Pertamina may issue Islamic bonds to finance expansion projects

State owned oil and gas company Pertamina is studying the possibility of using Islamic or shariah financing alternatives such as Islamic bonds to take the advantage of offshore funds from the Middle East countries to finance its four major expansion projects which would cost about US$1.97 billion.

The four projects will include the development of the Pondok Tengah oil field in Bekasi which will cost about US$492.98 million, the development of the Trans Java Gas Pipeline which would cost about $179.68 million, the construction of Tuban Transit Terminal and Tuban-Surabaya pipeline which would cost about $105 million, the development of Central Sulawesi's fields, including a Liquefied Natural Gas (LNG) plant project, which would cost a total of $1.15 billion.

Evita M. Tagor, Pertamina's deputy finance director said in Jakarta said last week that issuing Islamic or shariah bonds in the Middle East is quite promising right now because oil producing countries such as Arab Saudi, Qatar and Kuwait have surplus of funds thanks to the continued increase in the prices of crude oil.

Evita, however, said that the double taxation still poses a problem to Pertamina to take such financing opportunities. "The double taxation remains a major obstacle because Indonesia's tax law has yet to recognize such Islamic financing instruments," Evita added. (godang)