PURNOMO YUSGIANTORO Minister of Energy and Mineral Resources

‘2006 investment was $14 billion’
Indonesia’s energy sector is one of the most important in the world, and only set to grow

Purnomo Yusgiantoro has worked under three separate presidents since his appointment as Minister of Energy and Minieral Resources in 2000. Here he speaks about the responsibility of managing Indonesia’s most important economic sector through changing times.

How has the sector developed since you began as minister?

In 1999-2000, we had just recovered from the financial crisis of 1997. The country was not an attractive option for investors at that time because of perceived political instability and an unfavourable investment climate, and this was especially so in a capital intensive industry such as energy and mineral resources. At the same time, we had an immense problem with infrastructure because at the advent of the economic crisis, we halted all infrastructure projects, including all important power projects.

We started renegotiating with the 27 independent power producers in 2001 when president Megawati was beginning her term. In my opinion, it wasn’t until we had finished all these renegotiations and other infrastructure projects in 2003-2004 that we finally gave the signal to investors that the sector was again becoming attractive for investment.

In 2001, we finished the law on oil & gas, and immediately started to increase the production-sharing contracts on offer for both domestic and international partners. Now we are signing approximately 20 of these contracts every year. In retrospect, I feel we did a good job in laying the foundations for this sector to grow, to be transparent, and to contribute its maximum potential to Indonesia’s economy. Thanks to this, and other reforms, the economy is finally beginning to boom again.

Attempts to lighten the burden of fuel subsidies led the government to raise fuel prices by 126 per cent in October 2005, driving inflation sharply upward. Can you comment on this?

After some tough reforms, we have managed to decrease the subsidy for petroleum products and electricity by reducing volume, and also through liberalising some petroleum products. So, now we are only subsidising three products: premium, kerosene and diesel.
Regarding the increase in domestic petroleum prices, we are now changing our strategy because of the negative public reaction. During president Megawati’s term, we tried to reduce subsidies by increasing prices. Starting from 2006, however, we changed our strategy by reducing the subsidy but not increasing price. Essentially, we reduced the volume, and we are substituting the volume of petroleum with alternative energy. For end-users of electricity, we use both coal and diesel power plants, and we are gradually reducing the use of diesel. For industry, we use alternative renewable energies, while in transportation, we introduced compressed natural gas as well as bio-fuel. For households, we have also introduced LPG to substitute kerosene.

Indonesia is shifting to alternative energies, as evidenced by the 67 contracts signed for biofuel development this year alone. How has the market responded to the use of these new energies?

Very well. The latest development, the signing of the contract to develop a sugar cane plant, is a great example of the success so far. This is not only an initiative involving large companies but also local companies in the crude palm oil, sugar and now in the fast-developing bio-fuel business. Also, because Indonesia is located inside the Ring of Fire, we have 40 per cent of the world’s geothermal potential.

Coal figures prominently in the government’s ‘fast track’ programme to produce an additional 10,000 MW of electricity capacity by 2009. Could you comment on this?

Right now coal production is about 193 million tons per year, and I think we are going to be able to double that while increasing the quantity used for domestic consumption. Progress on the fast track programme is good, and we should reach our goals by 2009 or 2010.

In 2006, the mining sector contributed $2.3billion to goverment revenues. Proposed changes in the mining law could quadruple this figure. Can we expect those changes soon?

The new mining law is on its way, and the mining industry is waiting for it. Under the new law, most contracts will be signed with the central government instead of regional offices as this is an inconvenience for investors, and stems from the regional autonomy law of 1999. I believe this will encourage mining activities here in the future.

Any final words?

This sector is a big sector in Indonesia. We cover oil, gas, electricity, mining and geology. We have earthquakes, the geology of volcanoes and the mitigation of disasters on our plate. We contributed $23 billion to the Indonesian economy last year, and investment was $14billion.