Energy policy ignores renewables

Down to Earth No 67  November 2005

Indonesian NGOs are concerned that fuel price rises are increasing poverty, while long term energy plans are failing to encourage alternatives to fossil fuels.

Indonesian politics have been dominated throughout the fasting month of Ramadan by the government policy to reduce fuel subsidies. The move breaks a promise made by SBY that fuel price rises in March would be the last this year. It has sparked weeks of angry protests and is already causing hardship for ordinary people. Prices for fuel, including cooking kerosene and low-octane petrol, have risen by an average of 126%. This has been cited as the likely cause of an inflation rate of 17% in the year to October - a six-year record high. It is conservatively estimated that the number of Indonesians officially classed as living in poverty will rise a further 16% from the current 60 million people.1

Unfortunately, public anger has not been matched by government introspection or a review of long-term energy plans. Despite the steep hike in fuel prices and chronic traffic congestion in major cities, the national government does not acknowledge the need for initiatives to improve mass transportation, for example. Instead, minister of public works Djoko Kirmanto's plan, endorsed by the vice-president, calls for the building of six more toll roads in Jakarta, at a cost of US$2.25 billion. This is a move that will surely exacerbate both congestion and dependence on fossil-fuelled private vehicles. Meanwhile, city administration policies are patchy: for example, Jakarta's successful 'busway' project has yet to be expanded past the current single inner-city north-south route, while the relatively modest monorail project is still bogged down in legal squabbles. Since the ticket price to ride the monorail is likely to be expensive, and since motorcycles and bicycles are banned from toll roads, these 'solutions' are no help at all for the majority of the mega-city's workers and residents.

The critical stance taken by Indonesian environmental NGOs, such as JATAM and WALHI, towards the government's policy to raise fossil fuel costs has confused some foreign observers, since, elsewhere, environmental groups are calling for fossil fuel prices to reflect their environmental costs. However, the Indonesian NGOs' position is that the government's pricing policy is not based on environmental concerns, but rather aims to satisfy business interests and facilitate repayment of unjust debts. In the national energy debate currently underway in Indonesia, civil society is arguing that the president must fulfil his responsibility for ensuring supplies of energy that are convenient, cheap and clean.


The Oil and Gas Law (No 22/2001) aims for liberalisation of the oil and gas industry. In particular, it facilitates the entry of multinational oil companies through the dismantling of the monopoly held by state-owned integrated oil producer and retailer, Pertamina. Although the reason cited by the government for its policy to increase fuel prices was the unsupportable cost of continuing subsidies, another reason was to smooth the entry of private fuel retailers such as Shell, which has this month opened a retail outlet in outer Jakarta, and cannot be expected to compete with subsidised fuel.

World oil prices have leapt from US$25 a barrel in early 2005 to a current $65. In liberalising the oil and gas industry in Indonesia, the state has relinquished control over a key issue of public concern, a daring move given the historical volatility of the Indonesian public mood when faced with scarcity or hikes in the cost of basics such as rice and fuel. The government hopes that liberalisation will increase domestic fuel provision through encouraging investment in exploration, production, refineries and the retail sector. It is foreseeable, however, that much of the nation's fossil fuel reserves will be exported because impoverished Indonesians and struggling local industries cannot afford the international prices which consumers in developed nations and booming industrial centres such as China can afford to pay. In fact, despite holding over 500 million cubic meters of gas reserves, over 70% of Indonesia's current production is pre-sold to foreign buyers, a trend set to increase as the Tangguh project, being developed by BP in West Papua, scrambles to pre-sell the project's production to US and Asian buyers.

Critique of Energy Blueprint

Before the fuel price drama gripped the nation, Indonesian government planners had completed a draft 'Blueprint for National Energy Management 2005-2025', which was due to be examined by parliament in the coming session. A similar instrument was also already in existence, namely the National Energy Policy 2003 - 2020. Unfortunately, both documents were put together without transparency and public participation, by the same ministry which handles mining, oil and gas.

Upon announcement of the 2005-2025 Blueprint, WALHI took the initiative and invited the government's Agency for the Assessment and Application of Technology (BPPT) to co-host a National Seminar on New and Renewable Energy in Jakarta on the 25th of October 2005, followed by a series of expert meetings to work towards an alternative position paper arguing for radical changes to the Blueprint.

The October seminar found that the Blueprint aims to achieve a paltry 2.4% of energy supplies from renewable sources by 2025. This figure guarantees Indonesia a roller-coaster ride of dependence on the price vagaries of a liberalised fossil fuel industry, with all the attendant environmental impacts. The figure of 2.4% from renewables compares unfavourably with common international targets of at least 20%. Hence experts involved in the Jakarta seminar are pushing for the Blueprint to be redrafted with the aim of achieving around 20% by 2025.

