Part of an ongoing article series on renewable energy / climate crisis in Southeast Asia.
Introduction
The newly inaugurated President Prabowo Subianto embraces the global trend towards a greener world with renewable energy. Latest observations suggest he acknowledges that a government committed to green policies will win the global competition in the long run.
However, Indonesia faces a tough reality—81% of the country’s electricity demand is met by fossil fuels. Last year, coal contributed 62% of energy generation.
His predecessor, former president Joko “Jokowi” Widodo, laid the foundation for Prabowo’s energy agenda. This includes international deals for funding – such as the Just Energy Transition Plan (JETP) and the Net Zero Community of Asia – as well as regulations that support Prabowo’s administration.
Prabowo made a rather rapid move in his first week in office. He set a two-week deadline for his energy minister to reform energy subsidies and decreed the creation of a contingency plan for revenue lost from fossil fuels by setting a new revenue target of Rp3 trillion (US$190 million) from the carbon market.
Although this number is small, it indicates the government’s commitment to earning revenues from the green economy in the long run.
Solving the energy transition enigma without compromising his promise of an 8% economic growth is the game being played.
Challenge to Subsidy Reform
Although the new administration is still adjusting and fine-tuning, its energy policy is straightforward. The administration has identified two priorities: reforming subsidies and increasing the use of biofuel. The end goal is to achieve energy security.
Subsidy reform is not a new policy agenda, with President Susilo Bambang Yudhoyono setting the scene almost two decades ago. However, due to its sensitivity, it has always been considered a “hot potato” issue that can either boost or harm a president’s popularity.
Subsidy reform is required because the subsidy does not effectively help the poor. The government has identified that 20–30% of the subsidy does not benefit the intended low-income group.
Following Prabowo’s direction, Minister of Energy Bahlil Lahadalia suggests two policy options: 1) direct cash transfer (Bantuan Langsung Tunai – BLT) to low-income households and; 2) a mixed approach combining traditional commodity-based subsidies with targeted cash transfers.
These suggestions are not new. The BLT has been around for a long time, yet the problem persists. The challenge lies in the data accuracy of BLT beneficiaries and efficiency in disbursing the money.
In addition, corrupt practices affecting the BLT program are also rampant, particularly in the lower rungs of governance. For instance, a village chief in Sampang, East Java, embezzled US$22,000 from the BLT fund in 2023.
Furthermore, according to the Deposit Insurance Agency, only 49% of adult Indonesians have bank accounts, while the rest are still unbanked. Disbursing the BLT fund properly becomes a challenge, as recipients may not have a bank account and must rely on cash distribution, which is susceptible to corrupt practices.
The government’s policies thus lack details and no further details are provided.
A question emerged: Why did Prabowo set a two-week deadline within the first month of his presidency?
The answer is simple. Prabowo needed to adjust and reallocate the state budget as soon as possible. This rationale aligns with the need to reallocate funds from energy subsidies to support economic programs to achieve the 8% GDP growth target and fund the free lunch program that costs US$28 billion annually.
Biomass and Biofuel
As mentioned above, the end goal remains energy security. This government aims to achieve this by pursuing biomass co-firing and biofuel as options to reduce the country’s dependence on fossil fuels. The Biomass co-firing strategy aligns well with Indonesia’s agricultural industry, as it absorbs biomass such as empty fruit bunches, rice husks and wood pellets to generate energy.
Biomass and biofuel are Prabowo’s mainstays in energy transition and energy. Two reasons explain this. Firstly, he is averse to letting Indonesia be dependent on energy imports. Secondly, with Indonesia’s vast potential to produce biomass and biofuel domestically, Indonesia might create its own giant-sized renewable energy industry.
In addition, the agenda came about on the heels of the previous government’s discovery of 8 trillion cubic feet of natural gas in the South Andaman. This lucrative discovery is a strategic opportunity for Prabowo’s administration to seize and bolster its ambition for energy sufficiency and security.
Other Steps
One of his earliest actions was to remove various regulations that hindered the gas exploration process, cutting from 320 to 140 permits. Furthermore, the appointment of Simon Aloysius Mantiri as the new CEO of the state-owned oil and gas company Pertamina indicates that Prabowo aims for total control and loyalty from Pertamina to execute his energy agenda.
Prabowo has also aimed to boost the production of cooking oil and push down LPG imports. These actions align with the goal of reducing reliance on energy imports. To pursue this, for example, the government has announced plans to double the production of cooking oil from 1.7 million to 3 million tons per year.
Another ambition is to increase the share of palm oil-based fuel in diesel from 35% to 50%. The government aims to roll out palm-based B40 biodiesel by January 2025 and pursues the long-term goal of using B100 in the future.
These strategies could help Indonesia meet its energy sufficiency and security agenda. However, we should remember that these come with environmental risks. For example, some of these strategies depend on the production of palm oil, which cultivation may not necessarily align with the SDG and ESG agendas. Worse, the government set these targets above without alerting the private sector to take sustainable palm oil cultivation seriously.
Prabowo’s energy ambitions are progressive with high targets, adopting strategies that combine public and private collaboration.
His leadership style is also obvious in his appointment of individuals to key posts. His nomination of Hashim Djojohadikusumo – his brother and a prominent business leader, as the special envoy for environment and energy – as well as Simon – a cadre of Prabowo’s party – as Pertamina CEO speak volumes. Prabowo obviously prefers to station trusted men in strategic posts.
The appointment of Hasjim and Simon invited public criticism and scrutiny. Despite their position as trustworthy allies, we cannot ignore the fact that Prabowo may prioritize obtaining liquid capital for the state. This is why he needs people whom he trusts politically and who can attract investment.
Moreover, it is also in line with Prof. Mari Elka Pangestu’s argument at the Conference on Indonesian Foreign Policy 2024, who argued that to get the 2045 target, Indonesia needs a minimum of 6-8% growth annually and investment.
Conclusion
All in all, a point that is yet to be discussed is Prabowo’s ambition to chart his own footprints and legacy on environment and energy. His end goal is not to attain energy sufficiency and security, but also achieve an 8% economic growth at the same time. These are impossible to reach in five years’ time, or one presidential period in Indonesia. Definitely, Prabowo would seek a re-election in 2029 to achieve these and other goals.
Thus, as mentioned above, energy policy is a “hot potato” issue in Indonesian politics. His energy policy in the first five years would likely be populist and politically beneficial for him. After all, Prabowo is unlikely to adopt any unpopular policy.
