Indonesia and the acute energy crisis
  Tjokorda Nirarta Samadhi and Almo Pradana 
  Director and energy manager of WRI Indonesia 

Jakarta | Fri, October 7 2016 | 01:57 pm 
 Heavy equipment and trucks pass through the site of coal mining field in East 
Kalimantan on Aug. 19.(Antara/Wahyu Putro A) 
The appointment of Arcandra Tahar as the energy and mineral resources minister 
signaled strongly that the focus of President Joko “Jokowi” Widodo had shifted 
back to oil and gas, as well as coal. 

This can be observed by several steps taken by minister Arcandra in his first 
20 days working, including extending Freeport’s license to export concentrates, 
resuming negotiations regarding the Masela block and Indonesia Deepwater 
Development (IDD) projects, as well as cancelling the launch of feed-in tariff 
(FIT) solar power.

Arcandra was removed from his position in early August following the revelation 
that he held US citizenship.

In the energy sector, many professionals and energy experts in both oil and 
gas, and renewable energy associations agree that the decline in oil prices in 
recent years has put pressure on economic growth, particularly in poor and 
developing countries that produce and export oil. 

On the other hand, there is an argument that Indonesia, as a developing country 
and importer of oil, with high energy needs, has benefited from this situation. 

However, this argument cannot be proven. The buying and selling price of oil 
may be lower, but the price for digging oil remains the same, if not higher. 

The geological complexity of where new oil can be found is also very high. 
Exploration costs of oil per barrel is too high even for a multinational oil 
company, causing massive layoffs by oil companies and the cessation of their 
operations in Indonesia. 

The President is aware that the sector is in jeopardy, especially given that a 
quarter of Indonesia’s economy comes from oil and gas. Investment in this 
sector has stagnated, starting from the development of the Masela block, an IDD 
project, to a number of refineries that are getting old and inefficient.

Even foreign investors are demanding more concessions and guarantees from the 
government. What needs to be avoided is for the President to try reviving the 
ailing sector with the same approach taken by his predecessors with failing 
results. It is valuable to see what had been done by other countries that 
experienced the same or worse situation to prevent Indonesia from repeating the 
same mistakes.

Venezuela relies heavily on hydroelectric power and uses petroleum as the main 
source of exports. Nearly 60 percent of its revenues are derived from the 
export of crude oil. 

When a prolonged drought takes place, the electricity from the hydropower in 
the country is not able to catch up with the increasing electricity demands. 
The fall in oil prices, worsened by inadequate policies for many years, made 
the economy of Venezuela collapse. 

In a similar situation, Nigeria, which relies 90 percent of its economy on 
crude oil exports, is facing various crises in the energy sector because of 
corruption and terrorism.

Similar to Indonesia, both countries are oil-producing developing countries 
with the ability to produce renewable energy. Venezuela has huge hydro energy 
potential, but cannot survive long dry seasons as a result of improper energy 
resource management. Nigeria is Africa’s biggest economy with high potential 
for solar energy, but the source of its energy mix is not diversified enough. 

Indonesia is fortunate that its economy is less dependent on the export of 
petroleum products. However, Indonesia should take immediate action to prevent 
the country from an energy crisis.

Indonesia needs to diversify the energy fuel mix for its power plants. The 
President must continue his commitment to incorporate more renewable energy 
sources in the 35,000 MW electrification program. Based on field observations 
in border areas and the outer islands where electricity is scarce, the lack of 
information and technology has led to low economic outcomes. 

To address this issue, an efficient electricity supply for the communities in 
those remote areas would be to use local-based energy, supported by local 
technology and networks of small-scale electrification, rather than building 
high voltage subsea transmission cables.

If the government is serious about combating corruption, the country must speed 
up the process of decarbonization of energy systems and move towards renewable 
energy. Development of clean, new and renewable energies, followed by the 
restructuring of the electricity sector such as system generation, transmission 
and distribution to be more open and competitive, has been shown to reduce 
corruption in the energy sector in many developed countries.

The combination of global trends such as increased climate change mitigation, 
collaborative bottom-up community-based efforts to improve the resilience of 
the environment and energy, as well as the affordability of renewable energy 
have created a golden opportunity to develop clean-energy technologies and 
reduce exposure to the increased social costs of fossil fuels. 

For example, the Dubai Electricity and Water Authority (DEWA) has proved that 
economic solar power (3 US cents per kwh) can beat fossil fuel power plants 
(4.5 cents per kwh), indicating that solar power has become more affordable. 
The availability of international funds after the Paris Agreement can be 
utilized by Indonesia to invest and make strides in the development of a clean 
technology sector and to seize the opportunity to accelerate the development of 
sustainable energy.

In the Bali Clean Energy Forum earlier this year, Indonesia committed to 
supporting the development of clean, new and renewable energy. Such development 
has huge potential not only for sustainability but also to provide long-term 
solutions to address the problem of energy security. This is the answer for 
Indonesia. The President should continue his support in the interest of 
Indonesia’s future.


Tjokorda Nirarta Samadhi is director and Almo Pradana is energy manager of WRI 

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