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nglo-Dutch Royal Dutch Shell announced Friday that the company would set up a US$100 million lubricant plant in the western part of Java with a total capacity of 100,000 tons per year.

PT Shell Indonesia president director Darwin Silalahi said the plant would be the company’s production hub, not only to supply the Indonesian domestic market, but also the Asian regional market.

“We’ve been discussing with the Industry Minister [M.S. Hidayat] about what incentives Shell can
get to make the plant competitive for the export market,” he told reporters after meeting the minister in Jakarta.

Darwin said that in addition to fulfilling domestic demand, lubricants from the planned plant would be exported to emerging Asian economies such as China, India and Vietnam, whose demand has been rising over the past several years.

The plant would start operations in late 2013 or early 2014, Darwin said. He estimated that the plant’s construction process would absorb around 700 workers, while its operation would open around 250 new job opportunities.

Industry Ministry director general of upstream chemical industry Tony Tanduk reported that Shell was eying opportunities to profit from the rapid growth of Indonesia’s automotive industry.

“That remarkable growth has caused the demand for lubricants to rise significantly,” he said.

Indonesia’s automobile sales reached 764,710 units in 2010, while motorcycle sales exceeded 7 million. The Indonesian Automotive Industry Association (Gaikindo) projects car sales may top 850,000 this year.

Tony said that the government was now considering several incentive options for Shell. Besides tax allowances, he said the company requested the government lift import duties for raw materials.

Hidayat explained that in the near future the Investment Coordinating (BKPM) would submit a
revision draft on the 2008 government regulation on income tax incentives for investors to accommodate Shell’s requests.

The 2008 government regulation on income tax incentives for investors stipulated that only investors intending to build oil and gas refineries are eligible for an income tax reduction of 5 percent of their total yearly investment for the first six years of the project.

“We want that by the revision, companies committed to building downstream oil and gas businesses will also get that incentive,” Hidayat said.

He revealed that the company was currently conducting studies on suitable locations for the planned lubricant plant. There were two potential candidates; Marunda in North Jakarta and Cilegon in Banten province, he added.

Investments from Shell would provide positive momentum for Indonesia to boost its efforts in developing the downstream industry, Hidayat said. He continued that this year he would focus on luring more investment to the sector.

Darwin said that the $100 million lubricant plant would be the first phase of the company’s investment in downstream businesses.

“If the progress is good, we’ll have no doubt to expand the plant capacities in the future,” he said.

However, he was still waiting for the government’s decision on what incentives the company would receive, because other countries had also offered interesting incentives that might boost the company’s products’ competitiveness.