Mindful of the strategic importance of the petrochemical sector, the Industry Ministry says it will prioritize the development of three large, integrated petrochemical clusters in East and West Java, and Kalimantan.
These areas have hosted a number of major petrochemical plants since the mid-1990s.
"Our focus will be on expanding the upstream sector to secure supplies to downstream industries," Benny Wahyudi, the ministry's director general of agro, forestry and chemical industries, said Wednesday.
"We aim to develop each cluster as an integrated industrial zone where all the necessary support industries will also be present," he said.
The development of the upstream industry has slowed in recent years, with many planned expansion projects delayed because of the economic crisis. Slower growth in the upstream sector has, in turn, led to supply shortages in downstream industries, such as plastics and synthetic fiber producers.
While the local annual demand for ethylene -- a major raw material in plastic production -- stands at 1.3 million tons, the nation's sole ethylene producer, PT Chandra Asri Petrochemical Center, only has the capacity to supply 520,000 tons.
Petrochemical firms forecast that domestic demand for their products is set to grow by at least 10 percent annually.
With a population of 220 million, Indonesia represents a lucrative market for downstream petrochemical products, including polymers and fibers.
The government also says that a delayed aromatic products project in Tuban, East Java, is set to restart. The company, PT Trans Pasific Petrochemical Indotama, will commence operations in June 2006 and produce up to 1.06 million tons of aromatic products, such as paraxylene, benzene, toluene, orthoxylene, per annum.
In addition, it will also produce up to 1.06 million tons per annum of light naphtha, an important raw material for ethylene.
The development of the project, which is owned by Tuban Petrochemical Pte., Japan's Nissho Iwai and Itochu Corp and Tirtamas Majutama, was put on the back burner in 1998 as a result of the economic crisis. The Japan Bank for International Cooperation has provided financial support of US$400 million for the restart of the project.
Elsewhere, Indonesian Plastics Producers Association (Inaplast) chairman Didik Suwondo said the East Kalimantan petrochemical cluster should be developed as a natural gas-based production center for ethylene.
Didik explained that the price of gas-based ethylene would be 30 percent cheaper than that made from light naphtha.
"If we could develop more gas-based ethylene crackers, the downstream industries would benefit from more competitive prices," he said.
The Jakarta Post, Jakarta