Nita Damayanti

Associate

Ivan Almaida Baely &

Firmansyah Law Firm

+6221 57905090

nita.damayanti@iab-net.com

A: Intiland Tower 9th Floor

Jl. Jenderal Sudirman 32

Jakarta Pusat 10220

W: www.iab-net.com

The rapid growth of Indonesia’s demand for energy has led to new plans by the Government of Indonesia (“GoI”) to increase domestic oil supply by developing oil refinery construction. In December 2015, the GoI enacted Presidential Regulation No. 146 of 2015 on the Construction and Development of Domestic Oil Refineries (“PR No. 146/2015”) as a part of the endeavor to escalate domestic oil production and reduce import dependency. This new regulation aims to construct the new oil refinery infrastructure including the supporting facilities. Meanwhile, the development of oil refineries is targeted to enhance the operational capability of Indonesia’s existing refineries by supplementing the required facilities.

In order to attract investors to participate in financing this large capital investment project, PR No. 146/2015 introduces 4 (four) options of financing oil refinery construction as such (i) public private partnership (“PPP”); (ii) government assignment in the form of government financing; (iii) government assignment in the form of Corporate Financing, and (iv) construction by business entity. Narrowing the financing options thereof, this article will highlight the PPP financing scheme due to the GoI announcement of its implementation of the Bontang oil refinery project. Under PR No. 146/2015, the concept of the PPP scheme is the cooperation between the GoI and the private entity in public sector infrastructure which refers to the specification that has been legislated by the GoI.PR No. 146/2015 authorizes PT Pertamina (Persero) (“Pertamina”) to be the state owned energy company which is in charge of the project. In general, the project transaction should be coordinated with Pertamina in order to ensure the enhancement of domestic oil production. Pertamina is also in charge of holding the auction to appoint the private entity to participate in the project. In holding the auction thereof, Pertamina may be assisted by international institutions based on the approval of the Ministry of Finance (“MoF”). MoF is authorized to provide assistance for the project transaction during the preparation of the oil refinery construction.

The GoI will provide a guarantee over the infrastructure risks and their allocation as will be agreed by the parties under the Cooperative Agreement. The GoI will also endorse the bankability of the project by granting either fiscal or non-fiscal incentives and allowing the integration of petrochemical production. Apart from the numerous incentives, it is interesting to note which type of GoI incentives will be bankable for the Bontang project and future projects. Despite the opportunities for foreign investors to invest in the oil refinery construction and development projects, however it remains uncertain towards the implementation details of GoI incentives to meet the bankability of the project, including the infrastructure risks and their allocation. 

 

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