By Michael Taylor and Viriya Paramita
Indonesia has broken off talks on building two new refineries with Kuwait Petroleum and Saudi Aramco due to disagreements over tax issues, an official with state oil company Pertamina said.
That deals a setback to Indonesian efforts to be less reliant on foreign oil products. Southeast Asia's largest economy needs to tame a current account deficit driven mainly by consumer demand for subsidized gasoline and diesel imports.
Indonesia is set to become the world's biggest importer of gasoline by 2018, according to oil consultancy Wood Mackenzie, but had hoped to alleviate some of its dependence on imported oil products by building new refineries.
"We didn't reach a deal over taxes with Kuwait, so eventually the negotiations failed," Chrisna Damayanto, Pertamina's refinery director, told Reuters.
Negotiations with Saudi Aramco also failed after the Indonesian government denied its request for lower taxes and a tax holiday, Damayanto said.
Pertamina signed initial agreements with Saudi Aramco last February and with Kuwait Petroleum in 2010 to build two refineries by 2018, each with a capacity of 300,000 barrels per day.
That would have raised Pertamina's refining capacity to 1.6 million bpd, just slightly above Indonesia's oil consumption in 2012, according to BP's Statistical Review of World Energy.
Indonesia has been trying to beef up its refining capacity for at least 10 years, but no projects have ever got beyond initial planning stages.
"Building new refineries is not our top priority right now. We believe it would be useless to build new refineries when the other old refineries we have still need to be upgraded," Damayanto said.
"Our first priority is to upgrade our old refineries."
An energy ministry spokesman could not confirm that talks with Saudi Aramco and Kuwait Petroleum had failed, but said Pertamina was planning to build a new refinery with state funding.
Pertamina has a refining capacity of 1 million barrels bpd across six refineries.
Indonesia's largest refineries are Cilacap (348,000 bpd) in Central Java, Balikpapan (260,000 bpd) in East Kalimantan and Dumai (170,000 bpd) in Sumatra.
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