P

ertamina is considering closing its inefficient refineries, which have forced the state oil and gas company to incur more costs in its fuel production.

The company'€™s director for marketing, Ahmad Bambang, said Pertamina was assessing options for the closure of the country'€™s refineries, which were mostly aging and limited to processing certain types of crude oil.

'€œOur refineries'€™ production costs are high and we'€™re considering closures to avoid further losses,'€ Ahmad said on Thursday.

The country has six refineries operated by Pertamina with a combined capacity of over 1 million barrels. However, due to the age of the refineries, they are running below capacity. The refineries are located in Cilacap, Central Java; Balongan, West Java; Balikpapan, East Kalimantan; Dumai, Riau; Kasim, West Papua and Plaju, South Sumatra.

As part of its long-term plan, Pertamina is upgrading five of the refineries to increase its production capacity and process more complex crude oil. However, the projects, which require an estimated US$25 billion in investment, will take time to be completed.

The refinery business is known for its minor profit margin, preventing companies from developing them. Coupled with inefficiency of aging refineries, Pertamina is struggling to manage its operational costs, making its fuel price expensive and not competitive in the market.

The company is analyzing whether closing refineries and relying on imports will be the best option.

'€œOur most efficient refinery is the newest one, [Balongan refinery in Cilacap, Central Java]. The most inefficient is likely Kasim refinery in Papua,'€ Ahmad said.

However, Ahmad warned, closing the refineries would have a wide impact on the country'€™s upstream oil sector.

For example, if the company closes Plaju refinery, it is likely that Pertamina can reduce its losses. However, Plaju is taking its oil from the Tempino field, which has access to no other refinery. The closure of Plaju will directly impact on the activities of Pertamina EP, a Pertamina subsidiary in upstream business.

Moreover, closing the refineries would force the company to import more petroleum products, which would further hurt the country'€™s economy.

Recent figures from Pertamina show it seeks a total of 201 million barrels of fuel, consisting of gasoline, avtur and high-speed diesel, this year. The planned amount will be equal to roughly 30 percent of last year'€™s imports of 153.7 million barrels.

Out of total planned imports this year, 128 million barrels will be gasoline with registered octane number (RON) 88 in specification, around 63 percent of total consumption this year.

This year'€™s import of RON 88 gasoline will see an 11 percent increase compared to the volume imported last year.

For avtur, the company plans to import around 9.8 million barrels this year, around 34 percent of the consumption needed. Avtur imports this year will see a 50 percent surge compared to last year.

Meanwhile, for high-speed diesel products, as many as 63.1 million barrels will be imported this year, around 33 percent of estimated consumption.

Pertamina president director Dwi Soetjipto said previously that improving efficiency was a focus of the company.