CAPITAL BUDGETING EVALUATION OF THE LPG PRODUCTION OPTIMIZATION PROJECT AT PT BADAK NGL
Since the massive success of kerosene conversion to LPG initiated in 2007, Indonesia has become a large LPG consumer. Unfortunately, nowadays, the country has limited domestic LPG production and relies on LPG imports. As an SOE appointed to operate and maintain the Bontang LNG plant and handle fe...
Saved in:
| Main Author: | |
|---|---|
| Format: | Theses |
| Language: | Indonesia |
| Subjects: | |
| Online Access: | https://digilib.itb.ac.id/gdl/view/63235 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Since the massive success of kerosene conversion to LPG initiated in 2007, Indonesia has become a
large LPG consumer. Unfortunately, nowadays, the country has limited domestic LPG production and
relies on LPG imports. As an SOE appointed to operate and maintain the Bontang LNG plant and handle
feed gas from East Kalimantan Gas Producers, PT Badak NGL proposed a project to optimize domestic
LPG production in the facility. This initiative will help the Government reduce imports and benefit the
Gas Producers to extract even more LPG and potentially maximize their revenue.
Because of its unique business scheme, PT Badak NGL operates, maintains, and modifies the Bontang
LNG plant with an “at cost” mechanism and becomes part of the LNG cost of sales of Gas Producers.
As a result, East Kalimantan Gas Producers are the ones who will decide to either accept or reject the
project proposal. Therefore, this study aims to justify the proposed LPG production optimization project
investment from the financial point of view with proper capital budgeting and risk assessment.
The most likely scenario’s capital budgeting calculation concludes that the proposed project gives
economic benefit with an estimated NPV of 11.6 million USD, IRR 67%, and DPBP 1.2 years. However,
the study also indicates that the project economy is highly affected by independent factors outside the
company’s control, such as commodity prices and feed gas rate and composition. A careful risk analysis
using Monte Carlo simulation shows that, despite the sensitive character of the project, the project still
has a success probability as high as 83.2%. If the company considers using alternative electric sources
with a lower fixed cost scheme, it can enhance project economic performance and increase project
feasibility success rate up to 93.1%. |
|---|