Dwi Soetjipto was all smiles when he delivered his remarks prior to the signing of a joint venture agreement between state-owned energy firm Pertamina and Saudi Arabian oil giant Saudi Aramco in Jakarta on Dec. 22, 2016.
The then president director of Pertamina emphasized the importance of expanding domestic refinery capacity in order to achieve energy sovereignty. During the same event, he praised Aramco CEO Amin Nasser for his commitment to jointly upgrade the Cilacap refinery in East Java, estimated to cost US$5.8 billion.
“The project was [initially] targeted to be completed in 2022. But in the last meeting [with Aramco] a few minutes ago, we agreed to complete it in 2021, as challenged by Mr. Nasser,” Dwi said, followed by applause from his colleagues.
Little did Dwi know that, within less than two months, he would be dismissed from his position at Pertamina following alleged infighting with his own deputy that had led to delays in several projects.
Restructuring specialist Elia Massa Manik soon replaced Dwi in mid-March to clean up the mess, and overhauling Pertamina’s unrealistic timeline for refinery projects amid mounting financial burdens was one of his first tasks.
In addition to the Cilacap project, Pertamina plans to upgrade three other facilities, namely the Balikpapan refinery in East Kalimantan, the Dumai refinery in the Riau Islands and the Balongan refinery in West Java. The energy giant also plans to develop two new refineries, one in Bontang, East Kalimantan, and another in Tuban, East Java.
Pertamina estimates that it will spend around $45 billion on all its refinery projects, which are expected to boost its refined fuel production capacity to 2 million barrels of oil per day (bopd) by 2025 from the current rate of 1 million bopd.
“Right from the start, I said that I didn’t want to make promises that I couldn’t keep. So when I first came in, I started Fixing the schedule of our refinery projects to make them more realistic. Then, everyone said that Pertamina was giving up, but that’s not the case,” Elia said.
He said it was important for Pertamina to make a prudent, realistic plan to ensure smooth developments in its reiineiy projects. Otherwise, each one-year delay would cost the company hundreds of millions of US dollars, Elia added,
Pertamina revealed plans of deadline postponements in June, with the Cilacap project’s completion moved to 2023 from 2021 initially. Meanwhile, the deadline for the new Tuban refinery, worth $15 billion, will be postponed to 2024, three years past the initial targeted date. The Tuban refinery will be developed in cooperation with Russian oil firm Rosneft.
The completion period was extended for both projects as Pertamina is currently renegotiating its agreement with Aramco and Rosneft to conduct joint marketing efforts instead of having Pertamina be the sole off taker for the fuel produced, a move that would significantly increase its debt covenant.
Recently, Pertamina also announced that the completion of the Balongan and Balikpapan projects would also be delayed to 2023 and 2025, respectively, from previous deadlines of 2021. However, the firm moved the deadline for the Dumai refinery upgrade forward to 2024 from 2025.
Despite the timeline changes, Pertamina has yet to find partners to develop the Balongan, Balikpapan and Dumai refinery projects, each worth an investment of $5 billion to $6 billion.
“These three projects would rely heavily on Pertamina’s financial capacity. So if Pak Elia gives us the green light, we will go on. But if not, we would put them on hold. The timeline has to be adjusted dynamically” Pertamina petrochemical and processing niegaprojects director Ardhy N. Mokobombang said.
Pertamina has projected that its capital expenditure will reach around $10 billion to $ 11 billion a year in the 2019 to 2021 period following the start of the construction of its refinery projects. In 2017, it has only allocated $4.5 billion in capital expenditure.
“We’re talking about $45 billion worth of investments [in refinery projects. So you can call me a liar if I say that Pertamina, which currently has total assets worth only $50 billion, will be able to develop all of those projects by itself within the next eight years. It’s nonsense. We need to create partnerships,” Elia said. As of June, Pertamina’s total liabilities stood at $26.36 billion, up 1.08 percent year-on-year.
Jakarta Post, Page-13, Monday, Nov 6, 2017
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