The project will be financed with state budget funds across several years, Director General of Oil and Gas at the Energy and Mineral Resources Ministry Edy Hermantoro said here on Tuesday.
He noted that state oil and gas company Pertamina was currently conducting a feasibility study on the construction of the oil refinery.
The government has set aside Rp250 billion from the 2013 state budget for the feasibility study, he added.
He pointed out that the government would also continue to construct oil refineries under a public-private partnership (PPP) scheme.
"We hope the construction of oil refineries under both schemes will continue as expected," he added.
Earlier, Deputy Finance Minister Bambang Brodjonegoro said the government would float an international tender for the construction of an oil refinery under the PPP scheme next year.
The government, through Pertamina, will also conduct a feasibility study on the construction of the refinery, which will have an estimated capacity of 300 thousand bpd.
The government is considering offering a 10-year tax holiday to the winner of the tender.
The PPP scheme is based on Government Regulation No. 67/2005, which outlines the terms of cooperation between the government and the corporate sector for the development of infrastructure.
To accelerate the construction of refineries, the government has created a team of inter-ministerial officials.
The team, led by a senior official of the energy and mineral resources ministry, comprises representatives of the ministries of finance, industry, state enterprises, national development planning and Pertamina.
The government plans to build at least three oil refineries, each with capacity of 300 thousand barrels per day (bpd).
The refineries, which will be built at Arun (Aceh), Bontang (East Kalimantan) and Plaju (South Sumatra) are expected to receive crude oil supplies from Iraq.
The refineries are urgently needed to offset rising fuel imports.
The countrys fuel needs have now reached 1.3 million bpd, well above its production of approximately 700 thousand bpd.
In total, Indonesia now has seven refineries, which have a combined production capacity of 1.1 million bpd.
The seven refineries are located in Dumai, Riau (170 thousand bpd); Plaju, South Sumatra (118 thousand bpd); Cilacap, Central Java (348 thousand bpd); Balikpapan, East Kalimantan (260 thousand bpd); Balongan, West Java (125 thousand bpd); Kasim, West Papua (10 thousand bpd); and Tuban, East Java (80,000 bpd).
Reporting by Kelik Dewanto
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