Pertamina, Saudi firm to build oil refinery in Tuban

JAKARTA (JP): State oil and gas company Pertamina and Saudi Arabian company Hi-Tech International Group (HTIG) will build an oil refinery with a processing capacity of 150,000 barrels of oil per day (bpd) in Tuban, East Java, to help cut the country's dependence on imported fuel.

The two companies signed an agreement on Friday for the construction of the oil refinery, the operation of which is slated to begin in 2005.

Pertamina and HTIG will respectively own 15 percent and 85 percent of the project, the investment of which Pertamina expects to run at between US$1 billion and $1.5 billion.

Pertamina president Baihaki Hakim said he expected to feed the refinery with crude oil from the recently discovered Cepu oil field in East and Central Java.

"Exxon's crude oil seems to be suitable for the refinery," Baihaki told reporters following the agreement's signing ceremony, which was attended by HTIG chairman Yasin S. Indarkiri. Baihaki was referring to ExxonMobil Oil Indonesia Inc., whose subsidiary Cepu Mobil Ltd. is developing the Cepu oil field.

The Cepu oil field holds an estimated capacity of 250 million barrels. Unofficial forecasts put Cepu's oil production rate at about 100,000 bpd by the year 2004.

Before the oil field comes on stream, Baihaki said, Pertamina will import the refinery's entire crude oil needs of 150,000 bpd from Saudi Arabia.

The discovery of the Cepu oil field could cut crude oil imports down to 50,000 bpd, he said.

Aside from the refinery's proximity to the giant oil field in Cepu, it will also benefit from being able to share the infrastructure of the nearby Tuban petrochemical complex.

"This can save us between 15 percent and 20 percent of the costs," Baihaki said.

He added that East Java accounted for some 50 percent of the nation's fuel demand, thus the new refinery in Tuban would also ensure a more steady fuel supply.

Currently East Java relies on fuel supplied by the Balikpapan refinery in East Kalimantan, Baihaki said.

"If there is a transportation problem, a broken down tanker for example, the first ones to be hit (by a fuel shortage) is East Java and Bali," he said.

The signing of the oil refinery deal comes amid heated debates between legislators and the government to cut fuel subsidy spending.

Fuel output from Pertamina's refineries is only 888,000 bpd as against national consumption of 1.08 million bpd. To cover the shortage, Pertamina imports fuel, which costs the state around $1.75 billion a year.

Baihaki admitted that he was at first skeptical about HTIG's seriousness in developing the refinery.

Pertamina met many refinery investors who were keen but not committed, he said.

He was convinced after meeting HTIG chairman Indarkiri, a Saudi Arabian former minister of manpower who is of Riau descent.

The Arabian state-owned Aramco Gulf Operation Company has also issued a guarantee for a steady supply of crude oil for the refinery, he added.

Nonetheless, Baihaki said he had given HTIG six months to start the project or else he would cancel the deal.

According to him, three foreign investors have shown interest in picking up the project should HTIG fail to meet Pertamina's deadline.

Since 1992, the government has approved 20 oil refinery projects worth over $38.3 billion. None of them have been realized.

The Investment Coordinating Board (BKPM) has said that the economic crisis had prevented investors from maintaining their schedules. Some of these projects were linked to families and cronies of former president Soeharto.

Last year, UK-based Mayhill International Trading & Services Ltd. said it would go ahead with the construction of a $1.4 billion refinery in Sumbawa.

In that year, BKPM also approved two oil refinery projects valued at $6 billion that were to be built by a joint venture in Parepare and Batam. (bkm)