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Indonesia refinery fires demand an independent investigation

Source
East Asia Forum - June 12, 2021

Maxensius Tri Sambodo – Indonesia's Balongan refinery, one of six operated by the state-owned oil firm Pertamina, contributes about 12 per cent of Indonesia's petroleum refining capacity, or 125,000 barrels a day. The net profit margin of Balongan was some US$225 million in 2017, equivalent to about 4.3 per cent of Pertamina's total profits.

It is therefore not an insignificant problem that the Balongan refinery has caught fire three times in recent years – in 2007, 2019 and most damagingly in March 2021. According to Pertamina, four of the refinery's 72 tanks caught fire. Though three were mostly empty, one held a significant volume of oil. As a result of the small volume of oil in the tanks, the refinery and its surroundings were spared even greater damage than might otherwise have occurred.

Because of its technological sophistication and location, the Balongan refinery is strategically important to Indonesia's economic activity, sustainability and energy security. With the most advanced technology, the Balongan refinery produces high-value oil products and reduces Indonesia's dependency on imported refined oil products. The refinery's complexity also enables it to produce a wide variety of oil products with relatively low carbon emission factors, contributing to sustainable development.

Balongan provides oil supplies for a geographical region home to Indonesia's largest concentration of economic activity: the Jakarta capital region, Banten province and regions in West Java province. Pertamina was nevertheless able to resupply the region from elsewhere and claimed that fire in Balongan did not affect the supply of refined oil fuels in the region.

The latest fire at the Balongan refinery is still under investigation. Speculation has focused on possible causes including lightning strikes, human error and technology failure. Pertamina has formed an internal team and is cooperating with police. The fire has attracted attention from many parties. The Ministry of Energy and Mineral Resources sent oil and gas inspectors on location, while Indonesia's Ombudsman conducted an investigation from the point of view of public service delivery.

A week after the incident, the House of Representatives committee responsible for overseeing energy visited Balongan. It delivered three notes regarding the accident. The first examined the proximity between a public road and the location the fire ignited – a potential safety risk for road users. The second considered the danger to residential dwellings. The third considered the need to improve the refinery's security system.

The Balongan accident has had a major social impact on the surrounding community. More than a thousand people fled, thousands of homes were affected and dozens of people were injured. Four died after being directly affected by the fire.

The Balongan accident will likely affect the ongoing risk assessment of Pertamina's other investments, such as its Petrochemical Complex in Balongan, a total investment worth about Rp 100 trillion (US$7 billion). This project is a joint investment between Pertamina and a Taiwanese investor, the China Petroleum Corporation. Also at Balongan, teams are preparing a Refinery Development Master Plan with capacity of 269 million barrels of oil per day and even more technological complexity than the existing Balongan refinery. The first phase of the project plan was set to be finalised in 2022, but the March 2021 fire may stymie investors' hopes of Balongan becoming Asia's leading refinery by 2025.

The recent fire has raised questions about the quality of governance in Indonesia and its link to safety. Balongan's 2017 Sustainability Report indicated that Indonesia's corporate governance performance declined between 2013 and 2017 from 96.6 per cent to 90.68 per cent. A report from the Ombudsman indicated that Pertamina has become less responsive to complaints from the surrounding community. On 28 March 2021, the day before the fire, locals had smelled a strong odour from the refinery, but Pertamina did not pay attention to residents' complaints at that time.

Given its importance to Indonesia's economy and its role in Indonesia's future energy security ambitions, Balongan is an important national asset for Indonesia and must be secured against future losses from accidents. Unfortunately, no one has been able to reveal the cause of the refinery fire.

The Balongan fire needs to be investigated further with the results published transparently and disclosed to affected parties. Considering President Joko Widodo's plan to develop six new oil refineries by 2024, the Ministry of Energy and Mineral Resources must set up an independent team to explain the incident. The findings of an independent investigation should then form the basis for correction actions to enhance Pertamina's health, environment, safety and security (HESS) standards in line with international best practice.

[Maxensius Tri Sambodo is a Researcher at the Economic Research Center in the Indonesian Institute of Sciences (Lembaga Ilmu Pengetahuan Indonesia, LIPI).]

Source: https://www.eastasiaforum.org/2021/06/12/indonesia-refinery-fires-demand-an-independent-investigation

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