Indonesia says won't limit capacity, markets for investors in oil refineries

JAKARTA (REUTERS) - Indonesia will not limit the production capacity and markets for oil refineries private investors will build, under new rules its energy ministry unveiled this week to boost energy infrastructure in Southeast Asia's largest economy.

Allowing private investment in oil refineries is part of Indonesia's plan to restore investor confidence and overhaul its creaking energy infrastructure and analysts say it's a step in the right direction. The last new refinery was completed in 1997.

Developers will also be allowed to distribute refined products domestically or overseas, Oil and Gas Director General Wiratmaja Puja told reporters on Thursday. "They can import (crude) and can also export (products)," Mr Puja said, but added that a portion of products would still have to be allocated to the domestic market.

Indonesia's fuel output has been hit by a lack of investment in its refining sector, and it currently imports around half of the 1.6 million barrels of fuel it consumes daily. "It's a sign that the Indonesian government is willing to give in a little bit more to encourage investment in the refining sector," said Den Syahril, analyst at consultancy FGE. "Projects have been stalled, delayed over disagreements on terms of partnership. For now, I'm still quite sceptical whether we will see some progress but it's a step in the right direction."

Refinery developers will not be required to sell their products to state energy company Pertamina, Mr Puja said, and they could choose other distributors or sell their products independently. Pertamina has a virtual monopoly of the local retail fuel market, accounting for about 90 per cent of fuel sold.

The new rules would also allow for the first time other companies to sell RON88 gasoline, provided they have trading, distribution and storage permits and approvals from the downstream regulator.

Currently, fuel sales of competing retailers Shell and Total have been limited to more expensive products. Pertamina operates seven refineries in Indonesia and is working to upgrade four. But the project has not progressed as quickly as it had hoped.

Russia's Rosneft was picked in May to develop one of two greenfield refineries Pertamina plans to build.

By 2023, Indonesia targets to double its fuel output to around 2 million bpd and reduce costly fuel imports. "Many investors have requested permits to invest in private refineries," Mr Puja said, citing proposals for refineries with a crude processing capacity of up to 300,000 barrels per day.