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5,000MW OF RENEWABLE CAPACITY INSTALLED OVER 40 YEARS

Indonesia 2018 | ENERGY | VIP INTERVIEW

TBY talks to Ignasius Jonan, Minister of Energy and Mineral Resources of Indonesia, on electricity tariffs, renewable energy, and mineral exploitation.

What are the main issues in the Indonesian energy sector, and how would you summarize your approach to those issues?

We cover electricity, oil, and gas from upstream to downstream through retail and also mineral resources through mining. The sector is one of the sources for the future growth of the country. We have to be a pioneer in many areas to increase opportunities for the expansion of the economy. One of the key issues is infrastructure. In many areas of Indonesia, we see that there is still a lack of infrastructure availability. The infrastructure must come first. Secondly, the reality of the lowest cost energy is important. My attitude toward the sector is that the lowest cost of energy is essential; which is a key competitiveness of the country. For example, if the electricity tariff is much higher than many exporting countries, then our industrial product will be less competitive comparing to them. We try to make the electricity tariff as reasonable and affordable as possible.

Can you detail the Ministry's intentions with its new power purchasing regulations, and also the recent ministerial decrees that have modified those regulations?

The only goal for ministerial decrees is to make a clarification and speed up the process of any electricity investment, such as an independent power producer. I do understand some of the input that the ministerial regulations will refrain the bankability of any independent power producer projects, but we have explained that the business risk itself cannot be borne by the government. The business risk has to be borne by the power plant company but the political risk and the government commitment risk are with the government. The decrees address this issue.

How would you address the concerns regarding the ability for investors to invest in renewable energy projects?

Over the past 40 years, we have installed almost 5,000MW of renewable capacity. I have been in this office for less than 10 months, and we have committed and signed transactions for almost 500 MW only within this time. Therefore, people who complain about the tariff in my opinion are the people who are not able to compete. Last week the national electricity company signed around 46 transactions for close to 300 MW of renewable energy, so 11 of the investors may have backed off, but 53 signed already. As long as companies matched the technical requirements, then we have to compete with the price; either it is made in Japan, China, Europe, or America, it does not matter.

Are renewable projects meeting cost requirements at a greater rate than in the past, and do you see increased deal flow for renewable energy?

They have to be able to compete reasonably well with the fossil energy. In the UAE, they produce solar PV for electricity for only USD0.0242 per KW-hour, so why not here? I tell the renewable energy unit of my department that 20-30% of total generation is the goal, and just compare this to the OECD countries plus China as how many have achieved more than 20% these days? Not many. The issue is that the renewable energy industry has to be able to compete as they cannot just sell this idea at any cost.

What is your strategy for making exploration and production in Indonesia more attractive for oil majors and smaller firms?

There has been no cancelation of exploration. As long as the oil price is around USD50 then it is difficult to increase exploration and production unless the government wants to give up a lot more. If they want 10% of the split to go to the government, then many of the big players are interested, even the smaller operators. However, that is not the goal. For the USD50 oil price, I do not think the encouragement for increased exploration is significant except for shale oil and gas in US since the production costs are getting lower. For the traditional methods, especially offshore, I do not think they have the courage to increase these days at USD50.

How do you plan to encourage mineral exploration and what is the best way to reconcile the interests of Indonesia and foreign investors?

The mining sector here has been through ups and downs, but the key issue is also that the products of the mining sector—the copper, nickel, bauxite, gold, and silver—are plentiful here. They are also following the market price, and that is the big parameter of how we can grow this investment in the mining sector. If the market is down, then the foreign miners will demand a lot more concession or a lot more split so we have to make it acceptable. We can make a scaling split or we can make renegotiation, but when the market is up again we have to come back to the table to renegotiate the terms. As long as it is in accordance with the mining laws and constitution, the rest can be negotiated from time to time, but if it is against the constitution then the answer is no and no. There is no country that will give up its constitution for the interest of any mining company, and the same is true for other industries such as oil and gas.

What is your outlook for the year ahead and in which sector do you see the most movement?

The goal for the next 10 years is that electricity must be the engine of growth. First is the availability, second is the tariff, and third is the capacity. Those three elements of the electricity will be supported and adjusted from time to time according to the demand. What we can expect is that for the next 10 years we will see a lot more electric cars on the street, and we will change some cooking customs throughout households in Indonesia; whereas many of them use LPG for cooking, we want them to change to electric stoves.

What do you see as the ideal role for the state in developing further electrical generation and distribution?

The government has a lot to do in regard to helping reduce the generation imbalance and the price of electricity in the country as the disparity between what people can afford and the cost is still significantly wide. For that issue, the President has suggested that as long as the private sector can afford to do the investment then we let the private sector do it so that we can subsidize the people who earn a lot less.


 

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