Indonesia mulls building new refineries with energy subsidy fund

Pertamina Vice President for Strategic Planning, Business Development and Operation Risks, Ardhy Mokobambang, disclosed that Indonesia’s current refinery capacity is not sufficient to meet the domestic demand for fuel.
Pertamina estimates that fuel shortages will reach 23.3 million kiloliters by 2020. The Indonesian government has responded by announcing that it is studying the possibility of using part of its energy subsidy to build new oil refineries that would supply local demand. This would enable the country to supply its energy requirements without asking for help from foreign investors.
In 2011, when energy subsidies were at Rp 260 trillion (US$27.5 billion), the executive head of the Fiscal Policy Board (BKF), Bambang Brodjonegoro, said that the government should limit subsidies to Rp 100 trillion (US$10.58 billion). He suggested that half of the balance should be used to subsidize cheap housing and improve public transportation; while the other half should be used to build 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 Brodjonegoro said.
He added that if the new subsidy scheme would be implemented next year, Indonesia would have a new refinery within two years. Brodjonegoro explained: “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,” Brodjonegoro said.
But Mokobambang said that in order to fully address the shortage, six new refineries with a total capacity of 1.7 million barrels per day are needed, aside from the two ongoing new refinery projects. Pertamina currently has six refineries which produce 32.6 million kiloliters of fuel per year. It is able to meet only 45% of domestic needs for premium gasoline and 90% of demand for diesel oil. (June 7, 2012)