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tate-owned oil and gas giant PT Pertamina is facing obstacles in upgrading the company'€™s aging refineries to meet the growing demand for fuel whilst supporting the processing industry and adding value to the economy.

Pertamina president director Dwi Soetjipto said that the most difficult point in the negotiation with its partners in upgrading the refineries was about each party'€™s rights and obligations, particularly as the partners demand the right to sell in the fuel market.

'€œThe obstacle is that the partners want to enter the market. We have to assess this thoroughly because Pertamina'€™s upstream and midstream strength will be useless if we are not strong enough in the market,'€ he explained.

Indonesia needs more oil processing plants to process crude into petroleum products amid the rising demand for fuel, which is primarily distributed to the public by Pertamina, while existing refineries are aging and have limited capacity.

In December last year, Pertamina signed a memorandum of agreement with three global oil refiners '€” namely Saudi Arabia'€™s Saudi Aramco, Japan'€™s JX Nippon Oil & Energy and China'€™s Petroleum & Chemical Corporation (Sinopec) '€” to upgrade the Indonesian firm'€™s five oil refineries, with an estimated total investment of US$25 billion.

Under the existing plan, Saudi Aramco will assist Pertamina to upgrade the Dumai refinery in Riau, the Cilacap refinery in Central Java and the Balongan refinery in West Java. On the other side, Sinopec will help Pertamina to upgrade its Plaju refinery in South Sumatra while JX Nippon will be the Indonesian firm'€™s partner I works for Balikpapan refinery in East Kalimantan.

Works on the Balikpapan and Cilacap refineries are in the first stage of the development program.

Dwi said that talks related to the Balikpapan refinery upgrade were about to be finalized as principal understandings have been established. Meanwhile for Cilacap, discussions are still under way.

'€œIf by the end of 2015, no deals are reached, we will see what we can follow up. Our benchmark is the Balikpapan upgrade,'€ Dwi added.

Under the existing plan, the upgrade projects will double the capacity of oil refineries in the country to up to 1.68 million barrels per day. Currently, there are six refineries in Indonesia operated by Pertamina, with a combined current accessible capacity of around 820,000 barrels per day.

The refineries development program doesn'€™t include a refinery in Kasim, Papua.

In the refinery upgrading program, Pertamina also aims to increase the refineries'€™ sulfur content limit to around 2 percent from the current limit of 0.4 percent so they can also process sour crude oil, which is the more widely produced type in the global market.

The refineries were previously designed to process the less complex sweet crude oil, which used to be the specification of oil found in Indonesia.

Pertamina and its refinery development partners should have completed feasibility studies within six months following the December signing of the memorandum of understanding, which should be followed by reviews in financing and business structure. Previous refinery upgrade plans were hampered mostly by financial issues, unfavorable regulations and complicated land procurement processes.

Pertamina'€™s refineries'€™ output has been stagnant at around 70 million barrels every three months, company data shows. In the second quarter of the year, the refineries'€™ output reached 71.01 million barrels, declining from 74.95 million barrels in the second quarter of 2014.

'€œThe production has been flat and we are expecting the completion of RFCC,'€ Pertamina marketing director Ahmad Bambang said, in reference to the fluid catalytic cracking (RFCC) project in its Cilacap refinery that is expected to be completed this year for the company to have more capacity to produce higher-octane products.