises as well as public administration. But there are signs of reform. The appointment of Karen Agustiawan, a technocratic professional, as the new President Director of Pertamina serves notice on the old-boy-network If Pertamina is to be become a global first-rank oil distribution company then it must operate like a business and can no longer be run on political patron client relationships. Pertamina contributes more to state revenues than any other state owned enterprise. As Karen said in her inauguration, “I believe we can do a lot better in the future”. (Sunday Post 08.02.09). President SBY also realizes that if Indonesia wants investors in new refineries, not the most profitable part of the oil industry, then the state will need to chip in with finance and provide fiscal incentives and market guarantees. Although the long term aim is to reduce the oil addiction, Indonesia must become efficient enough to optimize use of the oil it has. Dr. Terry Lacey Development Economist Jl. Tebet Utara IV G No. 8 Jakarta Selatan Indonesia Terry Lacey is a development economist who writes from Jakarta on modernization in the Muslim world, investment and trade relations with the EU and Islamic banking. © Copyright Cooperation for Development (Europe) www.c4d-info.org
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