Chinese Chemical Companies Await Beijing's Approval for $10 Billion Refinery Project in Indonesia

China: Chinese polyester fiber manufacturers are currently seeking approval from the Beijing government to construct a $10 billion refinery and petrochemical complex on the Indonesian island of Borneo. The proposed complex, led by Tongkun Group, is part of China's increased efforts to secure major investments in Southeast Asia, as outlined in President Xi Jinping's Belt and Road Initiative.

Tongkun and Xinfengming Group are planning to build a refinery-petrochemical facility in North Kalimantan province, with the intention of producing feedstocks for chemical fiber. Complex would consist of a 200,000 barrels per day refinery and an 800,000 tonne per year Ethylene unit which could be expanded at a later stage. The move by China comes as they restrict the authorization of new domestic refineries to reduce Carbon emissions and address a fuel supply glut.

A new project is under feasibility studies by Tongkun Group, which is planned to be a part of an industrial park in North Kalimantan. This region recently witnessed a ground-breaking ceremony for a $2.6 billion hydropower project, with the aim of attracting companies in the fields of Aluminium, battery, and electric vehicles.

The Tongkun's project is envisioned to include the production of Paraxylene, supplying feedstock for polyester fibres, in China. The company has reportedly sought approval from China's National Development and Reform Commission (NDRC) for the project. While the Indonesian refinery project is at an early planning stage, Tongkun and Xinfengming investor relations officials declined to give further comments.

During the G20 summit in Bali last November, leading officials from two Chinese companies had briefed President Joko Widodo on their investment plans in North Kalimantan. Recently, Luhut Pandjaitan, Indonesia's minister of maritime and investment affairs, met with newly appointed NDRC chairman Zheng Shanjie and Chinese Foreign Minister Qin Gang in Beijing to discuss Chinese investment in the country. The Indonesian government is encouraging increased Chinese involvement in the development of the new capital, the North Kalimantan industrial park, and investment in renewable energy and new energy vehicles.

Tongkun and Xinfengming, are planning to invest in a refinery project in Indonesia, despite potential scrutiny from Beijing due to the country's general cap on capital outflows since 2018. Unlike state-owned Chinese oil giants, Sinopec and PetroChina, Tongkun and Xinfengming are non-state-owned companies looking to expand globally into refining and produce their own feedstocks for polyester.

This marks their first overseas project and comes after refinery plans in Indonesia by oil producers Saudi Arabia, Kuwait, and Iran have failed to materialize. For instance, Pertamina, Indonesia's state-owned oil company, was unable to agree on projects with some of those partners, and the Indonesian government put the Bontang refinery project that Iran was interested in on hold.

In 2019, Hengyi Petrochemicals, a privately-owned Chinese polyester manufacturer, initiated operations of a comparable complex in Brunei. They have plans to invest $13.6 billion in expanding their facilities. China has committed to investing $39 billion in the country, with contributions from chemical group Rongsheng Petrochemicals and automaker Geely.