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Jakarta — Indonesia's plan to process more domestic crude is hampered by a tax system that discourages the country's foreign producers to sell domestically and state-owned Pertamina has urged the government to change that if it wants to cut reliance on imports, a senior company official said this week.

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"In 2016, we have only been able to buy 12,000 b/d of domestic crude supply [from international companies operating in the country], when in fact the total potential figure that we can buy is around 150,000-200,000 b/d," senior vice president of Pertamina's Integrated Supply Chain Daniel Syahputra Purba said late Wednesday.

So far in 2016, Pertamina has imported an average 430,000 b/d and consumed 440,000 b/d of domestic crude -- most of which came from its own net production and the government's entitlement, according to data from Pertamina. Crude and condensate exports averaged 358,000 b/d over January-July 2016, up 19% from 301,000 b/d over the same 2015 period, according to data from Statistics Indonesia.

Indonesia in 2015 said that it planned to cut its crude exports by slightly more than half in 2016 and keep those barrels at home to cut reliance on crude imports.

Article Continues below...

Gusti Wiratmaja Puja, director general at the energy and mines ministry, said then that Jakarta was planning to cut exports by about 200,385 b/d starting 2016.

But an unfavorable tax system has discouraged international companies producing crude in Indonesia to sell it domestically.

International companies operating in Indonesia, but with overseas trading arms, currently have to pay a 3% tax on crude sales within the country. If the trading arm is located within Indonesia, they pay a 1.5% tax.

This acts as a disincentive for companies to sell the crude domestically. "We are in talks with various companies such as Chevron, BP, Eni, Total and ConocoPhillips whose trading arms are in Singapore. They have to pay 3% to the government if they sell the crude to us. It's very expensive," Purba said. According to Purba, the government should in fact impose an export tax so companies are encouraged to sell domestically.

Pertamina has been considering buying 125,000 b/d of crude from Chevron Pacific Indonesia comprising 45,000 b/d of Minas and 80,000 b/d of Duri.

It has also been in talks with Total to buy 20,000 b/d of condensate from the Senipah field.

LOOKING FOR NEW CRUDE GRADES

Meanwhile, Pertamina is looking at new crude grades that are suitable to be processed at its existing refineries and has tested various grades from Africa and Australia at its refineries.

Currently, most of the crude the company processes are from West Africa and Asia-Pacific, Purba said. "We want to diversify and seek grades which are more valuable and suitable for our refineries," he added.

Some of the new grades Pertamina has tested at its refineries include: 600,000 barrels of Gabon's Rabi crude at its 348,000 b/d Cilacap refinery; 600,000 barrels of Australia's Van Gogh crude at its 125,000 b/d Balongan refinery; 550,000 barrels of Congo's Coco crude for its 260,000 b/d Balikpapan refinery; and 400,000 barrels of Chad Republic's Doba crude for its 170,000 b/d Dumai refinery, Purba said.

This was the first time the Dumai refinery processed a crude other than Minas and Duri, he added.

Pertamina is also planning to process 950,000 barrels of Iranian Light crude at the Cilacap refinery this month, he said, adding that if the crude runs well, the company will use it as an alternative feedstock.

Indonesia's crude demand has risen by almost 5% year on year to an average 872,000 b/d so far this year.

Pertamina estimates that crude demand will grow at least 2% per year while upstream output is dwindling and this will raise the country's reliance on imports going forward.

--Anita Nugraha, newsdesk@spglobal.com

--Mriganka Jaipuriyar, mriganka.jaipuriyar@spglobal.com

--Edited by Irene Tang, irene.tang@spglobal.com