The Asian Development Bank (ADB) has released the latest edition of its report, titled Energy Outlook for Asia and the Pacific 2013, this week. The report aims to identify policy, social, infrastructure, and technology issues that should be addressed to meet the future energy needs of members of the ADB in Asia and the Pacific. Key findings in the case of Indonesia include that the country's primary energy demand is projected to reach 445.4 Mtoe in 2035, up from 207.8 Mtoe in 2010 and that it may become a net importer of natural gas.

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Wijaya Karya (Wika) is one of Indonesia's construction companies. The company is involved in engineering and construction work in both Indonesia and abroad. Its businesses include civil engineering, building construction, and construction of industrial plants as well as energy facilities. Being a state-controlled company, Wika has a close connection to the government and as such is one of the first choices to participate in government infrastructure projects. Shares of Wika have grown over 37 percent in 2012.

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Pertamina, an integrated energy company, is the largest state-owned company of Indonesia. It conducts operations in the exploration and production of oil & gas, both national and international, and is also active in the development of renewable energy sources, such as geothermal energy and coalbed methane (CBM) gas. Pertamina's downstream activities cover processing, marketing, trading and shipping of its commodities. Its oil and gas exploration activities are conducted through its subsidiaries Pertamina EP, Pertamina Hulu Energi and Pertamina EP Cepu.

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Bloomberg reported that the investment agency of Indonesia's finance ministry will start a fund of IDR 3 trillion (USD $302 million) to finance the exploration of geothermal energy resources in Indonesia this year. Saritaon Siregar, the agency’s chairman, said this in an interview at a conference in Jakarta this week. The investment fund is in line with Indonesia's intention of lowering its dependency on expensive and environmentally unfriendly fossil fuels as a source for energy and electricity.

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Perusahaan Gas Negara (PGN) is a government controlled gas firm that forms Indonesia's largest natural gas transportation and distribution company. It operates a distribution network that extends for 3,865 kilometers and a transmission pipeline network that measures 2,047 kilometers. PGN plays an important role in Indonesia's electricity production as it sells about 40 percent of its total sales volume to the country's power generation industry. It also forms one of the largest Indonesian companies in terms of market capitalization.

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The government of Indonesia expects inflation to rise to 7.2 percent in 2013 because of the increase in the price of subsidized fuel in June, and expects it to ease to 4 percent in both 2014 and 2015 provided that good monetary policy is implemented. This good monetary policy should particularly be targeted at maintaining food security. The projections were presented by the Fiscal Policy Agency (Badan Kebijakan Fiskal), the Ministry of Finance, and Indonesia's central bank Bank Indonesia.

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Oil production in Indonesia is targeted to be lifted to 1 million barrels per day (bpd) by October or November 2014 according to SKK Migas, the government unit that manages upstream activities in Indonesia's oil and gas sector. Crude oil production in the first quarter of 2013 was 830,900 bpd, eight percent lower than the target in the country's state budget. Indonesia's oil output has fallen steadily in the last decade due to a lack of exploration and other investments in the sector that was once the engine of Indonesia's economic growth.

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Indonesia's central bank (Bank Indonesia) expects the Indonesian economy to grow between 6.3 and 6.8 percent in 2013, supported by strong domestic consumption and foreign investment, with inflation rising by about 4.5 percent. Indonesian exports are expected to increase due to better global demand for Indonesia's commodities such as coal and palm oil, with commodity prices rising accordingly. But some problems in Indonesia's financial system remain to be solved.

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West Kalimantan, South Sulawesi and South Kalimantan are the three Indonesian provinces that scored the worst in the Local Government Performance Index (in Indonesian: Indeks Kinerja Pemerintah Daerah, or IKPD). This index, compiled by Indonesia's Corruption Eradication Commission (KPK), measures the degree of coordination and supervision within Indonesian provinces regarding policies and actions related to the prevention of corruption in the mining and energy sectors. The provinces that have the highest scores are Central Sulawesi and the Riau Islands.

