T

he government has secured commitment from Iraq, one of the world'€™s biggest oil producers, to
provide investment funds and crude oil for domestic oil refinery projects.

According to a report posted on the Energy and Mineral Resources Ministry'€™s website on Tuesday, Iraq has agreed to provide 300,000 barrels of oil per day (bpd) for 20 years to an oil refinery to be built in Bontang, East Kalimantan. In addition, Iraq also agreed to provide funds for the development of the refinery.

Energy and Mineral Resources Minister Jero Wacik said the period of supply could be extended.

'€œWe still need to wait for details of the agreement. However, in principle, the government of Iraq has agreed [to an extended period of supply],'€ he said.

The commitment was contained in the minutes of a meeting on the finalization of a letter of intent for the oil supply, which was signed during the first Indonesia-Iraq Joint Working Group on Energy in Bali on Tuesday.

Indonesia, a former member of the Organization of the Petroleum Exporting Countries (OPEC), has seen rising demand for oil and its products in line with economic growth.

However, oil production has been declining and it can no longer meet the growing demand.

Meanwhile, consumption reached beyond 1 million bpd, meaning the country spends a hefty portion of its foreign-exchange reserves to import oil.

According to figures from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas), oil production reached 825,000 bpd in 2013, lower than the target of 840,000 bpd.

Under the 2014 state budget, this year oil production was set at 870,000 bpd.

However, the target is unlikely to be met because the budget plans of oil and gas contractors only show a combined production of 804,000 bpd.

The ministry plans to submit a lower oil-production target in a revision of the state budget in the middle of the year.

Deputy Energy and Mineral Resources Minister Susilo Siswoutomo earlier said that a realistic target would be around 820,000 bpd.

Apart from the oil supply, Iraq will also invest in the development of the oil refinery in Bontang, according to Iraq'€™s director general for midland oil companies at the Oil Ministry, Delman N. Abdullah.

The details would be a matter to be discussed at a later date, he said.

'€œWe have principally agreed to invest in refinery development,'€ he said.

'€œIt was based on Indonesia'€™s request [...] Indonesia is a big market and the government of Iraq has a policy to invest in Southeast Asia,'€ he added.

Currently, Indonesia has six refineries nationwide, which are operated by state-owned PT Pertamina, with a combined production capacity of between 600,000 to 700,000 barrels per day of refined fuel.

The country has not built new oil refineries since 1994, when then president Soeharto launched Pertamina'€™s refinery in Balongan, West Java.

The sizeable investment needed for refinery development and a long-term return of investment have discouraged investors in the construction of new refineries.