This figure is certainly achievable given Indonesia's generous endowment of potential renewable energy sources. Potential supplies of geothermal, solar, wind, micro hydro and biomass energy are estimated to total 160 gigawatts watts of electric capacity - more than 7 times the current national electrical generation capacity. For example, at the moment just 4,200 megawatts of hydroelectricity is being generated, which is less than 6% of the estimated 76,000 potential megawatts available in Indonesia.2 Indonesia is well-endowed with geothermal potential: existing planning calls for Indonesian geothermal installed capacity of 9500 megawatts by 2025, compared to only 800 megawatts currently utilised.

The WALHI/BPPT seminar identified key obstacles to achieving a 20% renewable energy target, highlighting the need for government planning, policy and regulatory support for renewables. The proposals which arose were:

  • A clear definition and identification of renewable energy and energy efficiency as keys to national energy security;
  • A roadmap for developing renewable energy developed with all stakeholders - including private enterprise - supported by innovative financing incentives, with a goal of technological and financial independence;
  • Transparent and consistent electricity price-setting processes (bearing in mind the monopoly held by state electricity purchaser and distributor, PLN);
  • A short-to-medium term policy of incentives to spur implementation of alternatives to fossil fuels in transportation, industry and the home;
  • Strengthening government institutional capacity and focus on renewables. The seminar participants recommended the immediate establishment of a National Committee on Renewable Energy and Energy Efficiency, to he headed by the President; to be followed by the establishment of a Ministry for Renewable Energy and Energy Efficiency.3

Finally, besides largely ignoring the environmental implications of different energy sources, the Blueprint does not acknowledge that different energy sources are viable and appropriate in different locations. Not all sources are conveniently located close to demand, for example 25% of hydroelectric potential is located in low-demand West Papua. Similarly, coal-fired power plants are most efficient when located on the doorstep of the coal mine. This is more true in Indonesia than elsewhere because top quality 'clean' coal is sold to overseas buyers, while the poor quality coal that remains for domestic consumption is high in ash and moisture content. This means significant energy and money are being wasted transporting low energy density coal from Kalimantan to Java.4 In fact a key proposal to improve the Blueprint is to undertake more detailed and decentralised planning at the local and provincial level instead of setting across-the-board national targets.


Geothermal Energy - What are the environmental concerns?

Renewable energy sources bring some environmental concerns, as is well recognised with large-scale hydroelectric dams. These are not supported by most environmental organisations because of unacceptably severe environmental and social impacts. Since experts are excited about Indonesia's potential for renewable geothermal power, it is worth considering what conditions must be met for environmentally-friendly realisation of that potential.

Depending on the local geology, water from geothermally-heated underground reservoirs can contain dangerous levels of heavy metals and dissolved pollutant gases such as methane, hydrogen sulfide and ammonia; the hotter water means more power but also often more dissolved chemicals. The heat contained in waste water is also ecologically disruptive if released into surface waters. In order to prevent surface contamination, this water should be re-injected into its original reservoir, with the added benefit of maintaining reservoir pressure. The potential for contamination of groundwater above the reservoir should be dealt with through impermeable borehole casings as developed for the oil industry. Sludge and sinter can accumulate in the power plant, containing precipitated metals and sulfur which must be processed and put to use or safely disposed of.

Much of Indonesia's geothermal potential lies in environmentally or culturally sensitive areas including protected forests in mountain areas, so the area of land required for the power plant, access roads and power transmission lines must be taken into account and minimised. Power station operations must not interfere with water users living downstream - already a concern for communities living near a proposed geothermal power plant in Bali. The proposed site is Bedugul forest, full of rare indigenous plants. Three adjacent lakes linked to Dewi Danu Bratan (a Balinese goddess of agriculture) are of great scientific, economic and religious significance. WALHI Bali has voiced concerns about the project, which it says is proceeding without a full environmental impact assessment or the proper permits.5 The Bedugul experience suggests that, while a geothermal power station is cleaner and certainly more greenhouse-friendly than a coal-fired power station, it should still be subject to a full environmental and social risk assessment and the approval of local communities.


The dangers of coal briquettes

On October 1st, 2005, the president sharply increased the official price of cooking kerosene by 185% from Rp700 per litre to Rp2000 per litre, with the street price settling in subsequent weeks at around Rp2300/l. Further increases are planned until kerosene reaches international market prices in January 2008.6 The sudden increase in household cooking costs caused a massive public outcry so, less than a week later, coordinating minister for the economy Aburizal Bakrie outlined a government decision to spend Rp150 billion of the 2006 national budget to buy 10 million stoves for poor Indonesian households designed to burn coal briquettes priced at Rp1000 per kilogram.7

Ironically, the Indonesian Ministry for Women's Empowerment has been given the task of promoting the household use of coal briquettes, a plan which brings significant health risks for women who do most household work in Indonesia. The World Health Organization estimates that use of solid fuels indoors results in 1.6 million premature deaths each year, largely among women who do most cooking, and the children in their care, who are at increased risk of death by respiratory infection. To address this public health problem, the Partnership for Clean Indoor Air was launched at the World Summit on Sustainable Development in Johannesburg in 2002. The initiative involves the UN and several developing nation governments such as China and India. Unfortunately, despite hosting the WSSD preparatory conference, Indonesia is not involved in the Partnership.

