Indonesia, a main importer of crude oil and its refined products in Southeast Asia, is likely to partner with Iraq, one of the world's largest petroleum producers, to build local oil refineries in a bid to meet domestic needs.
Energy and Mineral Resources Ministry's director general for oil and gas, Edy Hermantoro, told The Jakarta Post on Friday the two countries had signed several energy partnerships, including cooperation on the downstream sector.
'Both deputy energy ministers from the two countries have signed a memorandum of understanding [MoU] for cooperation in upstream and downstream sectors,' he said.
In March this year, Deputy Energy and Mineral Resources Minister Susilo Siswoutomo joined a delegation led by the Coordinating Economic Minister Hatta Rajasa to visit Baghdad.
According to Edy, both Susilo and Iraqi deputy oil minister Fayadh Hassan Nima had signed the energy cooperation's schemes during the March visit. 'The door is open for both national oil and gas companies to form a business-to-business partnership,' he said, referring to Indonesia's state-owned oil and gas company PT Pertamina and the Iraq National Oil Company ( INOC ).
The Indonesian government, in this case the Finance Ministry, is currently still considering whether to give incentives to Saudi Aramco and Kuwait Petroleum for refineries that the firms want to build with Pertamina.
Pertamina has plans to build a refinery in Bontang, East Kalimantan, with Kuwait Petroleum and a refinery in Tuban, East Java, with Saudi Aramco.
Requiring a combined investment of around US$20 billion, the proposed refineries would each have a production capacity of 300,000 barrels per day ( bpd ) when complete.
Both foreign firms have demanded an incentive of a 15 percent increase in crude oil prices supplied to the refineries over the benchmark price provided by Mean of Platts Singapore ( MOPS ).
The firms also want the import duty for their oil supply waived, rejecting the idea of other producers supplying crude oil to the fuel refineries, which have been slated to begin operation in 2018.
The demands from both foreign firms have been the subject of the Finance Ministry's review, which is expected to reach conclusion in June this year.
Separately, Pertamina investment-planning and risk-management director Afdal Bahaudin said the company was aware of the government's plan to persuade Iraq to invest in building local refineries but declined to give details.
Meanwhile, Pertamina processing director Chrisna Damayanto said that while the firm would not dawdle in finding new partners amid the current uncertainty, citing that it 'does not wish to remain stuck with one prospective partner only', he would not reveal the current prospective partners of Pertamina.
Perceptions among oil and gas firms have been that the sizable investment needed for refineries would not meet their desired internal rate of return ( IRR ) of around 10 percent.Indonesia has not built a new refinery since 1994, when Pertamina built a refinery in Balongan, West Java, under Soeharto.