2014, The Year the Energy Sector Took Center Stage

 
Christina Desy, Kartini L. Makmur
 
As the new year establishes itself, the government continues its efforts to improve all Indonesia’s important sectors, including the energy sector. Taking lessons from the past, the government would be well advised to learn from past difficulties and consolidate on the positive developments of 2014.
 
Last year, the mining sector was caught off guard by the issue of Governmental Regulation No. 1 of 2014 (“Regulation”). Effective since 12 January 2014, the Regulation implements Law No. 4 of 2009 on Mineral and Coal Mining (“Mining Law”) which mandates every mining company process and smelt their raw mineral materials in Indonesia.
 
At the core of the Regulation is the objective of adding more value to minerals produced in Indonesia. Mining companies, on the other hand, felt disadvantaged at not being able to export their raw mineral products before being smelted in Indonesia. Responding to these concerns, the Minister of Energy and Mineral Resources promised to provide concessions to companies that committed to process and smelt their raw minerals domestically.
 
Despite the government’s attempt to appease the situation, the Indonesian Mineral Companies Association (Asosiasi Pengusaha Mineral Indonesia – Apemindo) still saw the Regulation as a threat to mining businesses and subsequently filed a judicial review to challenge the Mining Law with the Constitutional Court.
 
In addition to the judicial review, the government also faced a threat from the government of Japan and a lawsuit from PT Newmont Nusa Tenggara (“Newmont”). Both claimed to have been damaged by the mineral export prohibition. For Japan, the ban forced them to find alternative sources to satisfy their nickel demands which were mostly supplied by Indonesia. As a consequence, the Japanese government threatened to bring their concerns before the World Trade Organization.
 
Meanwhile, Newmont’s submitted its lawsuit to the International Centre for Settlement of Investment Disputes (ICSID) in July 2014. After a number of discussions, Newmont agreed to withdraw the lawsuit in return for an offer to renegotiate their contract with the government.
 
Moving forwards from the mineral export issue, in 2014 Indonesia’s energy sector was also stung by the notification sent by the ICSID rejecting the jurisdictional challenge submitted by the government in regard to the Churchill Mining case. On this matter, the government will have to continue its fight against the UK-based mining company.
 
Another issue was the Corruption Eradication Commission’s (KPK) findings in regards to mining practices in 12 provinces. The provinces in which issues were uncovered were East Kalimantan, South Kalimantan, West Kalimantan, Central Kalimantan, Central Sulawesi, Southeast Sulawesi, South Sulawesi, North Maluku, Riau Archipelago, Jambi, South Sumatera, and Bangka Belitung.
 
These provinces were deemed to have a strategic position in Indonesian’s energy sector as 75 percent of the total mining licenses issued in Indonesia are for companies located in these provinces. Unfortunately, the findings indicated that only 57 percent of the mining companies operating there secured a clean and clear status, while the rest were judged as failing to comply with prevailing laws and regulations. Furthermore, of the 7,501 mining companies operating under mining licenses, only 1,659 companies were found to be contributing to state receivables.
 
In regard to efforts to eliminating illegal activities in energy sector, the establishment of the Oil and Gas Management Reform Team by President Joko Widodo’s administration was significant given its aim and purpose of eradicating the practices of Indonesia’s oil and gas mafia.
 
Soon after being established, the Team immediately recommended a forensic audit of PT Pertamina’s subsidiary, PT Pertamina Energy Trading Ltd (Petral). It is hoped that the forensic audit will open the door to eliminating the illegal activities of the energy mafia.
 
Finally, probably the most controversial energy issue of 2014 was the subsidized fuel price hike. President Joko Widodo decreased the energy subsidy in the State Budget, and consequently raised the price of subsidized fuel to IDR 8,500, from IDR 6,500. Fortunately, due to the drop in global oil prices, the government has recently reduced the retail price of fuel to IDR 7,500 as of 1 January 2015. Hopefully, this measure is a sign of a better energy sector for Indonesia in 2015.
 
(hot/kc)