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February 13, 2009

Indonesia: State oil firm urged to build new refineries
Indonesian President Susilo Bambang Yudhoyono urged on Thursday state oil firm Pertamina to build new refineries to cut imports of oil products.

Construction of new refineries has become more pressing in the past few years, as growing domestic demand has forced Pertamina to import more fuel, straining the budget and weighing on the rupiah currency.

Evita Legowo, director general of oil and gas at the energy ministry, told Reuters in an interview last month that the downstream prospects did not look promising, pointing to huge investments needed and low margins.

"As we are still importing high amounts of oil products. It would be more efficient if we could build refineries," Yudhoyono told reporters after meeting Pertamina officials.

"There is a plan to build refineries, however, Pertamina's president director has asked for more tax incentives," Yudhoyono said, referring to the newly appointed president director of Pertamina Karen Agustiawan.

Yudhoyono asked Pertamina to reach conclusive agreements with ministries so a timeline for builing refineries could be established.

Pertamina marketing director Achmad Faisal said the state energy firm planned to build new refineries adding a combined 400,000 barrels per day (bpd) of capacity in Indonesia.

"There are plans to build a refinery in Banten province with a capacity of 150,000 barrels per day and we will expand Balongan refinery by 200,000 barrels per day in future," Faisal said.

In October last year, Yudhoyono had already issued a decree giving income tax incentives for investment in oil refineries.

However, a Pertamina official who declined to be indentified, said those incentives were insufficient given profit margins on new refineries were very thin. Indonesia is Asia's biggest importer of oil products.

Pertamina has nine refineries scattered around the archipelago with a combined capacity of around 1 million barrels per day (bpd). But it only supplies 70 percent of domestic oil product consumption and 30 percent comes from imports.

Pertamina has signed several memorandum of understanding with Iran and China's Sinopec Corp in the past to build new refineries in join ventures. But none of these plans have materialised so far.

Pertamina and an Iranian company have agreed to build a 300,000-bpd oil refinery in Java island, although construction has not started.

China's Sinopec Corp has also agreed in mid-2005 to help build a refinery in East Java with a capacity of up to 200,000 bpd, although negotiations have foundered since then.

Saudi Aramco, Kuwait Petroleum Corp. and Malaysian state oil firm Petronas have also expressed interest in building oil plants in Indonesia.

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