Energy planning in a changing environment

Indonesia, which to a certain extent is still a centrally planned economy, is actively implementing regulatory reforms.

The current national planning process is based on the 2004 National Development Planning System Law.

According to the law, a comprehensive Long-term Development Plan, spanning 2005 through to 2025 was established first, then — combined with vision and mission of the elected president — a national Medium-term Development Plan (RPJM) is derived.

The RPJM serves as reference for sectors and regional strategic planning developed by ministries and regional governments. From this mid-term development plan, a “government work plan” (RKP) is determined annually within each ministry.

The mechanics for developing the current RPJM — coordinated by the National Development Planning Agency (Bappenas) — is similar to that of the six “five year development plans” implemented during the Soeharto era.

Under the system, goals — physically in particular — are targeted, supporting policies are developed and government funds are allocated. The government is assumed to have a significant role in guiding development and — through the State Budget — in providing funding.

Central planning, however, is effective in environments where all factors are under the direct control of government institutions and where those institutions obey instructions.

This is no longer the case for energy planning and policy coordination in Indonesia. Following the fall of president Soeharto in 1998, Indonesia’s political landscape and legislations have undergone major reforms, started by the introduction of a regional autonomy law in 1999 that gave authority to local/provincial governments to regulate and manage many affairs in their regions, including the energy sector.

The autonomy law was followed by a 1999 law balancing the fiscal relationship between the central and regional governments, realigning — among others — revenue sharing from energy and mineral resources sectors in favor of the provincial administrations.

Since then, we have moved with more decentralization and privatization agendas in energy sector in line with the reforms of other sectors. Those are changing Indonesia toward a more democratic society with greater reliance on liberalized market.

State-owned oil and gas company Pertamina, according to the 2001 Oil & Gas Law, no longer has the responsibility to serve as the government representative to fulfill our demand for oil fuels.

Likewise, the 2009 Electricity Law has reduced state-owned electricity company PT PLN to a mere player in the country’s electricity industry and asked the regional governments prepare their plan for development in the sector.

Similar to the electricity law, the 2003 Geothermal Law and the 2009 Mining Law gave greater authority to regional governments in managing geothermal and mining issues in their respective areas.

State-owned coal company Bukit Asam and the state-owned gas company PGN are now public companies listed on the Indonesia Stock Exchanges, governed more by their stockholders than directly by the government.

In addition to from internal reforms, the push of change comes from external forces. As China and India’s economy are growing fast, their demand for our primary resources are escalating — not to mention the one come from traditional consumers, Japan, South Korea and Taiwan.

It means that we also have to — starting from the planning process — maintain a balance between soaring domestic demand and pressure to export our energy commodities, coal and natural gas in particular.

The waves of reform have impacted the way we deal with planning, which seems far more challenging than when the central government had ultimate control.

Energy planning is now facing larger challenges stemming from changes in legislation, governments, the role of former state-owned companies and soaring demand both from the domestic and export markets.

Nowadays, not only must energy planners have appropriate knowledge on energy technology and the economy, but they must also have better understanding and be more adaptive to change, and be able to perform detailed analysis on the behavior of energy markets, including on how actors/players respond to particular policy interventions.

So far, energy planning in Indonesia has been carried out separately among types of energy without integrating them appropriately, puts heavy emphasis on production/supply side and seems to neglect the demand side (how consumers: transport, industry, services and households use the energy). Under the 2007 Energy Law, the National Energy Master Plan is to be formulated by the newly created National Energy Council.

Accordingly, the provincial and district governments are mandated to prepare their master plan for local and regional energy. Given the fast changing environment, these tasks are surely challenging.

Across Indonesia, energy users lament the quality of energy data. Improving data quality and developing a modern energy information system can be the first target, before more rigorous skills in energy forecasting, modeling and scenario analysis are to be developed.

In the early transition periods before the in-house capacity is settled, the council and government agencies may hire high-caliber experts to assist with energy planning expertise, and secure the funds — from foreign grants or domestic sources — to support this important capacity-building job.

Having high-quality energy planning across all regions in Indonesia has a long way to go, but a better energy planning solely is not enough. They need good coordination among actors and stakeholders for the implementation of the planning to deliver high quality results.

The writer is the senior energy planner and an economist with the National Development Planning Agency. The opinions expressed are his own.

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