Government Considers Building New Refinery With Energy Subsidies

Retno Ayuningtyas

The government is currently studying the possibility of using part of its energy subsidy to build new crude oil refineries that would help address national needs without having to seek help from foreign investors.

Bambang Brodjonegoro, the executive head of the Fiscal Policy Board (BKF) in 2011, said energy subsidies were at Rp 260 trillion ($27.8 billion). He said the government should limit subsidies to Rp 100 trillion and use half of the rest for subsidizing cheap housing and improving public transportation and the other half to pay for building new refineries.

“We are trying to study this and may propose whether it would be better to continue the energy subsidy policy as we now have it, or if it would be better if it was limited and used in the form of building cheap housing and improving public transport as well as the construction of refineries,” Bambang said in a discussion on Wednesday.

Bambang said the new subsidy scheme could start next year and in just two budget years, Indonesia would be able to have one new refinery with an adequate capacity.

New refineries are important for Indonesia because the capacity and specifications of existing refineries are no longer sufficient and the impact means Indonesia has had to import crude oil and at the same time produce fuel.

“In its implementation, the government can appoint Pertamina to build the refinery through a capital participation scheme. This method is ideal for the construction of a new refinery rather than one where Pertamina builds it with the involvement of foreign investors, because they usually demand fiscal incentives and in the end Indonesia is dictated by these investors,” Bambang said.

Ardhy Mokobambang, the Pertamina vice president for strategic planning, business development and operation risks, said Indonesia’s current refinery capacity cannot yet meet the domestic need for fuel. Pertamina projects fuel shortages to reach 23.3 million kiloliters by 2020.

“To be able to cover that shortage, there should be six new refineries with a total capacity of 1.7 million barrels per day besides the two ongoing new refinery projects,” he said.

Pertamina’s six refineries currently produce 32.6 million kiloliters of fuel per year. The company is only able to meet 45 percent of domestic needs for premium gasoline, or just 10.2 million kiloliters per year, while for diesel oil, Pertamina can only supply 20 million kiloliters per year or 90 percent of domestic needs.

Evita Legowo, the director general for oil and gas at the Energy and Mineral Resources Ministry, had earlier said that the ministry was currently planning the building of a new refinery using the state’s own capital.

She said that in 2013, the government will earmark Rp 1 trillion for the study, search for the right location and the application of technology for the construction of a refinery.

The refinery construction should begin in 2013 so that it can begin operations in 2017.

Investor Daily