Summary of Indonesia's Energy Sector Assessment
Total Page:16
File Type:pdf, Size:1020Kb
SUMMARY OF INDONESIA’S ENERGY SECTOR ASSESSMENT Pradeep Tharakan No. 09 ADB PAPERS ON INDONESIA December 2015 Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2015 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org; openaccess.adb.org Some rights reserved. Published in 2015. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. Unless otherwise noted in this publication, “$” refers to US dollars. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/ licenses/by /3.0/igo/. By using the content of this publication, you agree to be bound by the terms of said license as well as the Terms of Use of the ADB Open Access Repository at openaccess.adb.org/termsofuse This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. The ADB Papers on Indonesia is an ongoing, quick-disseminating, informal publication whose titles could subsequently be revised for publication as articles in professional journals or chapters in books. The series is maintained by the ADB Indonesia Resident Mission based in Jakarta, Indonesia. CURRENCY EQUIVALENTS (as of 19 August 2015) Currency unit – Rupiah (Rp) Rp 1.00 = $.000072 $1.00 = Rp 13,850.00 ABBREVIATIONS ADB Asian Development Bank AFD French Development Agency ASR Assessment, Strategy, and Road Map ATAM Automatic Tariff Adjustment Mechanism BAPPENAS National Development Planning Agency BAU Business-as-usual BOE Barrels of Oil Equivalent BP MIGAS Oil and Gas Upstream Regulator and Implementing Agency CCS Carbon Capture & Storage CPS Country Partnership Strategy (ADB) DIPA-SLA Government Disbursement Approval DMO Domestic Market Obligation DSM Demand Side Management EIA U.S. Energy Information Administration EOR enhanced oil recovery FIT feed-in tariff FTP Fast Track Program GDP Gross Domestic Product GHG Greenhouse Gas GW gigawatt HVDC High-Voltage Direct Current IBRD International Bank of Reconstruction and Development IEA International Energy Agency IFI international financial institution IPP independent power producer IRSDP Infrastructure Reform Sector Development Program JAMALI Java, Madura, Bali JICA Japan International Cooperation Agency JBIC Japan Bank for International Cooperation KEN National Energy Policy KfW German Development Corporation km kilometer LNG Liquefied Natural Gas MEMR Ministry of Energy and Mineral Resources MOEF Ministry of Environment and Forestry MOF Ministry of Finance MSOE Ministry of State-Owned Enterprises MW megawatt NAMA Nationally Appropriate Mitigation Action NGO Non-Governmental Organization NEC National Energy Council NRE new and renewable energy NTB West Nusa Tenggara NTT East Nusa Tenggara PGN PT Perusahaan Gas Negara PLN PT Perusahaan Listrik Negara (State Electricity Corporation) PPA Power Purchasing Agreement PSC Production Sharing Contract PV Photovoltaic RIKEN National Energy Conservation Masterplan Rp Indonesian Rupiah RPJMN National Medium-Term Development Plan RPJPN National Long-Term Development Plan RUKN National Electricity Development Plan RUPTL Long-Term Electricity Development Plan SKK MIGAS Special Task Force for Upstream Oil and Gas Business Activities SLA Sub-Loan Agreement SNI Indonesia National Standard SOE State-Owned Enterprise tcf trillion cubic feet toe ton of oil equivalent UNFCCC United Nations Framework Convention on Climate Change Wp Watt peak WTE Waste-To-Energy NOTE In this report, “$” refers to US dollars. INDONESIA ENERGY SECTOR ASSESSMENT I. SECTOR ASSESSMENT: CONTEXT AND STRATEGIC ISSUES A. Introduction 1. This energy sector assessment reviews the state of the energy sector of the Republic of Indonesia. Consistent with the government's plans and strategy The ASR is a working paper based on a systematic review of Indonesia's energy sector and consultations with the government and other development partners. B. Overall Sector Context 2. Indonesia is a vast archipelago comprised of 17,508 islands which stretch over 5,000 kilometers (3,100 miles) across Southeast Asia and Oceania. Indonesia shares land borders with Papua New Guinea, Timor Leste, and Malaysia, and maritime borders with Singapore, the Philippines, and Australia. With over 252 million inhabitants in 2014, Indonesia’s large and diverse population makes it the fourth most populous country in the world. Over half of the country’s population lives in the Java- Bali region, while the rest is spread across Sumatra, Sulawesi, Kalimantan, Nusa Tenggara and Maluku, Papua, and about 6,000 other smaller inhabited islands. Economic activity is mostly focused in the Java-Bali region. The country’s island geography make transportation and service provision challenging in outlying provinces. 