Pertamina to build on its own land to avoid acquisition woes

State-run oil and gas company PT Pertamina says it will avoid land acquisition problems by building two planned refineries on plots it currently owns.

The decision was made after prices soared due to land speculation near the refinery development sites in Balongan, West Java, and Tuban, East Java, spokesperson Mochamad Harun said on Tuesday.

“We want to inform local residents and speculators that Pertamina has no plan to acquire land for the construction of our new refineries. We’ll use our own land,” Mochamad said in a press statement.

Based on data collected by Pertamina, speculators had driven up land prices near the proposed development sites for the refineries from Rp 65,000 (US$6.92) per square meter to Rp 3.6 million.

“We also emphasize that the refineries will not necessarily be built in West Java or East Java; they can be anywhere. For sure, we’ll use our own lands,” Harun said.

Pertamina has greed to cooperate with the Kuwait Petroleum Corporation and the Saudi Aramco Asia Company to build refineries in Balongan and Tuban.

Negotiations with the foreign companies on fiscal and non-fiscal incentives for the developments have stalled, however.

“The construction of the two refineries aim to improve national energy security and reduce our dependence on imported fuels. Thus, we’re very committed to do our best to make the investments come true,” Harun said.

Pertamina’s refineries are currently able to produce 40.6 million kiloliters of fuel a year.

However, the nation’s annual fuel consumption might reach 57.1 million kiloliters in 2011, according to estimates, and has been tipped to top 72.2 million kiloliters by 2018.

Analysts have said that construction of additional refineries will be vital to curb the nation’s dependence on imports.

“We have created a roadmap that includes the development of new refineries and revamping existing ones. We hope that by 2018, fuel production from Pertamina and its partners will be 66.7 million kl [kiloliters],” Harun said.

The negotiations between the government and Kuwait Petroleum have not gone well, following the government’s reluctance to give into to what it called “exaggerated” incentive demands by the company.

The company has asked for, among other things, a long-term tax holiday, a 5 percent income tax for the duration of the project and a waiver on not paying regional taxes.

In case negotiations fail, the Energy and Mineral Resources Ministry has set aside Rp 1 trillion from next year’s state budget to prepare the construction of refineries.

The total amount of money needed to build a refinery is Rp 90 trillion.

 Pertamina has said that the nation would need nine additional refineries to meet projected demand.

Even if Kuwait Petroleum built the planned extension of the Balongan refinery and Saudi Aramco built the proposed Tuban refinery, Pertamina said, Indonesia would face annual fuel deficit of 35.5 million kiloliters, or 2.6 million barrels per day (bpd), in 2025.

Pertamina currently operates six refineries, which are located in Dumai, Riau; Plaju, South Sumatra; Cilacap, Central Java; Balikpapan, East Kalimantan; Balongan, West Java; and Kasim, West Papua.