Government told to develop refineries

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.