T

o catch up with growing demands for oil-based fuels, Indonesia needs to build at least three more refineries, each with the capacity to produce 250,000 barrels of oil per day (bpd), the Energy and Mineral Resources Ministry says.

The ministry’s director general for oil and gas, Evita Herawati Legowo, said in Jakarta on Thursday that the three refineries would be built in Balongan in West Java, Banten and Tuban in East Java.

“Currently, the total processing capacity of our refineries is 1.15 million bpd. They produced refined fuel of 76,000 bpd last year. Our fuel demand in 2010 was 1.06 million bpd, thus there was a deficit of 388,000 bpd,” she told a discussion session at the Indonesian Chamber of Commerce.

She predicted that in 2015, the demand for fuel in the country would increase to 1.29 million bpd, with an assumption that fuel consumption would grow 4 percent per year. However, the production would only slightly increase to 677,000 bpd even with the operation of a small scale refinery in Musi Banyuasin in South Sumatra, she revealed.

“So there is still a deficit of 617,000 bpd,” Evita explained.

Many investors have expressed interest in building refineries in the country over the past 15 years, but unappealing fiscal policies have forced them to back down on their plans. The Balongan refinery was the last refinery built in the country in 1994.

Evita admitted that the government’s inability to provide incentives demanded by investors became the main constraint in executing refinery projects. “Building a refinery is very difficult. It requires huge capital and therefore it needs more incentives,” she revealed.

The negotiation with the Kuwait Petroleum Corporation to expand the Balongan refinery is currently in limbo as the company has demanded more incentives. The government has agreed to give the company a tax holiday, lower income tax and zero tax for certain chemical substance imports.

Evita claimed that the talks with Kuwait Petroleum had been very close to a deal. She said that her ministry and the Finance Ministry just needed to discuss what additional incentives the government could give to the company.

With the investment from Kuwait Petroleum, the capacity of the Balongan refinery will be expanded from the current 200,000 bpd to 325,000 bpd. The expanded refinery is scheduled to begin operating in its full capacity in 2017.

The Banten refinery project has also not been making progress. The investor, Iran’s Oil Refining Industries Development Company (ORIDC), withdrew from the project.

The same thing has happened with the Tuban refinery. Saudi Aramco has expressed its interest to invest and it is now discussing intensively with the government and state oil and gas firm PT Pertamina.