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tate-owned oil and gas firm Pertamina on Monday inked an agreement with Kuwait Petroleum Corporation, one of the world'€™s largest oil companies, for a partnership in the upstream and downstream sector.

Pertamina president director Dwi Soetjipto said the state company would work with Kuwait Petroleum in a number of ways.

'€œWe will carry out exploration of new blocks in Indonesia. They are also interested in investing in refineries, the development of the petrochemical industry and the exchange of human resources,'€ Dwi said after a meeting with representatives of the Kuwait Petroleum at the Vice President'€™s office on Monday.

A few years ago, Pertamina had an agreement with Kuwait Petroleum for a feasibility study of a refinery development project in Balongan, West Java, near the existing facility. The cooperation, however, failed to materialize as the government declined to give incentives to the Kuwaiti company, which said such an incentive would be needed make its project more economical.

Aside from Kuwait Petroleum, Pertamina also sealed an agreement with another company, Saudi Aramco, for the construction of a fuel processing plant with 300,000 barrel per day capacity in Tuban, East Java or in Bontang, East Kalimantan. However, the agreement ended over unapproved incentive requests.

The Energy and Mineral Resources Ministry recently said the government would continue the construction of a new refinery in Bontang and would appoint Pertamina to carry out the project.

Under the special appointment, Pertamina would be allowed to organize a tender or directly appoint a partner interested in the project.

Even though Pertamina had signed an agreement with Kuwait Petroleum, Dwi said the state company would pick its partner for the refinery development through an open tender.

'€œWe already have a strategic plan on the development of new refineries, including in Bontang and probably Tuban. We will lead them [the investors there] and pick them in accordance to the procedures,'€ Dwi said, adding that the discussion with Kuwait Petroleum had yet to tackle incentive issues.

Indonesia has six refineries currently 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.

Pertamina is now working to upgrade the capacity of several of the refineries to process more complicated crude and produce more products. However, progress remains unclear as it is still working on detailed planning with its partners to realize the billion-dollar facelift.

Apart from the upgrade, Pertamina is also considering new refineries in anticipation of estimated boom in energy demand in the near future.

Working on refineries is often considered an expensive investment and only offers a long-term payback period, particularly when oil-and-gas firms are now struggling to survive from the challenging business environment resulting from a plunge in the world oil price.

The benchmark West Texas Intermediate (WTI) crude for October delivery was listed at US$44.18 per barrel on Monday, according to figures from Bloomberg.

Meanwhile the other benchmark, Brent crude, was at around $48.69 per barrel. These prices are less than a half of the peak price reached last year.

Dale Hardcastle, the partner and head of Bain and Company'€™s Oil and Gas practice in Southeast Asia, said Indonesia would require considerable investment across the oil-and-gas value chain to meet its energy needs over the coming decades.

'€œWhile the wider environment today is challenging, many investors are still actively interested in deploying capital to refining and storage projects so long as they have a stable and predictable regulatory environment and attractive rates of return,'€ he said in an email interview.