Pertamina renews plan to upgrade Balikpapan refinery

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 3 -- Indonesia's state-owned PT Pertamina, renewing interest in an earlier plan, has signed a memorandum of understanding with Dubai-based Star Petro Energy (ETA Group) and Japan's Itochu Corp. to upgrade the country's 260,000 b/d refinery at Balikpapan in East Kalimantan.

"By signing the memorandum of commitment, Pertamina and those companies will hold further talks on upgrading Balikpapan refinery," company spokesman Anang Noor said of the signing, which took place at the World Islamic Economic Forum in Jakarta.

"Cooperating with world-class companies is important in our efforts to improve ourselves as soon as possible in order to increase the performance of our refineries," said Karen Agustiawan, Pertamina president director.

She expressed hope that negotiations with ETA Group and Itochu would be concluded soon so that the project could be started on time.

State Enterprise Minister Sofyan Djalil, who said that negotiations with the two firms are continuing, estimated the venture as worth up to $1.7 billion. "It is still a tentative figure," he said, adding, "We still have to explore the actual price."

Sofyan said cooperation with the two firms should result in the improved performance of the refinery in Balikpapan, especially its processing of residual materials.

So far 30% of the total volume of oil processed by the refinery becomes residue which was sold very cheaply, Sofyan said, expressing hope that the refinery upgrade would enable 100% higher priced products.

Pertamina has previously said it wanted to boost capacity at the Balikpapan refinery, which has two crude distillation units with respective capacities of 200,000 b/d and 60,000 b/d.

Pertamina said it wanted to increase total capacity to 280,000 b/d, switch from sweet crude to cheaper sour crude, and add a 50,000 b/d cracking unit to process heavy residue into gasoline and petrochemical products.

In October 2008, Pertamina set up a joint venture with Itochu and ETA Star to revamp the Balikpapan refinery. Pertamina processing director Rukmi Hadihartini said, "Each company's stake is yet to be decided" and that a project feasibility study was "expected to be ready in January 2009."

In January, however, Pertamina cancelled plans for expansions at two of its largest refineries—Cilacap in Central Java and the Balikpapan facility—due to the economic crisis and low oil prices.

At the time, Pertamina President and Director Ari Soemarno said the expansion plans could continue once the market stabilized, adding that the contractors—Japan's Mitsui and Toyo engineering corporations and South Korea's SK Corp.—were unwilling to provide quotes for services because of the volatile oil market.

Neither Pertamina nor the two other firms explained what brought about the change in policy since the decision in January not to proceed with the upgrade.

Last month, Pertamina, aiming to reduce fuel imports by boosting domestic supply, announced plans to construct two new refineries: one at Bojonegara, Banten, and another at Tuban, East Java. It also announced plans to upgrade a third facility at Balongen, West Java (OGJ Online, Feb. 15, 2009).

Contact Eric Watkins at hippalus@yahoo.com.

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