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Jakarta Post

Indonesia, Russia business ties hit new high

  • Tassia Sipahutar

    The Jakarta Post

Sochi, Russia   /   Sat, May 21, 2016   /  01:53 pm
Indonesia, Russia business ties hit new high President Joko Widodo talks with Russia President Vladimir Putin at Bucherov Rucey, the residence of President Putin in Sochi, Russia on May 18. (Courtesy of/Presidential Secretariat)

Business partnership between Indonesia and Russia marks a new high with companies from both countries on track to seal a business deal worth total of US$15.8 billion on oil refinery and power plant projects.

Indonesia’s and Russia’s oil and gas giants Pertamina and Rosneft will sign a $13.8 billion deal to develop Tuban refinery in East Java, which is crucial in the country’s drive to reduce reliance on oil imports.

“There is a strong interest from both countries to grow the partnership,” Russian President Vladimir Putin told a joint press conference after meeting with President Joko “Jokowi” Widodo in Sochi, Russia, mulling a potential free trade zone.

He also unveiled an investment interest from Russia’s Inter RAO for 1.8 gigawatt power plant projects worth $2.8 billion. Russia’s transportation and infrastructure firm JSC Russian Railways (RZD) is also interested in developing a passenger rail track in East Kalimantan, according to Indonesian government officials.

Putin met with Jokowi ahead of the two-day ASEAN-Russia Summit that begins on Thursday.

“We agreed to boost Russia’s investment in Indonesia, in the sectors of maritime, infrastructure such as railway and port in Kalimantan, oil, energy and electricity,” said Jokowi.

Russia’s investment in Indonesia at the end of 2015 stood merely at $1 million, out of the total $29.27 billion foreign direct investment coming into the country. The figure is also lower than the $3.6 million investment in 2014.

On Friday, Jokowi and an Indonesian delegation met with Rosneft, which controls more than 40 percent of Russia’s oil production, marking a new beginning for both countries’ business relations, as well as for the Tuban block and Pertamina. The official business agreement will be signed on Thursday in Jakarta.

Pertamina previously held a beauty contest that included Saudi Arabia’s Aramco, Kuwait’s Petroleum International, China’s Sinopec, India’s Indian Oil and a consortium consisting of Thailand’s PTT Global Chemical Public Company and Thai Oil.

With a new refinery to be developed with Rosneft, Pertamina seeks to produce around 300,000 barrels of oil per day (bopd). The firms will establish a joint venture (JV) for the partnership, with Pertamina holding a 55 percent stake and Rosneft controlling the remaining 45 percent.

“The President wants the joint venture to be created before yearend and to establish a storage at the site. Rosneft said that it was committed to making Tuban a regional hub,” State-Owned Enterprises Minister Rini Soemarno told a group of journalists after the meeting.

Construction of the refinery is expected to begin in late 2017 or early 2018. Rosneft will be given a 40-year land development permit that can be extended for additional 10 years.

In addition to the refinery construction, next week’s agreement will also pave the way for Pertamina to work on Rosneft’s oil fields in Russia.

“They are committed to enable Pertamina participate in two to three oil fields, preferably in the eastern part, so that we can ship the oil more easily to Indonesia and realize our strategic petroleum reserves plan,” Rini said.

The oil fields, she added, should have reserves of minimum 200 million barrels to allow daily production of 35,000 barrels.

In the meeting with Rosneft’s top executives , Jokowi was accompanied by Rini, Coordinating Economic Minister Darmin Nasution, Trade Minister Thomas Lembong, Pertamina president director Dwi Soetjipto and Indonesian Ambassador to Russia M. Wahid Supriyadi.

Business Council for Cooperation with Indonesia (RBIC) executive director Mikhail Kouritsyin and Russian Ambassador to Indonesia Mikhail Galuzin were present as well.

Meanwhile, the Indonesian government will assign railway operator PT Kereta Api Indonesia (KAI) to look into the possibilities of establishing a passenger rail track in East Kalimantan province, in partnership with Russian transportation and infrastructure firm JSC Russian Railways (RZD).

Russian Railways has secured a specific permit to develop a rail track in the province, with the original intent to transport coal. However, as coal price remains low, the company is now looking to shift the track use to transporting passengers instead.

“But such a change requires a different permit, which is a general permit. We need time to look into this,” Rini said, after attending a meeting with Russian Railways on Thursday.