Pertamina and Saudi Aramco are expected this week to take a major step in forming a joint venture that will include a $5 billion upgrade to Indonesia's largest refinery complex, a director at the Southeast Asian firm said.
The move will be a victory for Indonesian President Joko Widodo, who has launched sweeping energy reforms since taking office last October to improve the image of the country's graft-tainted oil sector and restore investor confidence in Southeast Asia's biggest crude producer.
Pertamina, whose entire board of directors was replaced as part of the reforms, will sign an agreement with state oil firm Saudi Aramco to conduct a Front-End Engineering Design (Feed) for the upgrade to the 270,000-barrel per day Cilacap oil refinery in Central Java, said Pertamina finance director on Monday.
Cilacap is Indonesia's largest refinery complex and has undergone several upgrades and additions since it commenced operations in 1976.
"Hopefully this week we will agree on the next stage," Budiman said at the company's headquarters in downtown Jakarta. "Feed involves a significant investment, typically up to 10-15 percent of the actual project cost."
Indonesia, which is preparing to rejoin Opec in December after a seven-year break, has been trying for years to convince Saudi Aramco to invest in its dilapidated refining sector, but progress has stalled over tax issues and fiscal terms.
Budiman said the government was developing a number of "incentive schemes" that should help resolve this.
In the joint venture, Pertamina will take a majority stake in the Cilacap refinery but an exact percentage was not yet finalised. Saudi Aramco would hold the rest.
The deal will also likely include an agreement to import Saudi crude oil for use in the Central Java refinery, as well as other domestic facilities.
Pertamina will look to raise its Cilacap investment, which will be at least $2.5 billion, through loans with export credit agencies or multilateral lenders.
Budiman said the company was also drawing closer to a joint venture with Japan's JX Nippon Oil & Energy Corp to upgrade the refinery in Balikpapan in East Kalimantan. It was not clear when an announcement would be made.