Government told to develop refineries

Leony Aurora, The Jakarta Post, Jakarta

Against a backdrop of regular fuel scarcities and increasing fuel consumption, the House of Representatives has requested that the government prioritize the construction of refineries by both the state and private sector.

Legislators said in a hearing with the minister of energy and mineral resources and state oil and gas firm PT Pertamina on Monday that the government should provide incentives and facilities to encourage investment in the refining sector.

"We will support the government if it requests budget funding for the construction of refineries," said members of the House energy and mining commission. "But we will need clear proposals."

Energy minister Purnomo Yusgiantoro responded by saying that his ministry would ask for funding for refinery construction out of next year's budget.

At present, there are nine oil refineries operating in Indonesia with a total capacity of about one million barrels per day (bpd). The government had said earlier that it would build four more oil refineries over the next four years so as to reduce fuel imports.

With domestic fuel consumption rising by some 7 percent per year, the government, through Pertamina, currently has to import 300,000 barrels of crude oil and 400,000 barrels of petroleum products each day to ensure adequate supplies.

Pertamina's cash flow problems have repeatedly caused fuel stocks to drop below the ideal of 22 days supply. On Monday, premium gasoline stocks stood at only 12.5 days.

Separately, energy commission legislator Dito Ganinduto said the government should consider project financing schemes to encourage refinery construction.

"A refinery with a capacity of 100,000 bpd costs approximately US$1.5 billion," he said. "This would be a very heavy burden indeed on the state budget."

He further said that investors would not be interested in investing in refineries if the government continued to pay only a small fee for oil refining, and persisted in subsidizing fuel heavily.

"Investors will only come if we let market mechanisms determine prices and stop subsidizing fuel," said Dito.

According to the new oil and gas law, which was enacted in 2001, Pertamina will have to relinquish its monopoly over the refining, distribution and retail sides of the industry across the archipelago starting November this year.

Although many investors have expressed interest in building gas stations, capital-intensive endeavors such as refineries and fuel storage depots have yet to attract investment.

The Oil and Gas Upstream Regulatory Agency (BP Migas) has requested lower import duties for the capital goods, such as machinery and materials, required for the building of such facilities.

The Ministry of Finance is currently considering the proposal.