Govt to prepare legal umbrella for refinery projects

The government will issue a governmental regulation (PP) that will provide a legal umbrella for the provision of tax holidays for investors to build refineries. The PP is expected to be completed in October this year.

The statement was made by interim Minister of Energy and Mineral Resources Chairul Tanjung during the hearing on Wednesday with the House of Representatives? Commission VII which oversees among others energy affairs.

The regulation will give authority to the minister of finance and his/her team to decide on tax holiday for refinery investors. The meeting for decision making will be presided over by the coordinating minister for the economy, Chairul, who is also Coordinating Minister for the Economy, told the lawmakers.

?In other countries, (the meeting to make decision on) tax holiday for certain amount of investment is presided over by the prime minister,? he said.

He said tax holiday is the main issue for refinery development. The PP is expected to be completed in early October.

?The regulation is in the drafting process. Hopefully, it will be completed before the end of the cabinet. It (tax holiday) is the reason why (refinery development) has never been realized,? he said.

Chairul said as the coordinating minister of the economy, he has been to the potential locations of the new refineries, namely Bontang in East Kalimantan and Arun in Aceh. Aside from building new refineries, the government can also expand the capacity of the existing refineries, which is easier to do given that the refineries already have infrastructures.

On the same occasion, Director General of Oil and Gas A. Edy Hermantoro said the new governmental regulations will specify among others the size and timeframe of the tax holiday. Under the existing regulation, tax holiday is valid for five years. However, this timeframe is considered too short by refinery investors.

With regards the size of the tax holiday, the demand of investors vary depending on the capacity of the refineries, according to Edy.

Indonesia needs to build new refineries in order to ease dependence on imported oil fuels, save foreign exchange earnings, maintain the stability of the local currency?s rate, and drive domestic industrial growth and labor market. Now, the total capacity of Indonesian refineries reach 1.157 million barrels per day (bpd). Meanwhile, the amount of local crude production available to be processed at local refineries is 649,000 bpd. On the other hand, the domestic demand for oil fuels reach 1.257 million bpd. That means there is a deficit of 608,000 bpd. In order to solve the deficit, Indonesia needs to build two more refineries.

Editing by Johannes Simbolon