CAPITAL BUDGETING EVALUATION OF THE LPG PRODUCTION OPTIMIZATION PROJECT AT PT BADAK NGL

• Main Author: Sukma Dharmawan, Robby
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/63235
• Institution: Institut Teknologi Bandung

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%.