Japan’s Mitsui Abandons Planned $1.8b Refinery Project in Cilacap

Jakarta Globe, Reva Sasistiya, March 18, 2010

Japan’s Mitsui has pulled out of a $1.8 billion project to build an oil refinery with state oil and gas company PT Pertamina, marking a blow to efforts to wean the country off imported oil.

Basuki Trikora Putra, Perta mina’s vice president of communications, said on Thursday that the two companies terminated their joint venture on Jan. 14.

“The cooperation had to be ended because we failed to reach an agreement on the project’s business scheme,” Basuki said.

He said the companies disagreed over the details of the project, such as technology and costs, but he declined to elaborate further.

Pertamina and Mitsui formed the joint venture in 2008 to develop a residue-fluid catalytic cracking unit, which was supposed to boost the capacity of Pertamina’s refinery in Cilacap, Central Java, to 410,000 barrels per day from about 348,000 bpd. The refinery, which would help Indonesia reduce its reliance on imported oil products, was meant to be in operation by this year.

Under the initial agreement, Mitsui owned 80 percent of the joint venture, while Pertamina owned the rest.

Pertamina will now pursue the project alone, according to Heru Sutrisno, Pertamina’s senior vice president of business development.

“We will continue the project without a partner,” Heru said, without explaining how the company would raise the huge amount of money needed for such a refinery.

Basuki said Pertamina was preparing to hold a tender to select the contractor for the engineering, procurement and construction of the project. Pertamina’s Cilacap refinery has two crude-oil distillation units with capacities of 118,000 bpd and 230,000 bpd.

It supplies 34 percent of national demand, and 60 percent of demand in Java.

It is one of the six refineries operated by Pertamina with a combined capacity of 1.035 million bpd.

Rising domestic demand for fuel has heightened the need to expand the refining capacity.

The country currently imports about 30 percent of its refined oil products, straining the national budget and weighing on the rupiah.

Pertamina has previously said it wanted to stop importing refined fuel products after 2017 when a number of refinery projects, including the one in Cilacap, were expected to come on stream.