Candidates' energy policies

Hanan Nugroho ,  Jakarta   |  Fri, 06/19/2009 11:45 AM  |  Opinion

The ticket of presidential candidate Megawati Soekarnoputri and her running mate Prabowo Subianto has proposed the clearest energy plans: to build geothermal and hydroelectric plants to generate 10,000 MW, to build DME refineries, build 56-MTPA bio-ethanol plants (4 million hectares will be dedicated to growing sugar palms, which will create 24 million jobs).

The offer to add to the country's energy supply from cleaner and renewable sources is a good idea; however, it is risky due to our lack of experience in developing large-scale energy projects.

An important lesson from global success stories in developing alternative energies (Brazil with its "Pro-Ethanol" program, South Africa's coal liquefaction, Argentina's CNG, and Japan/Scandinavia with their renewables) is that the approach must be integrated, have a long-term vision and definitely requires full government commitment. We are now far from meeting these requirements.

Certainly Megawati and Prabowo will face challenges in the details and implementation, not just with the bio-methanol, but also with the 10,000-MW power plants.

Indonesia's geothermal potential is the world's largest (about 27,000 MW); it is clean, non-exportable, close to major electricity consumers, and the cost of building the power plants is not that expensive.

But we have so far developed only about 1,000 MW, constrained largely by a poor pricing policy, weak bureaucracy and inadequate incentives.

The plan to build large-scale hydroelectric plants seems unrealistic mainly due to the geographical mismatch and expensive social-environmental costs.

DME (dimethyl ether, CH3OCH3) is a promising energy as a substitute for LPG and other fuels. Japan has developed DME as aerosol propellant (in hair spray/deodorant), China is preparing to construct a 1-MTPA DME refinery, but we in Indonesia - despite having the reserves and experience in gas processing - have not put enough effort into entering the DME business.

During his presidency from 2004 to the present, Susilo Bambang Yudhoyono has been very productive in pushing through energy policies. Among these are Presidential Decree No. 5/2006 on National Energy Policy, Presidential Instruction No. 1/2006 on Provision and Utilization of Biofuel as Other Fuels, Presidential Instruction No. 22/2006 on Liquefied Coal as Other Fuels, and Presidential Instruction No.10/2005 on Energy Saving.

Government Regulation No. 59/2007 on Geothermal Business was also released, as well as the two important laws: Law No. 30/2007 on Energy and Law No. 4/2009 on Mines and Coal.

Despite the productive policies, it is not clear whether energy projects carried out during the Yudhoyono-Jusuf Kalla administration were based on official policies or more a response to the rising prices of oil.

The program of substituting kerosene and the development of coal-fired power plants (CFPP) to generate 10,000 MW were a creative answer to improving our dependency on oil as prices skyrocketed. Other projects (biofuel, coal liquefaction, etc.) were more euphoria than real solutions.

The Blueprint for National Energy Management 2005-2025 envisions a healthier Indonesian energy mix by 2025, and attempts to transform from the current state by increasing shares of coal, natural gas and renewables. As we approach the end of the Yudhoyono-Kalla reign, however, the blueprint has not been detailed into reasonable action plans on how we may achieve the targeted goals.

From the supply side, Yudhoyono and Kalla have been making contributions as shown by more and diversified energy available, but their demand side approaches have not produced any significant impacts.

Yudhoyono and his current running mate, Boediono, if elected may take advantage of several "reserves of energy policies" that Yudhoyono has produced before continuing them with proper energy project development.

Kalla made energy policy breakthroughs by making the switch from kerosene to LPG, pioneering the 10,000-MW CFPP program and by showing strong determination on the Indonesian natural gas industry. He also worked to rationalize fuel prices so the oil subsidy would not burden government, while at the same time protecting the poorest from the price hike.

Promoting a healthier energy consumption portfolio, Kalla encourages energy projects developed using the country's own "brain, muscle and pocket".

It is a longtime irony that this country, rich in various energy resources, has become oil-dominated and allowed itself to be trapped as a net oil importer.

The switch from kerosene to LPG has been quickly carried out since 2007 and has helped reduced the oil subsidy by 50 percent. The 10,000-MW CFPP program is progressing in its attempt to add to the power supply and improve the national power mix.

Since 1977, Indonesia has exported LNG to Japan, South Korea, Taiwan, China and the United States. We also export natural gas by pipe to Singapore and Malaysia.

Domestically, our industries and power plants suffer from a lack of natural gas. The gas shortage has had to be replaced by importing more expensive oil.

Kalla's statements, showing his strong stance on prioritizing gas for domestic use, have shocked players in the Indonesian natural gas export-oriented market; but it is a growing hope that more gas will be available to fuel our domestic economy in the future.

Kalla's typically high-risk projects need to be planned more prudently.

Success in constructing power plants (the huge loans are guaranteed by the government) does not mean the work is over. It must be certain that coal from remote mining areas will be delivered to the power plants and that the electricity will reach consumers through the necessary networks developed integrally with the construction of the planned CFPP.

Having completed the move from kerosene to LPG does not mean we can rest satisfied, since the replaced volume of oil is very small compared to if we were able to deliver natural gas through distribution pipelines. We have neglected the construction of domestic natural gas infrastructure for a long time now.

Kalla and his running mate, Wiranto, may adopt the previous energy policies in which Kalla has made a significant contribution. If elected, they need to fuel the policies - and Kalla moves fast - with more perfect plans so their energy development projects can be implemented in a "faster, better" way.

The writer is an energy planner/economist with the National Development Planning Agency (Bappenas). The opinions expressed are his own.

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