Indonesia is back on the projects scene

By Malini Hariharan

After a decade of inactivity since the Asian financial crisis, Indonesia is once again drawing attention. Two news reports indicate that companies are evaluating major investments in refining and petrochemicals.

Taiwan’s Chinese Petroleum Corp (CPC) is said to be planning a $2.8bn petrochemical complex at Kalimantan in Indonesia.

Indonesia’s Coordinating Ministry for the Economy told the Jakarta Globe that Kalimantan was selected because of the availability of raw materials. He added that CPC planned to team up with a local partner, either a private company or a state-owned enterprise such as oil and gas major PT Pertamina. Teaming up with Pertamina would ensure feedstock supply to the project.

The interest in Indonesia comes amidst strong demand growth in the country and the constraints that Taiwanese companies face in executing large refinery and cracker investments in China. Given a choice, Taiwanese companies would rather put their money on the mainland but government restrictions, on both sides, prohibits this.

The Taiwanese have been waiting patiently for a relaxation in the rules but it appears that they are now losing patience.

But whether CPC will actually execute this project remains a question. It had looked at a similar investment in Indonesia back in 1996 but abandoned the plan after the economic crisis.

The second project relates to Chandra Asri, the country’s sole cracker operator, and Pertamina joing hands for a refinery project.

Chandra Asri is said to be looking at teaming up with Pertamina for one of the three refinery projects that it has planned.

Pertamina has received a government directive to team up with other companies build three refineries within 10 years, which would reduce the country’s dependence on imported naphtha.

Shortage of local naphtha has been one of the biggest problems for the country’s petrochemical producers. It has affected their ability to compete with other regional players and made expansion projects unviable.

Each refinery is estimated to cost up to $5 billion, with a total combined capacity of 900,000 bbls/day of naphtha, reports the Jakarta Post.

The first refinery project would commence this year at Cilegon while the other two would be at East Kalimantan’s Bontang and East Java’s Tuban.

Other Indonesia petrochemical producers, such as Titan Petrochemical, Trans Pacific Petrochemical Industry, Tri Polyta and Polytama Propindo, are also said to looking at investments.

The refinery-petrochemical integration plan looks good on paper and is one that the industry has been lobbying for a very long time. But what is uncertain is whether there is sufficient commitment and if smaller players have the money.

Many of the petrochemical producers have other long-standing projects. For instance, Chandra Asri has been talking of a cracker expansion and an aromatics unit. Polytama is said to be looking at the expanding its polypropylene (PP) capacity from 280,000 tonnes/year to 440,000 tonnes/year.

Indonesia needs more capacities. Inaplas estiamtes that local PP capacity is able to meet only half of the country’s demand of about 800,000 tonnes/year.

But any Indonesia project would also need to take into account the recent start of the Asean free trade area which ensures duty free flow of material from neighbouring Singapore and Thailand. Both countries have already built export-oriented capacities.

Additionally, the implementation of the China-Asean FTA is also threatening the health of the downstream sector. Many Indonesian plastics producers have already expressed concerns their future in the face of low cost Chinese competition.

Does it make sense to build in Indonesia given these uncertainties?

It just might. Feedstock availability is becoming an issue in the Middle East and there are not many projects lined up for the next 5-10 years. In such a scenario companies may well have to look at the next best alternative – building projects where markets are located.

, , , , , , , , , , ,

Leave a Reply