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Energy & Power

Indonesia’s Pertamina signs SK, Hyundai for $4 billion refinery upgrade

Indonesian energy giant Pertamina on Monday said it appointed South Korea’s SK Engineering & Construction Co and Hyundai Engineering Co Ltd as engineering and construction contractors for its Balikpapan refinery upgrade.

The $4 billion upgrade project – at the Balikpapan refinery in East Kalimantan province on the island of Borneo – will now start at the beginning of 2019, state-owned Pertamina executive Ignatius Tallulembang said at a media briefing.

Spokesmen for both SK and Hyundai confirmed signing the project contracts, but gave no further details.

Development will be jointly undertaken with Indonesia’s PT Pembangunan Perumahan Tbk and PT Rekayasa Industri (Rekind), Tallulembang said. When the upgraded refinery goes into operation in August 2023, it will produce fuel to the ‘Euro V’ emissions standard, he said.

Southeast Asia’s largest economy hopes to reduce its dependence on costly oil product imports, which meet around a third of its fuel needs of around 1.4 million barrels per day.

A programme launched in late 2014 to double Indonesia’s refinery output has faced multiple setbacks, and the country has continued to struggle to attract investment in the sector.

Earlier plans to upgrade Balikpapan with Japan’s JX Nippon Oil & Energy Corp fell apart in early 2016, but as recently as August this year it was seeking to revive that partnership, or form a new one with Azerbaijan’s Socar.

At the same event on Monday, Pertamina signed a framework agreement with Oman’s Overseas Oil and Gas LLC (OOG) to develop a new $10 billion refinery and petrochemical complex at Bontang, also on Borneo.

State-owned OOG, which is taking a majority stake in the project, was chosen for its financial capability, Pertamina chief executive Nicke Widyawati said. Pertamina is in talks with OOG to increase its share of the project to 20-30 percent from 10 percent under the current plan, Tallulembang said.

It was not immediately clear how much of the project cost will be carried by OOG.

Widyawati declined to comment on why Japan’s Cosmo Energy Holdings, earmarked in January for partnership in the project, was not included in the latest agreement.

Over the next year, Pertamina and OOG plan to carry out a feasibility study for the project. Once completed, OOG is expected to supply 300,000 bpd of crude oil to the refinery, Tallulembang said.

Pertamina now expects all six of its refinery projects – including the Balikpapan, Cilacap, Balongan and Dumai refinery upgrades, and the Bontang and Tuban grassroots developments – to be completed by the end of 2026, Widyawati said.

“We recognize that the refineries have experienced delays (but) better late than never,” Widyawati said.


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