Pertamina, Saudi firm to build oil refinery in Tuban

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)