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Energizing
Indonesia
By Bill Guerin
JAKARTA - Burgeoning energy needs have
left Indonesia, Southeast Asia's only OPEC
(Organization of the Petroleum Exporting
Countries) member too over-reliant on expensive,
mostly imported, fuel oils. Years of only marginal
new investment and heavily subsidized oil prices
coupled with the soaring cost of crude have taken
their toll. With consumers and companies showing
little inclination to cut back usage, major supply
problems have emerged for state-owned energy
company, Pertamina, and electricity utility
Perusahaan Listrik Negara (PLN).
President
Susilo Bambang Yudhoyono, whose decisive
leadership won international praise earlier this
year when he slashed subsidies and raised domestic
fuel prices, has appealed for calm following a
recent market experiment by Pertamina that has led
to long queues and nationwide petrol shortages.
The country currently has to import 300,000
barrels of crude oil and 400,000 barrels of
petroleum products every day to ensure adequate
supplies. A dispute between the government and the
House of Representatives (DPR) resulted in the
country's fuel quota for this year being slashed
to 59.6 million kiloliters from 62.5 kiloliters
last year.
Motorists consume an estimated
50.2% of the country's total fuel consumption,
making them the largest consumer segment compared
to households and industries. Pertamina had
reduced the supply of premium fuel by 5% as a
forerunner to a plan endorsed by the government
for even further cuts in supply if public protests
were manageable. Though the motives were noble -
to cut subsidy spending and force the public to
use fuel more efficiently - things quickly went
wrong. Now, as Pertamina strives to return
declining fuel stocks to a "safe" level of 22-days
supply, the Oil and Gas Distributors Association
warns that supplies to distributors at gas pumps
across Indonesia are still down 30%. Police are on
alert to secure petrol stations across the country
and have been ordered to intensify the war against
criminals linked to fuel hoarding and smuggling.
Calling on the public not to panic,
Yudhoyono promised new directives on energy-saving
measures and said he would address the nation "in
the near future" to outline in detail strategies
to reduce the current fuel scarcity. The rupiah
has weakened substantially as a result of the huge
dollar demand from Pertamina to finance oil
imports. Although the government enjoys a huge
windfall profit from soaring crude oil prices, as
exports amount to some million barrels of crude
per day, the record high prices and rising fuel
demand have put the state budget under severe
strain.
Fuel prices were raised by an
average of 29% in March to help decrease the fuel
subsidies from Rp60.1 trillion (US$6.1 billion) to
only Rp39.8 trillion. The latest version of the
2005 budget proposal assumes spending of Rp76.5
trillion ($7.88 billion) on subsidizing fuel, but
at current consumption levels, the bill could
double if oil prices stay over $50 a barrel for
the rest of the year. Next month, the House of
Representatives will debate a revision of the fuel
subsidy allocation. "We are likely to revise it.
If the House rejects our proposal, we have to
explore other ways to help offset the rising oil
prices and demand as well as the rising subsidy,"
Coordinating Minister for the Economy, Aburizal
Bakrie, said last week, without elaborating.
Meanwhile, the increased demand for
electricity has put PLN under intense pressure,
particularly in the capital, Jakarta, to boost its
production. PLN was forced to implement a two-week
experimental rolling blackout in Jakarta last
month and is blaming the shortage of fuel from
Pertamina as the reason for temporary shutdowns of
some power stations. The conversion of the Muara
Karang and Tanjung Priok power plants to gas has
also reduced available capacity.
According
to the Ministry of Energy and Mineral Resources,
63% of the country's energy is derived from oil,
with the remainder from gas, coal and other
resources. Restructuring domestic energy strategy
to cope with the rapid growth in consumption poses
a real and urgent challenge for the government. It
needs to diversify and increase the use of
alternative energies, including gas, coal and
geothermal energy, in order to rely less on oil.
Indonesia has already extracted
three-fourths of its proven oil reserves.
According to the Indonesian Petroleum Association,
production from existing discoveries will decline
by 50% over the next decade but it is estimated
that nearly 10 billion barrels of proven and
potential oil reserves remain. To help attract new
investment from global oil-and-gas giants to
further exploit these reserves, regulatory and tax
incentives to spur such energy investment are
being implemented. Bids have been invited for 43
new offshore exploration sites. Value-added taxes
and import duties will no longer be due on capital
goods used during exploration and exploitation.
The government has also lowered its proposed share
of the oil output to between 65 and 80% from the
standard 85% agreed in earlier contracts.
The government last month finally reached
an agreement on an adjusted production sharing
scheme with US energy giant Exxon Mobil Corp
(Exxon) for the $2.6 billion Cepu oil field in
central Java. The field is estimated to hold two
billion barrels of potential oil reserves and 11
trillion cubic feet of potential gas reserves. At
least 170,000 barrels could be produced a day,
which would increase the country's oil output by
18% and pull it back into a net exporting
position.