Studies conducted in China have detailed the nature and causes of health risks to women and children of cooking with coal: polycyclic aromatic hydrocarbons formed during coal combustion are a cause of oesophageal and lung cancers, and other hydrocarbon combustion products increase rates of acute respiratory infections and chronic obstructive pulmonary diseases (such as bronchitis and emphysema). Adding to this risk, coal contains varying levels of sulfur, mercury, arsenic, selenium and fluoride contaminants. The U.S. Geological Survey and the Institute of Geochemistry, Guizhou have estimated that at least 3,000 people in Guizhou Province in southwest China are suffering from chronic arsenic poisoning ,apparently from consuming food prepared over fires fuelled with coal.

The coal to be used in the government-sponsored coal briquette program comes from PT Batu Bara Bukit Asam and PT Kaltim Prima Coal. Since a controversial government-forced sale in 2003, Kaltim Prima Coal is owned by PT Bumi Resources, of which the Bakrie family (led by Coordinating Minister for the Economy Aburizal Bakrie) hold 43% shares. The Bakrie family therefore reportedly controls 40% of the national coal industry,8 a conflict of interest which does not seem to prevent Minister Bakrie from promoting a switch from liquid fuels to coal, nor from publicly speaking out against his cabinet colleague, Minister of Finance Jusuf Anwar's decision to levy a 5% tax on coal exports.

Neither Bukit Asam nor Kaltim Prima make information available on the (naturally varying) toxic contaminants in their coal, other than to say that their coal is low in sulfur. Officials researching and promoting stoves at the BPPT (Agency for the Assessment and Application of Technology) acknowledge there are health issues inherent in using coal indoors, and recommend that the briquette-fuelled stoves be kept outside for 15 minutes after lighting, and, when brought inside, be used only in a well-ventilated kitchen. In response to health concerns, BPPT has also recently begun work on a certification scheme for coal briquettes,9 although this will only cover sulfur and carbon monoxide emissions. BPPT staff acknowledge this leaves out key pollutants of concern including mercury, arsenic, and polycyclic aromatic hydrocarbons.10


Biofuels and palm oil: feeding cars or people?

Biofuels are often proposed as an environmentally-friendly alternative to fossil fuels, especially by Northern governments keen to meet their commitments to the Kyoto protocol on climate change. Now the palm oil industry is jumping onto this bandwagon. Palm oil can be used as a substitute for diesel to run vehicles and power plants. Power plants in the Netherlands are burning subsidised palm oil for electricity generation. The US agri-business conglomerate Cargill announced in October it is to build a US$30 million biodiesel plant in Germany with the capacity to produce 200,000 tonnes of fuel per year.

The Malaysian Palm Oil Producers Association is promoting this new 'need' for the expansion of oil palm plantations, including in Indonesia, on its current European lobbying tour. The Malaysian government has already given the green light to the development of biofuels. And now Indonesia is planning to establish the world's largest palm-oil plantation in Kalimantan, covering an area of 1.8 million hectares, along the border with Malaysia â€" with investments from Malaysia and China. In September, Indonesia's minister for research and technology announced that seven companies had been licensed to set up biodiesel plants. Some have their own plantations. "This industry is supported by 5 million hectares and adequate processing technology", said Kusmayanto Kadiman. He singled out Riau and Jambi as areas ready to start biodiesel production, as well as the Kalimantan border. Local governments are apparently waiving taxes for companies which want to open up palm oil plantations for energy production.

Biofuels are said to be carbon neutral, as burning wood, plant wastes, sugar oil or cellulose only returns to the atmosphere the carbon extracted during plant growth. However, there are serious issues about the impacts on land, forests and rural communities. Based on the history of the industry in Indonesia, a rush to expand oil palm plantations will cause more deforestation, damage local livelihoods, create monocultures and require more inputs of agro-chemicals.



1 Alat Mutilasi Negara: Setahun kebijakan SBY-JK pada sektor Tambang dan Energi (WALHI media release, 20.Oct/05).

2 Yogo Pratomo, Dirjen LPESDM, speaking at the National Seminar on New and Renewable Energy, Hotel Sofyan Jakarta, 25/Aug/05.

3 A useful model is India's Ministry of Non-Conventional Energy Sources.

4 Pak Sidik Budoyo of BPPT (Agency for the Assessment and Application of Technology) speaking at the National Seminar on New and Renewable Energy, Hotel Sofyan Jakarta, 25/Aug/05.

5 'Bedugul geothermal project raises controversy', I Wayan Ananta Wijaya, Jakarta Post 11/Aug/05.

6 'Harga Minyak Tanah Naik 185 Persen', Kompas, 01/Oct/05.

7 'Disiapkan 10 Juta Tungku Briket Batu Bara', Kompas, 07/Oct/05.

8 'Sesama Menteri Kok Saling Nyalip!', Wim Asmowiroto, Rakyat Merdeka, 30/Oct/05.

9 'Briket Perlu Standar Untuk Menjaga Kesehatan', Media Indonesia, 20/Oct/05.

10 Interview with BPPT experts, 27 October 2005.