T

he government is preparing new rules to pave way for refinery development in the country, including incentives for investors to make the projects more economical.

A presidential regulation that will highlight the mechanism of refinery development is currently being prepared. It is to be followed by a ministerial regulation outlining the incentives investors can seek for their projects, according to the Energy and Mineral Resources Ministry'€™s director general for oil and gas, IGN Wiratmaja Puja.

'€œThe ministerial regulation will detail the incentives, including the fiscal incentives. We are also coordinating [with the Finance Ministry] through the Coordinating Economic Ministry,'€ Wiratmaja said on Monday.

He said that a number of national oil firms, including some from Saudi Arabia, Iran, Iraq, Kuwait and China, had officially expressed their interest in developing new refineries in the country.

During President Joko '€œJokowi'€ Widodo'€™s visit to Saudi Arabia, Saudi Arabian oil firm Saudi Aramco committed up to US$10 billion to develop a number of infrastructure projects in Indonesia, including an oil refinery and a storage and distribution network.

Late last month, the Kuwait Petroleum Corporation sealed a memorandum of agreement with Indonesia'€™s oil and gas firm Pertamina for a thorough discussion about partnership opportunities in both the upstream and downstream sectors.

Saudi Aramco and Kuwait Petroleum had been in discussion with Pertamina in the past for refinery development. However, the plans fell through after the government rejected the firms'€™ requests for incentives to make their projects more economical.

Indonesia currently has six refineries operated by Pertamina that are located in Cilacap, Central Java, Balongan, West Java, Balikpapan, East Kalimantan, Dumai, Riau, Plaju of South Sumatra and Kasim
of West Papua.

All of the refineries have a total capacity of over 1 million barrels per day. However, due to their old age, the refineries are currently running below capacity. The youngest refinery is the Balongan refinery, which was inaugurated in 1994.

'€œThe plans [for refinery development] were very close to a deal. However, there were incentives that we couldn'€™t agree to. Those same incentives we are once more considering opening up,'€ Wiratmaja said.

He added that the foreign companies that had expressed interest in establishing refineries in Indonesia had also considered entering the downstream business in the country.

'€œWe are still discussing it. There will be regulations so that they are not only entering profitable areas but also areas outside Jakarta,'€ Wiratmaja said.

Pertamina recently expressed its opposition toward the plans of foreign firms to enter the downstream 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,'€ Pertamina president director Dwi Soetjipto said.

The government has long planned to establish new refineries in Indonesia and in so doing improve the country'€™s energy security. Indonesia, which recently secured approval from the Organization of Petroleum Exporting Countries (OPEC) to re-activate its full membership status, has been struggling to fulfill growing domestic energy demand, with declining domestic production forcing the country to import a large amount of crude and its associated products.