Pertamina and Saudi Aramco to form JV

Indonesia's state energy company, Pertamina, and Saudi Aramco are expected to move forward in forming a joint venture that will include a US$5 billion upgrade to Indonesia's largest refinery complex, according to a Director at the Southeast Asian firm.

Pertamina, whose board of directors was replaced entirely as part of the reforms, will sign an agreement with state oil firm Saudi Aramco to conduct a front end engineering design (FEED) for the upgrade to the 270 000 bpd Cilacap oil refinery in Central Java, Pertamina Finance Director Arief Budiman said.

Cilacap is Indonesia's largest refinery complex and since it began operation in 1976, it has undergone several upgrades and additions. "Hopefully this week we will agree on the next stage," Budiman said. "FEED involves a significant investment, typically up to 10 – 15% of the actual project cost."

The successful formation will be a victory for the Indonesian President, Joko Widodo, who has proposed widespread energy reforms, since taking office, to improve the country’s international image of the graft-tainted oil sector, and restore potential investor’s confidence in Southeast Asia's biggest crude producer.

Indonesia, which is preparing to rejoin OPEC in December after a seven year break, has been trying to convince Saudi Aramco to invest in its lack lustre refining sector for years, however progress has always halted over tax issues and fiscal terms.

In the joint venture, Pertamina will take a majority stake in the Cilacap refinery but an exact percentage has not yet been finalised. Saudi Aramco would hold the remaining percentage. The joint venture deal is also likely to include an agreement that dictates Saudi crude oil must be used in the central Java refinery, as well as other domestic facilities.

Pertamina will be looking to raise its Cilacap investment, which will be at least US$2.5 billion, through loans with export credit agencies or multilateral lenders. Budiman also said that the company was getting close to finalising another joint venture with Japan's JX Nippon Oil and Energy Corp, as a means of upgrading the refinery in Balikpapan in East Kalimantan. However, it was not clear when an announcement would be made or if there were any further details on this agreement.

Sources: Jakarta Globe, Reuters, Trade Arabia, Arab News

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