Chandra Asri Explores $8 Billion in Refineries

ID/Damiana N. Simanjuntak

Chandra Asri Petrochemical, the country’s largest petrochemical company, is carrying out preliminary studies for refinery facilities in Merak, Banten, that could cost up to $8 billion, a company executive said on Thursday.

Suhat Miyarso, vice president of corporate relations at Chandra Asri, said the company was looking for a partner to help share the cost burden.

“There are some who have expressed interest, but we are still looking,” Suhat said.

Chandra Asri is a subsidiary of Barito Pacific, which is affiliated with tycoon Prajogo Pangestu,

He said Chandra Asri would ideally build two new refineries to process 300,000 barrels per day of crude oil into gasoline. As a side product, the facilities will also produce naphtha, which is used to make the ethylene and propylene that are key to plastic production.

Such refineries are scarce in Indonesia. Pertamina, the state oil and gas company, has six oil refineries, including in Tuban, East Java; Cilacap, Central Java; Dumai, Riau; and Balikpapan, East Kalimantan. They mostly produce gasoline, but not enough to satisfy domestic demand. The facilities also produce naphtha as a side product, but Pertamina mostly exports it.

Chandra Asri now imports the naphtha it needs for its petrochemical operations from the Middle East.

Even if Chandra Asri can create an extra 30,000 bpd capacity with the new refineries, it still wouldn’t be enough to secure domestic needs, which is closer to 50,000 bpd, Suhat said.

He went on to say the government should thus offer special incentives such as tax holidays to lure investors to the sector.

Two foreign investors, Saudi Aramco and Kuwait Petroleum Corporation, have been in talks with Pertamina to build refineries here worth a potential $8 billion.

The plans have progressed, although there are still issues to be worked out regarding government approval of tax incentives, land acquisition and stable crude oil supply.

In related news, Suryandi, Chandra Asri’s corporate secretary and director of investor relations, said that the company was doing a feasibility study for a plan to increase production of naphtha cracker facilities to 820,000 tons per year from 600,000 tons.

The investment required for the plan will be $300 million.

“A decision whether to carry on with the plan or not will come in the first quarter of 2013,” Suryandi said.

If the feasibility study determines that it will be a good investment, the facilities will be built in early 2013. Their construction is expected to be completed in 2015.

Suryandi told the Jakarta Globe in March that the company hoped to revive a plan to raise about $300 million by selling 15 percent of its shares through a rights offering in a bid to help finance some projects and make its stock more liquid.

Apart from doing a feasibility study for upgrading its naphtha cracker facilities, the company is constructing a $170 million butadiene plant in Cilegon, Banten. Butadiene is a chemical used to make synthetic rubber, tires and automotive parts.

The investment size has been raised by 17.24 percent as the company aimed at meeting the minimum investment size to obtain a tax holiday.

In the earlier application, Chandra Asri proposed an investment of $145 million, but that included the working capital.

When asked about the company’s performance projection this year, Suryandi said it was still facing pressures from tight margins amid rising commodity prices.

“We are in wait-and-see mode now, waiting for the crude oil price to fall,” Suryandi said.

Oil for August delivery dropped as much as 64 cents to $86.46 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.69 London time on Monday. The contract gained 1.2 percent to $87.10 on Friday, the highest close since July 5. Prices are 12 percent lower this year.

Additional reporting from Bloomberg