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ndonesia needs to build more oil refineries to ensure its future energy security. However, the government has yet to provide fiscal incentives to woo foreign investors to jump-start the construction of fuel processing plants.

Pertamina president director Karen Agustiawan said on Tuesday that the state-run oil and gas firm was still waiting for the government to approve requests from its two partners, Kuwait Petroleum and Saudi Aramco, over incentives for two refinery projects.

“The problem lies with the feasibility studies from the third parties on fiscal incentives. We have presented the proposals to the government and we are still awaiting approval,” she said.

In collaboration with its two respective partners, Pertamina plans to build two fuel refineries, each with a production capacity of 300,000 barrels per day (bpd).

Both refineries, requiring a combined investment of around US$20 billion, are expected to boost refined fuel supplies in the country.

Pertamina and Kuwait Petroleum’s joint refinery will be built in Balongan, West Java, near the former company’s existing refinery. In 2011, the two firms signed a memorandum of understanding (MoU) to build the fuel refinery, the crude oil of which will be provided by Kuwait Petroleum.

Meanwhile, the refinery to be built in cooperation with Saudi Aramco will be located in Tuban, East Java.

According to the latest report, however, Pertamina might move the location of the refineries to Bontang, East Kalimantan, due to land acquisition difficulties.

Both the foreign firms have demanded incentives in the form of an increase in the price of crude oil supplied to the refineries by 15 percent from the benchmark price provided by Mean of Platts Singapore (MOPS), as well as the import duty on their oil supply.

The latter means that both investors rejected the idea of having other oil producers supplying crude oil to their respective fuel refineries.

In an interview with The Jakarta Post last December, Finance Minister Agus Martowardojo said his office was preparing to provide incentives for investment in sectors such as basic metal processing or smelters, renewable energy and refineries.

He said the incentives would take the form of tax holidays.

The Finance Ministry’s interim fiscal agency chief Bambang Brodjonegoro said on Tuesday that the ministry was still studying the proposals from both Kuwait Petroleum and Saudi Aramco.

Oil and gas players in general perceive the sizeable investment needed to build refineries will not meet their desired internal rate of return (IRR).

At present, the average IRR in the refinery business is 10 percent.

Indonesia has not built a new refinery since 1994, when Pertamina built a refinery in Balongan, West Java.

Pertamina currently has six refineries across the country that produce between 600,000 and 700,000 bpd of refined fuels. These refineries are located in Balikpapan, East Kalimantan; Balongan, West Java; Cilacap, Central Java; Dumai, Riau; Kasim, West Papua; and Plaju, South Sumatra.

Indonesia, which resigned from the Organization of the Petroleum Exporting Countries (OPEC) in 2008 after becoming a net oil importer, imports around 60 percent of its total fuel supplies to meet the daily demand of 1.3 million bpd.

This situation affects the country’s state budget as the lack of capacity of domestic refineries to process crude oil means the country must import both refined fuels and crude oil.

Separately, the deputy director of Jakarta-based energy sector think tank ReforMiner Institute, Komaidi Notonegoro, criticized the Finance Ministry for prolonging the process, adding that one of the keys to cutting fuel imports was to encourage the construction of new refineries.

“On the one hand, the Finance Ministry whines about the fact that we keep on importing fuel, but on the other it doesn’t provide incentives to woo investors,” he said.