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Energy Policy Review INTERNATIONAL E NERGY AGENCY Please note that this PDF is subject to specific restrictions that limit its use and distribution.The terms and conditions are available online at www.iea.org/Textbase/about/copyright.asp Energy Policy Review of INDONESIA Energy Policy Review of I NDONESIA The Republic of Indonesia is the world’s fourth most populous nation and a developing economy in transition. It is now consolidating its democratic government and implementing governance and financial reforms. After the Asian financial crisis of 1997-99, Indonesia’s economy has returned to a strong and stable 5-6% annual growth. Over recent decades, its resource wealth, openness to trade and investment, and a strategically favourable location in East Asia have made Indonesia a key global exporter of oil, gas, and coal. However, Indonesia now faces the serious challenge of fast-rising domestic energy demand with declining oil and gas production. The country’s energy policy makers are looking closely at domestic energy requirements and best policies to meet these needs. This includes moving prices towards international parity, improving the energy sector investment climate, and developing electricity generation capacity. While some very difficult decisions have been made over recent years, many challenges remain. Energy Policy Review of Indonesia assesses the country’s major energy issues. The study was conducted by a team of IEA member country specialists – an approach which has also been used for national and sectoral reviews of other non-IEA countries, including Angola, China, India, Russia, and Ukraine, as well as the Western Balkan region. The Review offers an analysis of Indonesia’s energy sector, with findings and recommendations that draw on experience in IEA member countries. Six areas are suggested for priority attention, including progressive reduction in fuel and electricity subsidies, better implementation of policy, improving clarity of the investment framework, helping the energy regulators do their job more effectively, and harnessing a sustainable development agenda particularly renewable energy and energy efficiency. 100€ (61 2008 25 1 P1) ISBN 978-92-64-04828-7 INTERNATIONAL ENERGY AGENCY Energy Policy Review of INDONESIA 001-10.indd1-10.indd 1 224/10/084/10/08 16:42:3016:42:30 INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA) is an autonomous body which was established in November 1974 within the framework of the Organisation for Economic Co-operation and Development (OECD) to implement an inter national energy programme. It carries out a comprehensive programme of energy co-operation among twenty-eight of the OECD thirty member countries. The basic aims of the IEA are: n To maintain and improve systems for coping with oil supply disruptions. n To promote rational energy policies in a global context through co-operative relations with non-member countries, industry and inter national organisations. n To operate a permanent information system on the international oil market. n To improve the world’s energy supply and demand structure by developing alternative energy sources and increasing the effi ciency of energy use. n To promote international collaboration on energy technology. n To assist in the integration of environmental and energy policies. The IEA member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The European Commission also participates in the work of the IEA. ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of thirty democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States. The European Commission takes part in the work of the OECD. © OECD/IEA, 2008 International Energy Agency (IEA), Head of Communication and Information Offi ce, 9 rue de la Fédération, 75739 Paris Cedex 15, France. Please note that this publication is subject to specifi c restrictions that limit its use and distribution. The terms and conditions are available online at http://www.iea.org/Textbase/about/copyright.asp 001-10.indd1-10.indd 2 224/10/084/10/08 16:42:3216:42:32 FOREWORD - 3 FOREWORD Indonesia is a major player in the world energy economy. It is the world’s leading steam coal exporter, a substantial LNG exporter, and, until recently, an oil exporter. Indonesia is also the fourth most populous nation and a developing economy with annual growth on a stable path of 5-6%. It is undergoing a demanding evolution from a central planned system to a democratic community with advancing market principles. Such transitions take time, and I commend the government and the people of Indonesia on the breadth of change: there is now a palpable sense of openness, confidence and interest that was not there just several years ago. I am delighted and honoured that the International Energy Agency was invited by H.E. Dr Purnomo Yusgiantoro, Minister of Energy & Mineral Resources of Indonesia, to undertake this energy policy review of Indonesia. Sound energy policies and their effective implementation are the basis for economic development. The International Energy Agency (IEA) conducts in-depth energy policy reviews of each of our 28 member countries every five years. This is done to strengthen national policy and to share best practice policy and programme experiences. In recent years, the IEA has been asked to undertake reviews of national and sectoral energy policy of non-IEA countries, including Angola, China, India, Russia, and Ukraine, as well as the Western Balkan region. For the Energy Policy Review of Indonesia, the IEA worked in collaboration with the Ministry of Energy and Mineral Resources. This Review comprehensively examines all parts of the energy sector in Indonesia, and provides findings and policy recommendations for each. Past energy policy decisions and slow action to correct them have led to the serious longer-term energy challenges confronting Indonesia today. In the Executive Summary, six areas are suggested for priority attention. These cover the progressive reduction in fuel and electricity subsidies, better implementation of policy, improving clarity of the investment framework, helping the energy regulators do their job more effectively, and harnessing a sustainable development agenda, particularly renewable energy and energy efficiency. I must add that when the Review Team held its discussions with the government of Indonesia and stakeholders, it became clear that the Team’s findings would not be new. Most government policy makers and industry specialists have been thinking similarly but have not had sufficient support to make changes. I hope that this Review provides both a strong “third voice” to support their future work, and, importantly, contributes to international understanding of Indonesian energy policy and the potential for future trade and investment. Finally, the IEA is an energy policy think tank with more than 30 years of experience. Through our outreach programmes to key non-IEA countries, such as Indonesia, we hope to engage in dialogue and sharing of international best practice in energy policy. © OECD/IEA, 2008 001-10.indd1-10.indd 3 224/10/084/10/08 16:42:3216:42:32 4 - ENERGY POLICY REVIEW OF INDONESIA I am very pleased that the IEA and the Ministry of Energy and Mineral Resources have already mapped out a programme of work for the coming two years and I hope this is the presage of a close and outcome-orientated working relationship. Nobuo Tanaka Executive Director This publication has been produced under the authority of the Executive Director of the International Energy Agency. The views expressed do not necessarily reflect the views or policies of individual IEA member countries. © OECD/IEA, 2008 001-10.indd1-10.indd 4 224/10/084/10/08 16:42:3316:42:33 ORGANISATION OF THE REVIEW AND ACKNOWLEDGEMENTS - 5 ORGANISATION OF THE REVIEW AND ACKNOWLEDGEMENTS The IEA Energy Policy Review of Indonesia is based on the findings and recommendations of the Review Team of energy officials and specialists during their Review mission to Jakarta in summer 2007. The Review Team members were drawn from IEA Member Country governments and associated organisations. The Policy Review also reflects comments that the Secretariat subsequently received from the Government of Indonesia (GOI) in late 2007 and April 2008, and subsequent review of the draft by IEA and external experts. Ministry of Energy and Mineral Resources of Indonesia The IEA Indonesia Energy Policy Review 2007 was undertaken in partnership
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