OREANDA-NEWS. Indonesia is making progress with efforts to attract foreign investment in its ageing refining sector, but uncertainty over the government's commitment to energy reforms could still derail the plans.

State-owned Pertamina and Russia's state-controlled Rosneft signed a framework agreement last month for a possible 300,000 b/d refinery and petrochemicals plant at Tuban in east Java. The firms will carry out a feasibility study of the proposed investment of up to $13bn. This follows talks between Russia and Indonesia in May. And the two companies pledged to work together on crude and products supplies as well as possible equity investments by Pertamina in Rosneft's upstream projects in Russia.

The Tuban deal is the second under Indonesia's 10-year, $25bn downstream investment programme proposed by President Joko Widodo in December 2014. Pertamina is making progress with its planned upgrade of the 348,000 b/d Cilacap refinery, after reaching an initial deal with Saudi Arabia's state-owned Saudi Aramco last November. The two firms have awarded the basic engineering design contract to UK engineering firm Amec Foster Wheeler for the $4bn-5bn upgrade at Cilacap, which would raise crude processing capacity to 370,000 b/d; expand gasoline, diesel and base oil output; and boost petrochemicals capacity.

Pertamina controls Indonesia's refining sector, which is in urgent need of investment. No new refineries have been built in the country since the 125,000 b/d Balongan plant in 1994, leaving Indonesia reliant on imports for half of its 1.6mn b/d products demand.

Widodo aims to expand downstream capacity to 1.68mn b/d from 1mn b/d under the 10-year investment plan, but the programme has already hit problems. Japan's JX Nippon Oil and Energy pulled out of a planned upgrade of the 260,000 b/d Balikpapan refinery in January, after failing to agree terms with Pertamina. And China's state-controlled Sinopec has dropped plans to invest in the 133,700 b/d Plaju refinery amid doubts over the project's viability.

Indonesia has a dismal record of attracting foreign investment in its refining sector. There have been many initial deals that ultimately never materialised, most recently a 2012 agreement with Aramco for the 300,000 b/d Tuban refinery, which Rosneft is now pursuing. There is no timeline for a final investment decision on Tuban, while Aramco does not expect the Cilacap upgrade to come on line until 2022, despite its relatively modest capacity additions.