Before getting to the final talk for a deal in June, the two companies have to settle a discussion regarding the valuation of the refinery, known as enterprise value (EV).

Pertamina director of refinery and petrochemical megaprojects Ignatius Tallulembang said talks on the valuation of the refinery would be concluded by the end of March. 

“Once we [settle] the valuation [EV], which is carried out by a third party, we will report to our partner. And if the agreement with Aramco can’t be completed by June, we will terminate it and look for other options,” he said. 

The valuation work is now being done by a global consulting firm PricewaterhouseCoopers (PwC). 

If no deal is reached, Ignatius said, Pertamina could either find a new partner or upgrade the refinery by itself. 

“One thing is for sure, the project will still go on, either with us doing it alone or with another partner. If we continue [with Aramco], the next steps are the engineering phase and setting up the joint company,” he said.

Previously, Aramco pledged to invest US$6 billion in the revitalization of the Cilacap refinery. However, the company has set several conditions for the investment, including incentives from the government such as tax holidays and the handover of assets to its subsidiary in Indonesia.

A preliminary agreement, known as heads of agreement (HoA), between the two firms was signed in November 2015.

The revitalization is expected to increase the production capacity to 400,000 barrels per day of fuel meeting the Euro V standard.

However, one big problem concerns a difference in valuation of the facility between Pertamina and Aramco, which has seen the project progress at snail’s pace in the past four years. 

In an official document of the Energy and Mineral Resources Ministry dated Feb. 14, Pertamina stated that the EV of the Cilacap refinery was US$5.66 billion, while Aramco values it at $2.8 billion.

The difference in valuation prompted Pertamina to hire PwC to reassess the refinery. 

“[The Cilacap refinery project] needs a boost from Saudi Crown Prince [Mohammed bin Salman] to approve Pertamina’s valuation or the new valuation to be submitted by PwC,” reads one of the statements in the document.

Cilacap is only one of Pertamina’s six refinery projects -- four for upgrades of existing refineries and two for new ones -- completion of which is now targeted for date late 2026.

That date marks the second delay from the initial deadline of completing all projects in 2021.

The upgraded and new refineries reflect Pertamina’s effort to double its refining capacity to 2 million barrels of oil per day (bopd) by 2025 from only 1 million bopd at present.

The existing refineries are located in: Cilacap, Central Java; Balongan, West Java; Dumai, Riau and Balikpapan, East Kalimantan. Meanwhile, the two new refineries are the Tuban and Bontang facilities in East Java and East Kalimantan, respectively. 

The total investment for these projects is expected to reach US$45 billion or Rp 600 trillion. That marks a steep increase from only Rp 210 trillion in the initial plan.

When asked about progress on the other refineries, Ignatius said the company was in the stage of looking for a partner for the Balikpapan refinery and had set a September deadline to achieve this.

“Hopefully we will already have the partner for the Balikpapan refinery in September. Right now, there are a lot of potential partners, such as [Russian oil firm] Rosneft and [Azerbaijan’s] Socar,” he said, adding that there were a total of nine potential partners. 

Rosneft is already a partner for Pertamina on the Tuban refinery project, which will cost around $16 billion.

Meanwhile, regarding the Tuban refinery, Ignatius said the land procurement issue had been settled following approval from the president.

The refinery projects have been criticized over delays and cancellations due to uncertainty in policies and a lack of funding, says global think tank BMI Research, a unit of the Fitch group. 

“Indonesia's regulatory and bureaucratic landscape remains among the most complex in the region. We believe it will continue to stand in the way of meaningful projects in the coming years,” BMI Research said in a 2018 report. 

Commenting on the slow progress of Pertamina’s refinery projects, Golkar lawmaker Ridwan Hisjam said the delay also delayed benefits for the small-business economy near the sites. 

“The damage [of the project’s slow progress] is born by the local people. They are waiting for the social and economic impacts of the projects. Unfortunately, they still haven’t get those,” he said.