No Playing! This is the Economic Potential for Domestic Oil and Gas Downstreaming

JAKARTA – Downstreaming is one of the government’s efforts to increase added value in the country. As is the case in the mining sector, downstreaming in the oil and gas sector also offers extraordinary economic benefits for Indonesia.

As revealed in the ReforMiner Institute’s records, the downstreaming and existence of the oil and gas refinery industry has been recorded as providing economic benefits and has been the main driving force since the beginning of development in Indonesia. The existence of oil and gas refineries is one of the reasons the government can implement a subsidized fuel oil (BBM) policy which then becomes a catalyst for economic growth.

“Based on data and information, the implementation of oil and gas downstreaming which will be implemented in 2025-2040 is targeted to bring in a total investment of around IDR 1,053 trillion, distributed over IDR 314.71 trillion for petroleum downstreaming and IDR 771.70 trillion for natural gas downstreaming,” said Executive Director of the ReforMiner Institute Komaidi in the note, quoted on Wednesday (13/3/2024).

The oil and gas downstreaming which will be implemented in 2025-2040, he explained, is projected to have the potential to have a positive impact on the performance of the Indonesian monetary sector and the stability of the rupiah exchange rate. “The implementation of oil and gas downstreaming is projected to save the use of foreign exchange imports of around USD 73.30 billion or the equivalent of IDR 1,134 trillion,” he said.

One form of oil and gas downstreaming is the refinery industry. According to Komaidi, until now the oil and gas refinery industry still plays an important role in the Indonesian economy. Based on the data, he explained, the oil and gas refinery industry is linked to around 93 supporting economic sectors as input suppliers and with 183 user economic sectors that use production results from the refinery industry.

The important role of the refinery industry can also be seen from the allocation of production output. Around 67.25% of the refinery industry’s output is allocated as input or raw materials for around 183 user economic sectors. Meanwhile, around 32.75% of the refinery industry’s output is allocated to meet final demand or consumption that is not related to the production process.

Based on the Input-Output (IO) model analysis, explained Komaidi, the refinery industry has a total economic multiplier effect value from linkages with supporting sectors and users of 9.1604. “This means that if there is an additional investment of IDR 1 trillion in the refinery industry, the total economic benefits that can potentially be created in the entire economic structure
Indonesia is around IDR 9.16 trillion,” he said.

He added that the IO model analysis also found that the oil and gas refinery industry was linked to most of the formation of Indonesia’s gross domestic product (GDP). The refinery industry supporting sector is recorded to be related to around 67.48% of GDP formation, while the refinery industry user sector is related to around 99.71% of Indonesia’s GDP formation. Downstreaming and business prospects for the oil and gas refinery industry are projected to remain quite good and large. This is related to the current condition where around 70% of Indonesia’s petrochemical needs and 32% of Indonesia’s fuel needs are still met by imports.

Komaidi added that oil and gas downstreaming also has the potential to provide positive benefits to Pertamina’s financial performance and state finances. Data shows that Pertamina’s refinery and petrochemical segment revenue in 2022 is reported to be around IDR 572 trillion. Meanwhile, the contribution of Pertamina’s refinery and petrochemical segment to state revenues through tax payments (PPh 22 Imports, VAT & PPnBM, Customs and Excise, and Regional Taxes) in 2022 was recorded at IDR 49.72 trillion.

Considering the large economic benefits of downstreaming, Komaidi encouraged the government to formulate optimal policy support for the development of the refinery industry in Indonesia. “For this reason, refinery development policies in other countries, such as through providing investment and tax incentives, or even playing a direct role as implementer in refinery construction, could be considered for adoption,” he said.

(fjo)