Indonesia’s Pertamina appointed a consortium of partners to develop a new $10 billion refinery at Bontang, said Ardhy N. Mokobombang, director of refinery megaprojects and petrochemicals at the state-owned energy company.  Indonesia, one of Southeast Asia’s biggest fuel importers, hopes to reduce its import bill by improving its ageing domestic refining infrastructure, but some projects have been delayed because of financing issues. Pertamina hopes to soon finalize a framework agreement with Oman’s Overseas Oil and Gas LLC (OOG) and Cosmo Oil International, a trading unit of Japan’s Cosmo Energy Holdings, to develop the Bontang facility, Mokobombang said on Tuesday.

The Oman government will provide financial support for the project, in which Pertamina expects to take an initial 10 percent stake, Mokobombang said. Pertamina would have the rights to supply 20 percent of the crude for the refinery, and Oman the remainder, he said. Pertamina plans to reach a final investment decision on the 300,000-barrel-per-day Bontang grass roots refinery project in mid-2020, he said.

“Hopefully in 2025 this refinery will be operational,” Mokobombang told reporters.

A spokeswoman for Cosmo Energy Holdings in Japan did not immediately respond to a request for comment on the matter. OOG is "active in the development of a number of energy related projects," including a refinery project in Indonesia, it said on its website. OOG could not be reached for comment.

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Diversified energy company PT Pertamina has appointed Overseas Oil and Gas LLC (OOG) from Oman and Cosmo Oil International Pte Ltd (COI), a trading arm of Cosmo Energy Group of Japan, as preferred consortium partners in developing US$10 billion worth of the grassroots Bontang Refinery project.

Bontang is one of the projects to be developed by Pertamina in the effort to help the government in its drive in to attain energy security.

The consortium was picked after going through a selection process which began in January 2017. Initially, as many as 100 companies showed interest, during the project expose. In the final phase, the number of potential candidates was reduced to just 8.

Under the proposed scheme, all financing for the project will come from the investors, who will hold a 90 per cent interest in the project, with Pertamina keeping 10 per cent. In addition, Pertamina has the right to supply 20 percent of the oil needed by the Bontang project.

Pertamina said an additional condition stipulates that Pertamina does not guarantee that it will become the off-taker of the output of the Bontang Refinery; it is however ready to support joint marketing efforts.

Pertamina said it appointed OOG as preferred bidder because OOG is fully backed by the Oman government in financing the project, in supplying crude oil as well as tying up with strategic partner COI for technical support and product marketing.

The Bontang Refinery is designed to yield 300,000 barrels of fuel per day, and is expected to create 20,000 new jobs during construction and 1,600 when starting up operations. The fuel produced by Bontang Refinery will meet the Euro 5 standard.

In the next stage, both parties – Pertamina and the preferred partner – will sign a Framework Agreement, to be followed by a Feasibility Study which is scheduled to be completed by mid-2019; next, Front-end Engineering Design (FEED), which is set to be completed by end-2020. The Bontang Refinery project is scheduled to start commercial operation by 2025.

The development of Bontang Refinery is part of Pertamina’s drive to increase the country’s fuel production capacity to 2 million barrels per day, from around 1 million barrels per day at present.

Apart from Bontang Refinery, Pertamina is also developing Tuban grassroots refinery, in partnership with Rosfnet of Russia. The two parties have set up a joint venture and are now conducting a feasibility study.

Financial Performance

Pertamina booked an unaudited net profit of US$2.41 billion in 2017, down 24 per cent from the US$3.15 trillion recorded the previous year. President Director Elia Massa Manik said the net profit decline was a victim of higher oil prices, as the company import much of its fuel.

The company, he said, managed to limit the decline in profit, as it slashed operational costs by 26 per cent.

This year, the company has set a capital expenditure of US$5.59 billion, up 55.27 per cent from last year’s $3.6 billion. A large percentage of this money, amounting to $3.3 billion, representing 59 per cent of the total, will be allocated to the upstream oil and gas sector.