Iran to Build $8.4b Refinery With China, Indonesia

Iran to Build $8.4b Refinery With China, IndonesiaIran to Build $8.4b Refinery With China, Indonesia

A trilateral preliminary agreement has been reached by Iran, China and Indonesia on building a ultra-heavy crude refinery, worth $8.4 billion, on Java Island off Indonesia, the head of Iran's Oil Product Exporters' Association said on Wednesday .

On the crucial issue of supplying feedstock to the complex, Hassan Khosrojerdi also said, "Negotiations are underway directly with Dwi Soetjipto, Indonesian state-owned oil and natural gas corporation's chief executive,  so that not only can Iran provide the refinery with the much-needed crude, but also supply part of the financial resources."

The refinery venture, with a processing capacity of 300,000 barrels of oil per day, is expected to be completed in five years, Mehr News Agency reported.

The official added that the Indonesian government has already designated a piece of land as the site of the project.

Elaborating on financiers, he noted that an unnamed Chinese bank, along with a European bank, will handle part of the financing.

Giving a breakdown on shareholders' stake, Khosrojerdi said, "Iran, Indonesia and China will have a 30%, 20% and 50% stake in the refinery respectively."

Asked whether embarking on such joint ventures is economically viable for Iran or not, the official stressed that notwithstanding oil prices, which have witnessed a decline, oil byproducts' prices have not fluctuated noticeably.

Furthermore, there is no limitation on selling products of the 300,000-barrel refinery in international markets.

"The only unsettled issue is providing the refinery's feedstock," he said, noting that serious talks are underway with Soetjipto on Iran's supply of the refinery's feedstock.

The oil refinery project has been pending since 2006 due to Indonesia’s concerns over the follow-up of cooperation related to international sanctions against Iran.

------ Expanding Oil Market

To expand its crude export markets, Iran has been pushing to build or own refineries overseas, including in South Africa, Sierra Leone, Spain and Brazil, which would only process Iranian crude.

Dismissing claims that investing in refineries overseas is not economically viable, Abbas Kazemi, managing director of National Iranian Oil Refining and Distribution Company, said serious negotiations are underway with Malaysia and India to buy their refineries' stocks.

"The construction of refineries in foreign states will help us not only to produce oil byproducts such as gasoline, but also to export them to target destinations regardless of the distance," he said.

Oil experts believe that buying oil and petrochemical refining complexes and investing in foreign gas stations can be an effective alternative to relieve economic pressures. They believe that had Iran invested in such projects prior to sanctions, it would be able to easily resist inflationary pressures.

Most Persian Gulf oil producers have already purchased refineries in different parts of the world, which allows them to play a key role in the global energy market, especially during an oil crisis.

"Iran is one of Pertamina's priorities. We're serious about investing in Iran's upstream oil and gas, which will help Iran increase its oil production," Soetjipto was quoted as saying by Reuters in a statement.

Last month, Pertamina's director for upstream sector, Syamsu Alam, said his company is looking to eventually import crude from the sites for processing in Indonesia if the bids are successful.

Pertamina also said it would import its first shipment of liquefied petroleum gas from Iran in September. It agreed in May to purchase 600,000 tons of LPG from NIOC.