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Jokowi has much work to do in energy sector: Watchdogs
Incumbent President Joko “Jokowi” Widodo, who early vote counts show will retain the presidency, has alot of work ahead of him in the energy sector, according to energy watchdogs
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span>Incumbent President Joko “Jokowi” Widodo, who early vote counts show will retain the presidency, has alot of work ahead of him in the energy sector, according to energy watchdogs.
Local energy think-tank Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said the energy sector needed to be improved.
“He needs to focus on improving infrastructure quality, services and increasing investment,” Fabby told The Jakarta Post on Thursday.
He added that the government should also address problems related to the electrification ratio, which is approaching 100 percent. The government increased the electrification ratio by installing solar-powered energy saving lamps (LTSHE), which is a temporary policy.
“It’s crucial to improve the quality of electricity supply outside Java-Bali and remote islands. Given the fact that LTSHE only lasts three years, a permanent solution needs to be implemented,” he said.
Meanwhile, global energy think tank Wood Mackenzie (WoodMac) said the April 17 elections would not change the country’s energy policies much and would only have a small effect on investment climate in the sector.
WoodMac research director Andrew Harwood said in a press statement on Thursday that the elections would not be able to reverse “a statist trend” in the upstream oil and gas sector.
“[State energy holding company] Pertamina will remain in pole position to take over upcoming expiring production sharing contracts [PSCs],” he said.
Since last year, the government has handed Pertamina at least 12 oil and gas blocks’ contract bids as compensation for the company’s willingness to keep fuel prices below market price.
In terms of energy sovereignty, WoodMac further said, the government would continue to prioritize its policy to curb costly oil imports, as half of the country’s oil demand was still imported.
“Energy sovereignty will remain the government’s rallying cry and curbing costly oil imports a policy priority. This suggests that restrictions on crude exports will remain in place,” he said.
From the vision and mission of both presidential candidates, Jokowi and former Army general Prabowo Subianto, both camps said frequently they would ensure the availability and affordability of energy.
Last year, the government introduced a policy requiring all oil and gas contractors (KKKS) to prioritize selling their products to Pertamina rather than for export.
Data on Pertamina’s policy realization as of March showed that the company had absorbed 127.7 million barrels of crude per day (MBCD) from 30 KKKS.
Pertamina spokeswoman Fajriyah Usman said recently that the purchase had been effective in lowering oil and gas imports in the first quarter of 2019, which had seen a 28 percent year-on-year (yoy) decrease to US$4.78 billion.
Regarding investment climate, WoodMac said recent efforts to improve the investment climate in the sector was “too little, too late”, as many big companies had already exited or scaled back from Indonesia.
“Slow progress in projects of national strategic importance, such as the transfer of the Rokan PSC [production sharing contract] and approval of the Abadi LNG [liquefied natural gas] development, also provide mixed signals for investors,” Andrew said.
Meanwhile, in the mining sector, WoodMac and a local coal association agreed on the need to improve regulations in the sector that would hopefully increase investment, which had seen low exploration activities.
Hugo Brennan, a political analyst from WoodMac sister company Verisk Maplecroft, said the “forced” divestment requirements for foreign miners would continue to deter greenfield investment in the sector.
“Now, all eyes will focus on how [US-based mining firm] Freeport McMoRan gets on operating the Grasberg copper mine now that it only holds a minority stake,” he said, citing an example of the latest product of the divestment policy.
Brennan further said the government would continue giving state mining holding company PT Indonesia Asahan Aluminium (Inalum) “preferential treatment”.
The treatment that was given to Inalum, which is now the major shareholder in PT Freeport Indonesia, was part of the government’s effort to turn the company into a global mining player.
Indonesian Coal Mining Association (APBI) executive director Hendra Sinadia concurred with Brennan’s statements, saying the policy on mining ownership had negatively impacted new investment, especially in exploration.
“If we want to maximize our investment in mining, especially the mineral sector, the government needs to revisit or soften regulations so there is an incentive for foreign investment,” he told the Post on Thursday.
He said there were more than 200 junior mining companies (JMCs) focusing on exploration activities in the 1980s that sought funding through Canadian and Australian stock markets to invest in Indonesia.
“However, if I’m not mistaken, now the number of JMCs is so low that you can count them with your fingers. JMCs are crucial as they are the quickest way to get investment,” he said.
