JAKARTA - The government will likely reject fiscal incentives proposed by foreign investors to kick off the construction of new fuel processing plants despite the lack of capacity of existing domestic refineries to process crude oil.
The Finance Ministry's fiscal agency chief Bambang Brodjonegoro said in Jakarta over the weekend that his office would recommend the government build its own refineries rather than providing unrealistically huge incentives for foreign firms to do so.
"We strongly deem the incentive package currently proposed is just too much," he said on the sidelines of the 37th Indonesian Petroleum Association (IPA) convention, biggest annual oil and gas conference to date.
The executive was commenting on the incentives requested by Kuwait Petroleum and Saudi Aramco over refinery projects in collaboration with state-owned oil and gas company PT Pertamina.
As previously reported, Pertamina has chosen Kuwait Petroleum as its partner to build a refinery with a fuel production capacity of 300,000 barrels per day (bpd), which will be will be built in Balongan, West Java, near Pertamina's existing refinery.
In 2011, the two firms signed a memorandum of understanding (MoU) to build the refinery. The crude oil would be provided by Kuwait Petroleum.
In addition, Pertamina has selected giant Saudi Aramco to construct another fuel processing plant with a production capacity of 300,000 bpd of fuel, which is projected to be located either in Tuban, East Java or in Bontang, East Kalimantan.
Both refineries, requiring a combined investment of around US$20 billion, are expected to boost refined fuel supplies in the country after the two begin operations in 2018.
However, in relation to the projects, both Kuwait Petroleum and Saudi Aramco have reportedly demanded a tax holiday for up to 30 years in addition to an incentive of a price premium 15 per cent above the benchmark provided by Mean of Platts Singapore (MOPS) for the crude oil supplied to the refineries.
The Saudi and Kuwaiti companies also demand exemption of import duty.
At the same time, they oppose the appointment of other companies to supply crude to the refineries.