Declining reserves, negotiations on incentives for investors and high costs are part of the challenges for Indonesia in trying to boost local refining of crude oil as it tries to reduce reliance on imported fuel and at the same time lessen the burden on the national budget.
State-owned energy company Pertamina operates six refineries across the country that have combined daily capacity to process 1 million barrels of crude oil. Yet domestic consumption exceeds that amount, at the equivalent of 1.4 million barrels per day, and Indonesia must import fuel products.
Pertamina has done much to help reduce the cost to the state of the fuel subsidy by aggressively campaigning to increase the consumption of non-subsidized fuel, handing out generous gifts and extra benefits to consumers.
Still, the price disparity is too wide and is not enough to convince consumers to switch to the higher-priced fuel.
Consumption of non-subsidized fuel amounted to 1.3 million kiloliters last year, compared to 45.1 million kiloliters of subsidized fuel. For subsidized gasoline, known as premium, the cost is set at Rp 4,500 a liter, while the non-subsidized price would be more than double the amount.
The capacity of refineries cannot be fully utilized to produce gasoline and diesel fuel because of insufficient crude output from the country.
Typically, a barrel of crude can be broken down into different categories. About 70 percent can be distilled into fuel products such as naphtha, gasoline, diesel, kerosene and heating oil, while 10 percent can be converted into products like cooking gas, and the remaining 20 percent is residual fuel oil such as cracked fuel oil and asphalt, according to Bloomberg data.
Such petrochemical products are also used in making plastic bottles and vinyl upholstery as well as for road surfacing. Pertamina’s other oil products include jet fuel and lubricants.
History of decline
Indonesia’s crude oil resources have slowly been declining in the past 20 years. It lost its membership of the Organization of the Petroleum Exporting Countries in 2008 as the country started to import more of crude oil than it shipped overseas.
As of 2011, the nation had 4 billion barrels of oil in reserves, compared to 5.1 billion barrels in 2001 and 5.9 billion barrels in 1991, according to BP in its 2012 Statistical Review of World Energy report.
Malaysia by comparison, has been increasing its oil reserves, to 5.9 billion barrels in 2011 from 3.7 billion barrels 20 years earlier.
Indonesia’s average daily oil output last year was around 840,000 barrels, of which Pertamina’s own production was 196,000 barrels per day. The government gets around 85 percent of oil output produced by private firms, based on the production-sharing contract scheme.
Susilo Siswoutomo, the deputy energy and mineral resources minister, said that only 650,000 barrels per day of crude oil can be processed into gasoline or diesel fuel domestically, and the country needs to import 400,000 barrels of gasoline and diesel to meet local demand.
Imports of petroleum products including fuel amounted to $7.3 billion in the first quarter of this year, which led to a current account deficit of $5.3 billion, according to data Central Statistics Agency (BPS) data.
To reduce reliance on imported fuel, one solution is to build more refineries, but construction is very expensive.
Pertamina has initiated plans to build at least two refineries — each with the capacity to process 300,000 bpd — with help from Saudi Aramco and Kuwait Petroleum Corporation. The Indonesian government is also looking to build its own refinery funded entirely by the state budget.
Other factors that make a new refinery urgent is that all of the existing refineries are old, making production activities inefficient.
The last refinery built in Indonesia was in 1994: Pertamina’s Balongan facility in West Java. Pertamina’s programs now appear to be at a standstill, with the government refusing to budge on investors’ demand for incentives.
Seeking incentives
Bambang Brodjonegoro, the head of fiscal policy at the Finance Ministry, said that investors are requesting incentives that cannot be offered by the government. Investors want the government to provide a tax holiday for 30 years, while the maximum period allowed is only 10 years, he said.
“We have firmly conveyed our position that it [request for the tax holiday period] is too much. If they do not alter their position, then it will be hard for us to fulfill it,” he said.
Without financial backing from investors, the construction cost would be too high for Pertamina, Bambang noted.
“Refinery is not a prospective business. The margin is too small, and the world is experiencing an oversupply,” he added.
That would leave the government with only a single refinery project, one that is entirely funded by the state budget. The project is set to begin in 2015, and the government has allocated Rp 17 billion ($1.7 million) in this year’s budget for a feasibility study and another Rp 250 billion for preliminary design. Construction will cost Rp 90 trillion and will be completed in 2018.
The government acknowledges that the profitability of the project is the least of its priorities, said Edi Hermantoro, the director general for oil and gas at the Energy and Mineral Resources Ministry.
“The main idea [of refineries] projects is to meet domestic need,” Edi said.
There are indeed other refinery projects, like the one proposed by businessman Oesman Sapta Odang and his Azerbaijan partner, though its progression is likely to depend on incentives.
Chrisna Damayanto, Pertamina’s director for processing, insists that the focus should not be on the capacity of the refiners now but on the supply of crude oil and fuel, and that building refineries are not Pertamina’s priority.
“The capacity of our existing refineries is more than enough,” he said. “It is more a matter of energy security and national imports. Relying for much of our energy needs on imports is not ideal as it means that the importers will be the ones who determine the terms.”
Heavy demand
But data point to the need for more local processing of crude oil. Indonesia’s refining capacity was little changed at 1.14 million bpd in 2011, from 1.13 million bpd
in 2001, according to data from energy giant BP.
in 2001, according to data from energy giant BP.
While such capacity remains stagnant, with the last construction of a refinery completed almost 20 years ago, consumption has increased significantly.
Part of the reason for the rise in fuel use has been the surge in demand for cars and motorcycles of the past few years, as low borrowing costs and easy down payments made vehicles more affordable to purchase. Car sales topped 1 million units for the first time last year.
About 9.6 million passenger cars were on the road in 2011, an almost threefold increase from 2001, while there were almost 69 million motorcycles, up 350 percent in the same period, according to BPS data.
Consumption in Indonesia climbed to 44 million metric tons of oil equivalent in 2011 from 16.8 million tons in 2001, BP data show.
Looking beyond investors, Satya W. Yudha, a lawmaker from House of Representatives Commission VII, which oversees energy affairs, said that the government should use some of its oil and gas revenue — which totaled around Rp 300 trillion in 2012 — to develop the oil industry.
“Currently, only 2 percent of the revenue from the industry is redistributed back [to the sector],” he added.
Rather than building refinery capacity, the government appears to be more concerned with improving basic infrastructure, such as roads, bridges, airports and seaports.
At the same time, the need to refine locally would help to cut the nation’s reliance on imports and cut the budget deficit. President Susilo Bambang Yudhoyono warned that the budget deficit could reach 3.8 percent of gross domestic product this year if nothing were done to curb the use of subsidized fuel, which is forecast to amount to about $30 billion in the 2013 budget. The government’s forecast for the budget deficit this year is pegged at 2.5 percent of GDP, well below the legal 3 percent limit.
After a failed attempt last year, Yudhoyono has said that the government plans to raise the subsidized fuel price by 33 percent to Rp 6,000 a liter as soon as next month.
Darmawan Prasodjo, a leading energy economics expert, offered a radical solution: that the government gives Pertamina more financial freedom.
That means Pertamina will be relieved of its obligation to pay a dividend to the government and has more freedom for corporate action.
Net income last year at Pertamina was Rp 25.9 trillion, 30 percent of which was channeled to the state’s coffers as a dividend.
“Capitalization of Pertamina is necessary. It will make Pertamina more growth-oriented rather than profit-oriented,” Darmawan added.
.jpg)
0 comments:
Post a Comment