The government has promised tax allowances and other incentives for much-needed investment in oil refineries to speed up development, as stipulated in the latest economic policy package.

According to Energy and Mineral Resources Minister Sudirman Said, the eighth economic policy package includes fiscal and non-fiscal incentives for oil refinery construction.

Private investors have been reluctant to build oil refineries due to uncertain project modalities, a lack of incentives and unappealing margins. Sudirman said the government would issue a presidential regulation on incentives to provide legal certainty.

"They [investors] will get tax allowances and tax holidays, and even financing guarantees from the government, if necessary," Sudirman told journalists in Jakarta on Tuesday.

They would also receive assurances on future sales, with Pertamina appointed as the off-taker for output. In addition to that, the period of land certification would be extended to 80 years.

"The presidential regulation on refineries will give us clarity on the schemes. Refineries can be built through state funds. It may be Pertamina cooperating with private entities and/or state-owned enterprise, or a private corporation exclusively," he explained.

Fuel demand in Indonesia stands at approximately 1.6 million barrels per day, while oil production from domestic refineries amounts to just 800 thousand barrels per day.

"Hopefully, the construction of new oil refineries will increase oil production to more than 1 million barrel per day," Sudirman said.

Bontang and Tuban

Earlier, Coordinating Economic Affairs Minister Darmin Nasution stated that the government planned to expedite the construction of crude oil refineries in Bontang, East Kalimantan and Tuban, East Java, with fiscal incentives.

"The construction and development of the refineries is to be done using the latest technology, ['€¦] meeting environment protection and, of course, giving priority to the use of domestic products," Darmin said in a statement.

The government plans to upgrade existing refineries in the country. The government has projected oil production to increase from 825 thousand barrels per day in 2015 to 1.9 million barrels per day in 2025.

To date, there are four operational refineries that need improvements. They are located in Cilacap in Central Java, Balikpapan in West Kalimantan, Balongan in West Java and Dumai in Riau. (ags)(+)

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