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Indonesian President Joko Widodo (often called Jokowi) emphasized that the government of Indonesia needs to boost development of renewable energy. Although Indonesia contains huge potential for renewable energy (particularly geothermal energy), the share of renewable energy in Indonesia’s total energy use currently stands at around 5 percent only, the remainder being fossil energy. By providing incentives, attractive tariffs and an easier licensing and registration process, the government can generate more investment in this sector.

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The Indonesian government plans to tender 25 new geothermal development sites with a total combined capacity of 1,225 megawatt (MW). These 25 projects will require a total of USD $4.6 billion worth of investments and help to achieve the government’s target to raise the portion of geothermal energy in the country’s energy mix to 7.1 percent by 2025. These 25 projects are in addition to the 31 geothermal development projects that are currently being constructed and which should be operational by 2020.

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Growth of the manufacturing industry in Indonesia is expected to be significantly weaker in 2015 than initially forecast. Indonesia’s Industry Ministry cut its 2015 forecast for expansion of the country’s manufacturing industry to 6.1 percent (year-on-year) from the previous estimate of 6.8 percent. In tandem with slowing economic growth in Southeast Asia’s largest economy, manufacturing growth has slowed to 4.99 percent (y/y) in Q3-2014. Moreover, the HSBC/Markit PMI contracted to a record low of 48.0 in November 2014.

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Indonesia is facing the risk of becoming a net importer of energy by 2019 as the nation’s energy demand will reach 6.19 million barrels of oil equivalent per day (boepd) whereas the domestic energy supply will only reach 6.04 million boepd by that year. Provided that the economy of Indonesia remains expanding at a pace of +5 percent (year-on-year) while investments in energy exploration do not rise accordingly, Southeast Asia’s largest economy will become dependent on foreign energy supplies.

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The new Joko Widodo-led government aims to triple domestic geothermal power production within the next five years in an effort to meet ever-increasing power demand in the world’s fourth-most populous country and to shift to more environment friendly energy sources (rather than the over-reliance on fossil fuels such as oil and coal). Although Indonesia is estimated to contain the world's largest geothermal energy reserves, the country only uses about four percent of its geothermal capacity potential.

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When campaigning, presidential candidates will always promise a bright future in order to gain votes. It is particularly easy for a new presidential candidate to promise golden mountains as opposed to the incumbent president who needs to be more cautious making promises as people can point to the (failed) results of his promises during the presidential term. The 2014 Indonesian presidential election was particularly interesting as we saw two new presidential candidates and, thus, the ‘inflation of promises’.

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After a long delay, Indonesia will finally start construction of the world's largest geothermal power plant, the USD $1.6 billion Sarulla project, in June 2014. Coordinating Minister for Economic Affairs Chairul Tanjung said earlier this week that the groundbreaking of the Sarulla project will start very soon as the government had settled the financial framework. The project was already initiated in 1990 but shelved due to various issues, including the Asian financial crisis in the late 1990s. The first phase of the project is expected to be completed in 2016.

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The sharply depreciated Indonesian rupiah exchange rate in the second half of 2013 in combination with the decline in domestic oil lifting has led to a soaring of fuel subsidy spending in 2014. In the 2014 State Budget (APBN 2014), the ceiling of energy subsidy spending for 3-kg LPG and fuels was set at IDR 210.7 billion (USD $18.3 billion). However, in the 2014 Revised State Budget Draft, the government proposes to raise the subsidy ceiling to IDR 285 trillion (USD $24.8 billion), thus swelling IDR 74.3 trillion from the initial ceiling.

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In an attempt to attract investments in Indonesia's geothermal power sector, the Ministry of Energy and Mineral Resources plans to offer higher prices for geothermal-based electricity. Based on a recommendation from the World Bank, the new proposed geothermal-produced electricity price will range between 11.5 and 29 cents per KwH and will be effective until 2025. Currently, state-owned Perusahaan Listrik Negara pays between 10 and 18.5 cents per KwH to independent geothermal power producers (feed-in tariff).

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