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Govt to grant incentives for Bontang refinery investors

The government is offering incentives to prospective investors of East Kalimantan’s Bontang refinery in the form of free use of infrastructure and a tax holiday

Prima Wirayani (The Jakarta Post)
Jakarta
Wed, February 10, 2016

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Govt to grant incentives for Bontang refinery investors

T

he government is offering incentives to prospective investors of East Kalimantan'€™s Bontang refinery in the form of free use of infrastructure and a tax holiday.

Under a planned term, investors will be allowed to use all existing facilities currently available at the refinery'€™s site at no cost and they can also enjoy a longer tax holiday at the facility, as the period could be extended from 10 to 15 years.

'€œAll on-site facilities can be used by investors for free. This will significantly reduce investment costs,'€ Energy and Mineral Resources Minister Sudirman Said told a press briefing on Tuesday after attending a meeting at the Office of the Coordinating Economic Minister in Central Jakarta.

The meeting, led by Coordinating Economic Minister Darmin Nasution, was attended by high-ranking officials of the Office of the Coordinating Maritime Affairs Ministry, the Finance Ministry, the State-Owned Enterprises Ministry, the Agrarian and Spatial Planning Ministry and state-run oil and gas giant PT Pertamina.

Currently, the Bontang refinery site already has adequate infrastructure, such as a sufficient electricity supply and proper roads and ports, Sudirman added.

The Agrarian and Spatial Planning Ministry had given assurances that there would be no problem in the site'€™s land certification process.

One point also agreed to in Tuesday'€™s meeting was an approval of Bontang city'€™s spatial planning as a part of the refinery'€™s land certification process.

The government expected it could soon find an investor thanks to such incentives being offered.

The Bontang refinery is among 10 priority infrastructure projects that President Joko '€œJokowi'€ Widodo has requested should have their development accelerated.

The government announced on Tuesday that the funding and construction of the Bontang refinery would be carried out through a private public partnership (PPP) scheme.

Pertamina, as the project'€™s party in charge, would hold an auction to determine an eligible private company for the project. The Finance Ministry would appoint an international consultant to accompany Pertamina in the auction process.

The State-Owned Enterprises Ministry'€™s deputy of energy, logistics, estates and tourism business, Edwin Hidayat Abdullah, said that Pertamina had to work with a private investor given the significantly high costs of the refinery.

According to an official statement by the Office of the Coordinating Economic Minister, the Bontang refinery required investments amounting to between Rp 75 trillion (US$5.51 billion) and Rp 140 trillion. The construction of the refinery, which would have a production capacity of at least 235,000 barrels of petroleum per day, was slated to break ground in 2018 and it was to start operating in 2022.

Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said that incentives and market certainty were the biggest attractions of investment in refinery, which usually had a fixed margin.

'€œThe refinery'€™s products will continually be consumed as domestic demand for petroleum keeps increasing,'€ he said.

He expressed optimism that plunging oil prices would not adversely affect the investment as it was a long-term one.

The new Bontang refinery will add to Indonesia'€™s oil refining capacity.

Currently, the country has six refineries operated by Pertamina that are located from Cilacap in Central Java to Kasim in West Papua.

All of the refineries have a total capacity of more than 1 million barrels per day. However, due to their old age, the refineries are currently running below capacity.
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