ASSESSMENTS

In Indonesia, Energy Reform Takes a Back Seat to Pragmatism

Aug 12, 2019 | 09:00 GMT

Cars and motorcycles line up at a fuel station in Purwokerto, on the island of Java, Indonesia, on Nov. 17, 2014. Pragmatism is winning out over ambition with Indonesia's energy reforms.

(LILIK DARMAWAN/NurPhoto via Getty Images)

Highlights

Indonesian President Joko Widodo fulfilled some aspects of his far-reaching energy reform in his first term, but he is more likely to continue watering down some of his goals in his second term.
On the production side, the president's emphasis on resource nationalism will not abate, although he has been forced to rebalance his more aggressive push for local control amid volatile global oil prices, the continued need for foreign investment and state-owned Pertamina's need for greater expertise.
On the retail side, the president will continue to prioritize maintaining economic growth and low prices at the pump to keep the cost of living down instead of his long-term ambition to free up government revenue.

Pragmatism is winning out over ambition, at least as far as energy reform in Indonesia is concerned. When he assumed office in 2014, Indonesian President Joko "Jokowi" Widodo promised big changes for both the upstream and downstream energy sectors in an effort to attain greater local control of hydrocarbon production and stanch the flow of state funds into expensive consumer fuel subsidies. With this, Jokowi hoped to foster long-term self-reliance in extraction and production while channeling subsidy savings into much-needed infrastructure improvements, right-sizing fuel demand and lowering the country's reliance on imported fuel. All of the changes were part of Jokowi's overall bid to foster an economy based on manufacturing and industry, rather than raw commodity exports. But five years on, the results have been mixed. Jokowi's government has taken a more cautious approach out of fears of a public backlash and economic repercussions, compelling gasoline prices to remain flat...

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