Finances halt Pertamina projects

State-owned energy giant Pertamina has pushed back the completion target of its refinery development projects, including those it will jointly develop with Saudi Arabian oil giant Saudi Aramco and Russia’s Rosneft Oil Company, due to financing issues.

Under its Refinery Development Master Plan (RDMP), Pertamina plans to upgrade four of its existing refinery facilities, namely the Cilacap refinery in East Java, the Balikpapan refinery in East Kalimantan, the Dumai refinery in Riau and the Balongan refinery in West Java. 

In addition, Pertamina also plans to build two new refineries- one in Bontang, East Kalimantan, and one in Tuban, East Java-in an effort to boost its refined oil production capacity to 2 million barrels of oil per day (bopd) by 2025 from the current 1 million bopd.

     However, Pertamina has found it difficult to finish all the projects on time as it has been gasping for air amid a downward trend in its financial performance.

“If we want to maintain our services, we have to be a healthy company. At least, we can’t book a negative cash How in our financial report,” Pertamina president director Elia Massa Manik said Tuesday during a hearing with members of the House of Representatives Commission VII overseeing energy In the first quarter of 2017, Pertamina booked around US$900 million in net profit. 

However, at the same time, the company also recorded a negative operating cash How of $800 million. “That’s why we will try to renegotiate with Saudi Aramco and Rosneft. We will ask them to conduct joint marketing efforts instead of making us the sole off-taker [for oil produced at the refineries,” Elia said.

He said if Pertamina followed the previous off-take agreement, the company would need to book it as a liability in its financial statement in accordance with International Financial Reporting Standards (IFRS), resulting in an increase in its debt covenant.  Meanwhile, Pertamina’s total debt has amounted to $11.4 billion at present.

Hence, the company plans to propose readjustments for its refinery projects, in which the offtake agreement will be in line with the shares portion of each party involved.

In December last year, Pertamina signed a joint venture agreement with Saudi Aramco for the Cilacap refinery upgrade with a  total investment value of around $5.8 billion.

Pertamina has majority stake of 55 percent in the Cilacap project, while the rest is owned by Saudi Aramco. The upgraded facility is expected to produce 400,000 bopd, up from current production of 348,000 bopd.

The Cilacap project was initially slated for completion in 2021, but Pertamina is now seeking to push the target to 2023. “I’ve talked about this matter by phone with Saudi Aramco CEC Amin Nasser,” Elia said, adding that he awaited a green light from its Middle Eastern partner. Meanwhile, Pertamina will also discuss the same issue with Rosneft regarding the development of a new Tuban refinery  which will need a total investment of $15 billion.

Pertamina expects to push the completion date of the Tuban refinery, projected to produce 300,000 bopd, to 2024, three years later than the initial target. Pertamina, which holds 55 percent stake in the project, will have discussions with Rosneft about the plan this week, Pertamina processing and petrochemical megaproject director Rachmad Hardadi said.

The completion date ofthe Balikpapan and Balongan refineries have also been revised to 2021, one year behind previous estimates. The upgraded Dumai refinery and new Bontang refinery meanwhile, are targeted to be on stream in 2025, delayed from previous estimates of completion in 2024 and 2023, respectively “We have to do this so that our financial burdens will not accumulate altogether at the same time,” Rachmad said.

Pertamina has claimed that, as of March, the government still owed Rp 38 trillion ($2.85 billion) to the company in subsidies that the company had paid in advance for the sales of subsidized 3-kilogram liquefied petroleum gas (LPG) canisters.

Meanwhile, the company estimates that it will disburse Rp 5 trillion over the next two years to implement the governments one-price fuel policy, which aims to introduce a fixed fuel price across the archipelago

Jakarta Post, Page-13, Thursday, June 8, 2017