Regulation about Refinery is hampered due to the Debate of Pertamina and Finance Ministry

KATADATA - Balongan refinery is the newest one that Indonesia has, and that was built in 1994. The other six refineries that operate these days are even older. And so, the government will speed up the development of the crude oil refining facility so that Indonesia will not depend on fuel import anymore, which tends to “suffocate” the state budget. 

And in order to prove the seriousness of the commitment, in the last mid of September, the Coordinating Economic Affairs Minister Darmin Nasution said that the Presidential Regulation about the refineries development would be included in the second economic policy package. In the draft law at that time, the private sector is given the opportunity to also participate in this business. 

According to Darmin, foreign investors that are interested to participate will be directed to invest their capitals in petrochemical industries. Additionally, before the plan was declared, Saudi Aramco, an oil and gas giant that is based in Dahran, Saudi Arabia, had already stated its enthusiasm. “Aramco has a lot of money, they are ready to build refineries in Indonesia,” Darmin said back then. 

Unfortunately, the regulation to speed up the development was canceled to be included in the second economic policy package. The target of Energy and Mineral Resources (EMR) Minister Sudirman Said to issue the Presidential Regulation about the refineries development in October 2015 was not realized as well. 

Katadata’s source said that there are several reasons why the Presidential Regulation has not been issued until now, and one of them is due to the various importances in the regulation. According to the source, Pertamina and Finance Ministry still have different perspectives regarding the regulation. 

In the draft law, Pertamina will be assigned to be the offtaker or the buyer of oil refinery productions. And in response to the statement of the draft law, Pertamina stated its readiness to do it, but with a requirement that in the days ahead, no one should question Pertamina’s decision about the pricing; since Pertamina is worried that the price set by Pertamina will be questioned and considered as too expensive that it can harm the state. 

This concern is confirmed by Pertamina’s VP for Corporate Communication Wianda Pusponegoro, who said that the government must be able to guarantee about the purchase price from the refineries. Or at least, the government can make a limit or borderline regarding the price. 

Besides a price guarantee, Pertamina also asks the government to give a certainty in law regarding the process of refinery development. Wianda is hoping so that the refinery development process, which usually takes seven years, will be able to be finished in four years. This acceleration should be done since it is necessary, considering that the fuel import is still very large. If the development is accelerated, then the procedure to build new refinery will not be like the usual one, which means that it will not pass through the usual tender process, but it will be done by direct appointment. “And that needs legal basis,” Wianda said. 

In response to Pertamina’s demand, Finance Minister Bambang Brodjonegoro said that the government would not give any guarantee to Pertamina. In the Presidential Regulation, Pertamina will still be the offtaker without any guarantee or insurance. According to Bambang, that particular demand is only a made-up excuse by Pertamina. “They just wish to continue importing fuel,” Bambang said to Katadata in Finance Ministry, Jakarta, last Friday. 

Meanwhile, Sudirman Said explained that Pertamina does not need to worry to follow the policy that the government has taken. “The government will not set a policy that would harm Pertamina or investors. All will have a fair treatment.” 

Refineries development in Indonesia is important because the fuel consumption of the people has reached 1.6 million barrels per day (bpd), while the capacity of the refineries that the government has through Pertamina is only at 1.05 million bpd. However, not all refineries can function optimally since most of them are already old. Balongan refinery is the newest one, and it was built 21 years ago. But the other refineries are built in the 1970s.

The data of Downstream Oil and Gas Regulator mentioned that the refineries that the government owns through Pertamina are Pangkalan Brandan with the capacity of 5,000 bpd, Dumai with 170,000 bpd capacity, Musi with 133,700 bpd capacity, Cilacap with 348,000 bpd capacity, Balikpapan with 260,000 bpd capacity, Balongan with 125,000 bpd capacity, Kasim with 10,000 bpd capacity, and Cepu Support with 3,800 bpd capacity (but the production only reaches 800 bpd). It means, the government must import 800,000 bpd of fuel to fulfill the 1.6 million bpd consumption. 

And to solve this problem, the plan to build new refineries is made. In the next 10 years, the government will develop four oil refineries with the capacity of 668,000 bpd with predicted investment needed to stand at US$ 23.6 billion. The refineries will be built in East Kalimantan, East Java, West Java, and Aceh. 

In order for the plan to run smoothly, there is a need for firm legal basis, and in this case it is the Presidential Regulation. Besides Pertamina as the offtaker, the regulation also said that the government will prepare the lands. The government will also give incentives like tax holiday, tax allowance, and strategic goods tax as well as customs immunity. The regulation will also control the cooperation scheme between the government and private sector.