Indonesia’s state oil and gas firm PT Pertamina is considering legal action against aromatics company PT Trans-Pacific Petrochemical Indotama (TPPI) over a US$300 million debt stemming from a 2004 product swap agreement. This decision has been arrived at after several failed measures to collect the money by Pertamina.
In 1997, a financial crisis was instrumental in halting construction at TPPI’s Tanjung Awar-awar, East Java refinery. To complete this unfinished work, TPPI had to secure in 2004, financial commitments amounting to US$600 mln from JBIC and other private Japanese banks. For this, Pertamina was asked to provide a guarantee, that it provided through a product swap that comprised of Pertamina supplying low-sulphur waxy-residue (LSWR) fuel oil to Japan’s Mitsui, without payment. In exchange, Mitsui pays off the banks for TPPI’s debts. For this debt settlement, TPPI provides Pertamina middle distillate products (MDP), including kerosene. Pertamina is also a supplier of oil condensate to the refinery. Recent news indicates that the swap ran smoothly until the Q3-2007, when TPPI stopped supplying MDP products to Pertamina. This could lead to possible legal recourse by Pertamina.
After the companies arrived at the swap-agreement, Pertamina holds 15% stake in TPPI shares, PT Tuban Petrochemical Industries has a controlling stake of 59.5%, and the balance 25.5% stake is held by foreign shareholders.