State-owned oil and gas giant Pertamina signed on Friday a head of agreement with Taiwanese counterpart CPC to develop a petrochemical facility in Balongan, West Java.
The $8 billion petrochemical facility, slated for commercial operation in 2026, represents the third phase expansion of Pertamina’s Balongan oil refinery.
“This project is an important step in strengthening Pertamina’s petrochemical business such that, in the next 10 years, Pertamina can become a major petrochemical business player in the Asia Pacific,” said Pertamina president director Nicke Widyawati in a statement that day.
The statement added that Pertamina and CPC had been in talks over the project since late 2018. The two companies completed a feasibility study the following year.
Once expansion of the Balongan refinery is completed in 2022, the facility’s fuel output capacity is expected to rise by 20 percent to 150,000 barrels per day (bpd), excluding petrochemical production, in meeting Indonesia’s growing demand for transportation fuels. Pertamina is working to develop six other refineries for similar reasons.
Investment Coordinating Board (BKPM) head Bahlil Lahadali, who witnessed Friday’s signing, said his office had confirmed tax holiday incentives for the project in supporting the development.
“This is a government priority project. We will absolutely support it,” he said.
Pertamina previously said it planned for its Balongan facility to produce 1 million tonnes of ethylene each year. Ethylene, like most petrochemicals, is mainly used to produce plastics, allowing Pertamina to diversify revenue streams during periods of low fuel demand such as is happening amid the coronavirus pandemic.
Consumption plunged 35 percent to 65,678 kiloliters per day in April from the daily average in January and February before the country introduced a physical distancing policy requiring people to stay at home to contain the COVID-19 outbreak.
Due to the falling demand, Pertamina projects its revenue to fall by up to 45 percent below initial expectations under a worst-case scenario.
Pertamina spokeswoman Fajriyah Usman told The Jakarta Post on May 18 that the oil company would prepare the base ingredients for pharmaceutical production, then either state-owned pharmaceutical company Kimia Farma or Kimia Farma with Pertamina would process the ingredients into pharmaceuticals.
“We are still discussing the details,” Ganti Winarno, corporate secretary at Kimia Farma, told the Post Wednesday last week.