3. Indonesia’s economy is the largest in Southeast Asia, with a gross domestic product (GDP) estimated at $878.3 billion in 2013. The country has experienced steady growth emerging from the Asian financial crisis of 1997-1999, averaging a stable 5-6% annual growth rate.1 The strength of Indonesia’s economy was formerly based on its considerable oil exports, which drove economic growth in the 1970s and 1980s. Over time Indonesia is transitioning from an export economy into one more supported by domestic manufacturing and investment, particularly after becoming a net oil importer in 2004. As of 2013, the economy’s primary sectors were manufacturing (24%); agriculture (14%); trade, hotel and hospitality (14%); mining and quarrying (11%); construction (10%); government and private services (11%); finance, real estate, and business services (8%); transportation and communication (7%); and electricity, gas and water supply (1%).2 4. Economic growth has played a role in poverty reduction by creating employment opportunities and increasing public expenditures in the areas of health, education and infrastructure. Using the official government definition of the national poverty line as Rp 275,779 ($21.20) per month, the government estimates that 11.47% of Indonesians are living in poverty.3 This figure has fallen from 23.4% in 1999, yet still represents 27.6 million people given Indonesia’s large overall population. These many millions of households at or near the poverty line are particularly vulnerable to economic or natural shocks, with estimates that more than a quarter of all Indonesians had moved into or out of poverty at least once between 2008 and 2010.4 1 After a long hiatus, in 2012, Moody’s returned the country’s rating to investment status. The country is currently rated Baa3 by Moody’s, BB+ by Standard and Poor’s and BBB- by Fitch. 2 Badan Pusat Statistik (2013). 3 Badan Pusat Statistic (September 2013). 4 World Bank, Sustainable Energy for All (2012). 6 5. As a large middle-income country with a growing economy, a critical component of Indonesia’s future strength will be its ability to harness and manage sustainable sources of energy. If the Indonesian economy continues to grow at its current rate, Indonesia’s Ministry of Energy and Mineral Resources (MEMR) estimates that domestic demand for energy will also rise by around 7% per year, with electricity demand alone projected to nearly triple between 2010 and 2030. 1. Energy resources 6. According to MEMR, Indonesia has coal resources at around 120.5 billion tons, proven oil resources at around 3.69 billion barrels, and proven natural gas reserves at around 101.54 trillion cubic feet.5 This translates into about 23 remaining years of oil reserves, 59 years of gas, and 146 years of coal at current production rates. Indonesia’s renewable energy sources are also considerable. The country is endowed with significant potential for hydropower (75,000 MW), micro/mini hydropower (1,013 MW), solar (4.80 kWh/m2/day), biomass (32,654 MW), and wind (3-6 m/s), and holds 40% of the world’s geothermal reserves (28,000 MW).6 2. Energy balance 7. According to MEMR, Indonesia’s total primary energy supply in 2013 was about 1.61 billion barrels of oil equivalent (BOE).7 The majority of Indonesia’s primary energy supply comes from fossil fuels: oil (46.08%), coal (30.90%), and gas (18.26%).8 The share of other renewable energy resources in the energy mix was below 5%, mostly through hydropower (3.21%), geothermal power (1.15%), and biofuel (0.40%). It is also important to note that the use of traditional biomass is prevalent for basic cooking and thermal purposes among millions of rural households in Indonesia. According to MEMR data, Indonesia’s final commercial energy consumption in 2013 was 1.12 billion BOE. This figure has increased by nearly 40% since 2001.9 Share of final energy consumption is divided into industry (42.12%), households (11.56%), transportation (38.80%), commercial use (4.25%), and other sectors (3.26%).10 3. Energy demand forecasts 8. The government’s overall strategy for its energy sector is outlined in Presidential Decree No. 5/2006 on National Energy Policy (Kebijakan Energi Nasional, or KEN) which emphasizes diversification, environmental sustainability, and maximum use of domestic energy resources.