Indonesia may get $3 bln private refinery
Saturday, October 21 2000 - 04:30 AM WIB
Bank of America Corp unit BA Asia Ltd will carry out a feasibility study for a $3 billion oil refinery in Indonesia to help meet the country's growing domestic fuel demand.
"All necessary agreements covering the study have now been finalised,'' BA Asia Ltd managing director Simon Dodd told Reuters.
The privately financed project, Indonesia's first without state firm Pertamina, is a joint venture between local sponsor PT Minyak Pola Permai and Saudi Arabian-based Hitech International Group.
Pertamina will still be involved in the operation, possibly in distribution. If the project goes ahead, the refinery will be built on Tanjung Sauh Island, part of the Batam industrial and free-trade zone about 25 kilometres from Singapore.
BA Asia, Bank of America Corp's Hong Kong-based merchant bank, will carry out the feasibility study on behalf of the sponsors as contractor under the US Trade Development Agency.
Deregulation looms
This is the first time a bank has acted as principal and contractor in such a study. BA Asia Ltd is also financial adviser and likely to be responsible for arranging debt financing and equity placement.
The project has the full support of the Batam Island Authority and has been approved by the Indonesian government.
The study, expected to last up to nine months, comes as Indonesia is looking to deregulate its refining sector, as well as retailing and distribution of refined petroleum products.
The proposal for construction of the PT Kilang Minyak Batam refinery is for a plant with a capacity of 300,000 barrels per day (bpd), or 15 million tonnes a year.
"A successful feasibility outcome will provide the basis for additional equity partners,'' PT Minyak Pola Permai president-director Ismail Suny said.
On completion, the project will have a high conversion configuration and is targeted for import substitution with primary focus on meeting an estimated 150,000 bpd shortfall for middle distillate products, especially mogas and diesel, representing about 50 percent of refinery production.
New refinery capacity for Indonesia is considered critical given prevailing tight supply, combined with ageing plant and lack of new investment linked to financial difficulties at Pertamina.
Industry analysts expect Asia's refining market demand to continue to grow at 5 percent a year. By 2002 demand for refined products is expected to grow to around 850,000 bpd, reflecting stronger growth in the wake of the 1997 Asian financial crisis.
Refinery margins have recovered from the lows of $2 a barrel in 1998-99 to an average of $4 a barrel in 2000 and more than $5 per barrel since June. (*)