Pertamina, Rosneft sign $13.8b deal to build oil refinery

Indonesian oil and gas giant PT Pertamina has announced a US$13.8 billion deal with Russia’s Rosneft Oil Company to jointly develop Pertamina’s first oil refinery to be built in 22 years. (thejakartapost.com)

The two state-controled companies signed a framework agreement on Thursday to seal their partnership on the Tuban refinery in East Java, which is expected to reduce Indonesia’s reliance on imported oil products. With the new refinery, Pertamina seeks to process around 300,000 barrels of oil per day ( bpd ), making it a crucial element of the country’s drive to produce more petroleum products locally. As much as 45 percent of the refinery’s production is slated to be gasoline, up to 35 percent diesel and 20 percent petrochemicals, all for domestic consumption. The refinery is expected to be up and running by 2022. The firms will establish a joint venture, with Pertamina to have a controling stake of 55 percent and Rosneft to hold the remaining 45 percent.

Pertamina president director Dwi Soetjipto said Indonesia currently imported about 50 percent of the oil consumed in the country, as it only produced 850,000 bpd per year compared to annual demand of 1.6 million bpd.

The Tuban refinery, Dwi said, was part of Pertamina’s efforts to increase its output to 2.3 million bpd by 2025. He added that Rosneft, which controls more than 40 percent of Russia’s oil production, proposed various strategic partnerships that would benefit Indonesia. Those include an option for Pertamina to invest in Rosneft’s upstream industry, which could see Pertamina obtain an additional 35,000 bpd in crude oil supplies. “Rosneft was chosen because of its experience and its offer of many privileges […] we will also cooperate with Rosneft in technology transfer and human resource development,” Dwi said during the signing ceremony.

Coordinating Economic Minister Darmin Nasution, who attended the event, said the new facility would be the first refinery to combine gasoline and petrochemical production. State-owned Enterprises Minister Rini Sumarno was also present during the signing. Rosneft vice president for refining, petrochemicals, commerce and logistics Didier Casimiro said the company had invited Pertamina to participate in international joint ventures with Rosneft as well as offer professional training for Indonesian specialists in the petrochemical industry.

“Our cooperation with Pertamina will be based on mutual trust in a long-term environment for mutual benefit,” Casimiro said. “We will make sure to get the right pricing and the best benefit for Pertamina,” he added. In a bid to reduce oil product imports, Pertamina is also set to upgrade the capacity of its Cilacap refinery from 340,000 bpd to 370,000 bpd. The production capacity of its petrochemical unit would also increase from 300,000 tons to 600,000 tons per year. Shares in the Cilacap refinery are divided in a ratio of 55 to 45 between Pertamina and Saudi Aramco, which has committed to supplying up to 70 percent of crude oil needed by the refinery, around 260,000 bpd to 270,000 bpd. President Joko “Jokowi” Widodo expressed his optimism that the downstreaming efforts through the new refineries would markedly reduce imports, which are putting pressure on the nation’s trade balance.