State-owned oil and gas firm Pertamina and Russia’s Rosneft oil company are getting closer to starting the construction of the Tuban oil refinery in East Java after the former wrapped up the much-needed land-use agreement for the project with the East Java provincial administration.

The memorandum of understanding (MoU), signed on Monday, has granted Pertamina permission from the local government to access a 60-hectare plot of land in Tanjung Jenu, Tuban regency, owned by the Environment and Forestry Ministry, which had previously given a similar approval.

“This MoU solves two problems at once — that on the use of land owned by the Environment and Forestry Ministry; the other related to [local government] permits. Both are extremely important to ensure the smooth development of the Tuban refinery,” Pertamina president director Dwi Soetjipto said in a statement.

(Read also: Pertamina names five candidates to build Tuban refinery)

Pertamina and Rosneft signed a joint venture agreement last year to build the Tuban refinery, Pertamina’s first new oil refinery to be built in the past two decades.

Through the agreement, it was established that Pertamina will have the controlling stake of 55 percent while Rosneft will hold the remaining 45 percent. The Tuban refinery is expected to be completed in 2021 with a processing capacity of 300,000 barrels of oil per day (bopd). Though a final investment decision has not been reached, it is estimated the project will cost between US$12 million and $14 million.

The MoU also mentioned that the East Java provincial administration will help Pertamina in obtaining several permits needed to build the refinery, including the public space permit. In exchange, Pertamina will provide a 60-ha plot of land as compensation for the area that they will use to build the refinery. The area was originally earmarked for the construction of a port.

The Tuban refinery, along with the Bontang refinery in East Kalimantan, is part of Pertamina’s plan to boost national production to 2.3 million bopd by 2025 from the current 1 million bopd.

Furthermore, four existing refineries will receive a facelift under Pertamina’s ambitious plan.

According to Pertamina’s grand scheme, production capacity is expected to further increase to 2.6 million bopd by 2030. At present, the country’s refineries are only capable of producing around 830,000 bopd, a little over half of the current refined fuel demand, due to age.

Even so, there have been a few speed bumps in Pertamina’s ambitious plans to boost its refined oil production, including the absence of a joint venture agreement with Saudi Aramco, although the latter had signed a head of agreement (HoA) over the Cilacap refinery upgrade in Central Java more than a year ago.

Moreover, despite the expected boost in oil production, Pertamina still expects to see a small deficit of 231,000 bopd — comprising only gasoline — even if those projects are completed on time.

However, ReforMiner Institute executive director Komaidi Notonegoro said the government has already shown it is being proactive by issuing a ministerial decree that allows private companies to build their own refineries.

“Private refineries could fill up the small deficit Pertamina is expected to experience in 2030,” he said.