Pertamina reportedly agrees to support TPPI $400m worth of restructuring

State oil and gas company Pertamina has reportedly agreed to participate in the US$400 million worth of restructuring of the stalled petrochemical project in Tuban, East Java, belonging to Trans Pacific Petrochemical Indotama (TPPI), Bisnis Indonesia daily reported on Wednesday.

Quoting an informed source, the daily reported that Pertamina was likely to participate in the project through the so-called monetizing the Pertamina product offtake and condensate/propylene supply agreements, as proposed by the Indonesian Bank Restructuring Agency that has taken over most of TPPI debt.

"Now, the deliberation centers on the contract," the source said.

With the proposed scheme, the value of TPPI was downgraded a bit from US$1.2 billion to $1.075 billion.

Nevertheless, the source said Pertamina would be victimized if it proceeded with the plan that requires Pertamina to supply propylene/condensate as the feedstocks to TPPI for a four-year period worth US$400 million that would be converted into Pertamina's ownership of 10 at TPPI.

Then, Pertamina would get the products from TPPI after paying a 10 percent processing fee. Pertamina would then sell TPPI products. Most of the proceeds from the sale of TPPI products, or $350 million, would be paid out to TPPI's main contractor JGC of Japan, that would then use the fund to continue the construction of the plant that had been completed by 65 percent.

The source said that Pertamina was surely victimized. By selling the propylene and condensate worth of $400 million, Pertamina could use the fund to build its own petrochemical plant, with supports from the banking industry.

"This way, they (owners of TPPI) are trying to avoid the dilution of their ownership at TPPI," he said. "This will surely inflict losses to Pertamina. This practice is exactly the same with transferring the losses (to Pertamina), and this scheme is not correct."

Pertamina's Downstream Director Muchsin Bahar confirmed that Pertamina was offered by IBRA an opportunity to salvage TPPI. However, he said there was not yet definitive answer from Pertamina.

"Currently, the team is still negotiating how much we should have ownership at TPPI," he said.

Basically, he said Pertamina would also benefit from salvaging TPPI because Pertamina would get fuels from TPPI that could be sold to consumers in East Java.(*)