Ambalat, an area in the Sulawesi
Sea, has an estimated 1-2 billion barrels of oil
and an estimated 3-5 trillion cubic feet of
liquefied natural gas (LNG). But in February,
Malaysia awarded oil exploration rights in Ambalat
to the Anglo-Dutch giant Royal Dutch/Shell.
Tensions over sovereignty of the area immediately
flared up between Indonesia and Malaysia, with
both countries sending navy vessels to patrol the
territory and each side accusing the other of
trespassing. Losing the Ambalat reserves could
cost Indonesia an estimated $40 billion of
petroleum revenues.
Though Indonesia has
nearly 180 trillion cubic feet of proven and
potential gas reserves, some of the largest known
reserves of natural gas in the world, most gas is
currently exported unprocessed because of a lack
of refining or distribution capacity to use it at
home. However, planned investment in pipelines and
more terminals to supply the essential
infrastructure for domestic distribution will
enable more LNG and piped gas to be sold in Java
and other areas of the country that face energy
shortages.
The gradual scrapping of fuel
subsidies has made the price of LNG more
competitive with the oil-based fuels PLN uses to
produce 18% of its electricity, spurring a new
drive to boost and secure a natural gas supply for
its power plants in West Java to reduce dependence
on oil. The construction of the first liquefied
natural gas (LNG) receiving terminal in the
country is under way. The terminal, in Cilegon,
West Java, will have LNG storage and
regasification facilities and will cost some
Rp2.28 trillion. It is expected to start operation
in 2007, and will receive LNG from ships and
convert it into gas. Eventually, 1,200 km of
underwater gas transmission networks will link gas
producers in East Kalimantan with industrial and
household consumers in Java and Sumatra. PLN will
spend at least $1.6 billion to build four or five
750 MW gas-fired power plants to beef up the
Java-Bali power grid. Bidding for these projects
will kick off this month and the plants are
expected to be in operation by 2010 or 2011.
Indonesia is among the largest coal
producers in the world and is estimated to have
some 35 billion tons in coal reserves, of which 23
billion tons are proven reserves. The country's
coal output for 2005 is expected to increase to
150 million tons, up by 18% from last year, but
some 70% of what is mined will be exported to earn
valuable export revenues. Minister of Energy &
Mineral Resources, Purnomo Yusgiantoro, says the
government intends to increase the use of coal in
the primary energy mix. In 2003, coal contributed
only 14.1% but is expected to contribute 32.7% to
the mix by 2025. Nine more coal-fired power plants
are to be built by 2009.
Alternative
energy
Around 40% of the world's geothermal
energy resources are in Indonesia but existing
geothermal power plants have a combined capacity
of only 807 MW, or about 3% of the potential. The
government is planning to gradually increase
production of geothermal energy to 2,000 MW in
2008 and up to 6,000 MW in 2020. Biomass energy,
available from exploitation of forestry,
agriculture and plantation resources, could add as
much as 50,000 MW. Similarly, there is good
potential for solar energy, with a daily solar
intensity of 4.8 kWh per square meter. Hydropower
has the potential of adding close to 75,000 MW of
generating power, according to government figures.
Public approval is being sought for the
construction of a nuclear power plant with four
reactors, each able to generate 1,000 MW of
electricity, in Tanjung Muria in Central Java. The
Atomic and Nuclear Energy Agency (BATAN) announced
recently that the project may go to tender in 2008
with construction commencing in 2010. Production
of electricity would begin in 2016. Opponents of
the project, legislators, environmentalists and
academics, say that the public must decide whether
to build a nuclear plant or not. A previous plan
was shelved in 1997 due to public opposition.
A tough challenge
Fuel
shortages, frequent power outages and unrest are
the last thing the country needs as the new
government carves out a path to sustainable
economic growth. Rumored new proposals to restrict
energy consumption in government buildings, for
billboards, shopping malls and on highway
lighting, as well as increased taxes on private
vehicles, may help attenuate demand, but
longer-term solutions are needed to prevent a
repeat of the current crisis.
Yudhoyono
has said that fuel prices will not be increased
again this year, which would be a politically
risky move anyway. He is more likely to go all out
to inspire energy conservation. "Indonesia is well
known as a wasteful nation in terms of energy
consumption, and we should change this culture by
changing our energy consumption lifestyle," the
president said last week. Much easier said than
done. Traffic congestion in the capital and other
urban centers remains as bad as ever despite this
year's substantial hike in the cost of petrol and
diesel. Ordinary consumers and businesses are
complaining about brownouts. A massive campaign
will be needed to change mindsets after years of
abundant and cheap fuel.
Bill
Guerin, a Jakarta correspondent for Asia Times
Online since 2000, has worked in Indonesia for 19
years as a journalist. He has been published by
the BBC on East Timor and specializes in
business/economic and political analysis in
Indonesia.
(Copyright 2005 Asia Times
Online Ltd. All rights reserved. Please contact us
for information on sales, syndication and republishing.) |
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