JAKARTA (Reuters) – Indonesia’s new administration plans a major expansion of oil storage and will construct more refineries as part of sweeping energy reforms that will also help in cracking down on corruption in the state oil trader.
Sworn in just six weeks ago, President Joko Widodo launched the overhaul of the scandal-tainted oil and gas sector last Friday by sacking the entire board of state oil giant Pertamina and pledging a comprehensive audit of its trading arm, Petral.
When completed, the plan to increase storage and refining capacity will allow Southeast Asia’s largest economy to shift from buying gasoline and diesel on the opaque spot market to stable long-term contracts with foreign producers. That would also reduce opportunities for graft at Petral.
“With limited storage, all you can do is buy on the spot market and then you are at the mercy of the market,” Ari Soemarno, a presidential adviser and former head of Pertamina, told Reuters.
Energy Minister Sudirman Said told reporters last week: “Every transaction that is hidden definitely has that potential (for corruption). Direct deals reduce that potential…and reduce the role of intermediaries.”
Indonesia plans to add a minimum of 9.4 million barrels of new fuel storage capacity by 2019, an increase of around 40 per cent, at a cost of $2.44 billion, Pertamina officials said.
The country, which is expected to become the world’s largest gasoline importer by 2018, wants to increase its operational reserves to 30 days worth of fuel, up from the current 18-23 days.
In the longer term, Pertamina is looking to upgrade its six refineries to increase capacity to 1.5 million barrels per day from the current 1 million bpd. It is also considering investing in new refineries, despite not having built one since 1994.
The refinery and storage development plans are not new under President Widodo but have been held back for years by vested interests who profit from fuel imports, officials have said. Indonesia’s oil and gas sector is the largest contributor to state income, making up an estimated 12 per cent of state revenue this year.