By Lance Jackson —
It has been a tumultuous first few weeks for Indonesia’s newly appointed Minister of Energy and Mineral Resources Ignasius Jonan. Jonan did not even get a week to settle into his post before the government announced that only 75 percent of the government’s flagship electricity initiative would be completed on schedule. This plan aims to increase electricity production 35 gigawatts (GW) by 2019. Just two days before the delay was announced, Jonan promised he would “walk the talk” on prioritizing the 35 GW plan.
Even though Jonan has very little experience in the energy sector, he did previously serve as the minister of transportation. After opposing President Joko Widodo on several key transportation policies, Jonan was removed in a cabinet reshuffle in late July. His reappointment was unexpected, even for Jonan, who said he was notified only two and a half hours before the appointment was announced.
Jonan will be the fourth person to head the ministry in four months. Arcandra Tahar replaced Sudirman Said as minister of energy in the July cabinet reshuffle. After less than a month Tahar was removed from the post when it was discovered he held a U.S. passport, which invalidated his Indonesian citizenship. Jonan’s immediate predecessor was Luhut Pandjaitan, the coordinating minister for maritime affairs, who was appointed acting minister of energy after Tahar’s departure. Strangely enough, Tahar will rejoin the Ministry of Energy and Mineral Resources as the deputy minister. Keeping Tahar, who has a PhD in ocean engineering and over 16 years of experience in the gas and oil industry, makes sense considering Jonan’s lack of energy experience.
To his credit, Jonan also has an impressive record of achievement. Most notably, as the CEO of Indonesia’s national railway, he restored the floundering enterprise to profitability. His familiarity with tough challenges will come in handy, as the task he inherits is an unenviable one. Indonesia’s recent energy policy has faced a minefield of setbacks, false starts and reboots. The initial delay of the 35 GW plan was caused by government indecision regarding the amount of power to be generated by renewable sources. In the initial plan, 65 percent of was to be generated by coal fired power plants. However, the plan was updated several times after Widodo pledged to support renewable energy during the 2015 UN climate conference. For now, renewables will make up 20 percent of the fuel mix while reducing coal’s share is reduced to 50 percent by 2025.
In managing the nation’s fuel mix for electricity generation, Jonan will be walking a fine line between competing national interests. Indonesia is the world’s largest exporter of thermal coal. However, between 2011 and 2015 coal prices fell 70 percent. Subsequently, Indonesian coal producers were relying on the 35 GW plan to bolster domestic demand. Indonesia’s national electricity company, known as PLN, was expected to purchase as much as 80 million tons of coal, accounting for four-fifths of domestic consumption. Delays and the scaling back of coal use in the 35 GW plan will definitely affect these projections. It will be up to Jonan to avoid any further delays and find a stable balance between Indonesia’s environmental responsibilities and industrial concerns.
In fact, providing stability should be one of Jonan’s most pressing tasks. Restoring policy consistency will be the first step in attracting the investment needed to increase electricity production in Indonesia. Wood Mackenzie, an energy consultancy, estimates that the 35 GW plan will require $80 billion in investment. Investors and project developers need assurances that the government is going to follow through on its proposals.
However, policy disagreements between the Ministry of Energy and PLN have shaken investor confidence. The two organizations have an ongoing disagreement over several projects. A primary example is the Sumatra-Java inter-island high-voltage direct current cable, which will bring power from coal-fired power plants in Sumatra to the more populous island of Java. The ministry is backing the project, while PLN questions the project’s economic feasibility. The fact that the disagreement has been very public compounds the problem. Earlier this year, as reported by the Jakarta Post, the previous energy minister, Sudirman Said, urged PLN to “Stop being a disobedient child.”
The media also gave a substantial amount of coverage to a tiff between Said and Pandjaitan, before he became the acting energy minister. The two disagreed on whether the processing facility for the Masela gas block should be located onshore or offshore. Ultimately, Widodo sided with Pandjaitan and made an about-face on the government’s original plan because he felt the added expense of an onshore facility would be offset by the benefits it brings to locals on the isolated Tanimbar Islands.
In addition to the programs the government is already introducing, like a better coal pricing system for coal fired plants and eliminating taxes on gas and oil exploration, developing Indonesia’s energy sector will also depend on Jonan’s ability to provide a rudder for the country’s schizophrenic energy policy. To get the ball rolling on the 35 GW plan Jonan will need to find a compromise that gets the Ministry of Energy and PLN on the same page. Moreover, if Jonan can minimize abrupt changes to energy policy, it will go a long way in restoring investor confidence in the 35 GW plan.