Oiltanking Sells Indonesia Storage, Blames Subsidies

Independent tank operator Oiltanking said on Tuesday it had sold a 289,000 cubic metre storage facility in Merak, Indonesia, blaming oil subsidies for making the business unprofitable.

Oiltanking, the world's second-largest independent tank storage provider for oil products, chemicals and gases, sold the facility in August to local companies active in the oil- and coal-shipping industry, a spokeswoman told Reuters in an email.

The Merak terminal was designed to serve as an independent storage facility for international players in the growing import market for petroleum products, she said.

"Due to the subsidies on petroleum products and other market developments, we are unable to capture these volumes and consequently unable to meet the business model of Oiltanking," she added.

"The resulting loss-making business is not sustainable for the company."

She declined to disclose the selling price or any other details on the sale, including the buyers. All parties have signed non-disclosure agreements, according to a source close to the matter.

Indonesian fuel prices are some of the cheapest in the region because of subsidies, althought these cost the government around $20 billion a year, 20 percent of its total budget.

Oiltanking is a subsidiary of Marquard & Bahls AG, a privately owned German company.

It is constructing a 760,000 cubic metre terminal in Karimun, Indonesia, for the storage and handling of both clean petroleum products and black oil, and that is targeted to be commissioned by the end of 2015, the spokeswoman said.

That facility, located nearer to Singapore than Merak, is designed to service the Singapore trading and shipping hub.

In addition, a new business unit will be incorporated in Jakarta for business development purposes.

With Singapore unable to commit more land to commercial storage to serve trading companies, Indonesia and Malaysia have stepped up their investments in oil and chemical storage infrastructure and could offer a combined 8 million cubic metres by 2016, around a third of Singapore's 23 million cubic metres.

Some traders have questioned the need for so much capacity, saying there is not enough demand for oil products to absorb it.

Storage operators have said rising quantities of crude oil and products passing through the region to meet the appetite of Asia's growing economies will support the demand for tanks over the longer term.

By Jessica Jaganathan