Indonesia: Can new president revive its energy sector?

We assess the implications of Jokowi's future presidency on the country's oil and gas industries

As exit polls suggested, Joko Widodo-Jusuf Kalla – known as Jokowi - emerged victorious from Indonesia's presidential election. We believe Jokowi's leadership could have far reaching implications for the country's oil and gas sectors.

For although he is unlikely to reverse the current ban on mineral exports, his relatively progressive approach could prove crucial to addressing growing domestic energy demand and declining indigenous production – a situation which has been compounded by years of regulatory instability.

Indonesia's crude oil output has fallen from over 1 million barrels a day in 2005 to currently just over 800,000. This, coupled with a domestic fuel subsidy bill of US$21 billion in 2014, has contributed to the growing public perception that Indonesia has allowed its natural resources to be exploited by foreign investors.

Jokowi plans to reduce Indonesia's reliance on oil imports by developing new infrastructure and accelerating the switch to gas. He wants to boost oil and gas output by providing enhanced fiscal terms for mature fields and exploration, and removing red-tape which would also benefit the mining sector.

Were he able to revise the 2001 Oil and Gas Law, this would relieve some of the regulatory uncertainty which has stalled projects such as Chevron's Indonesia Deepwater Development, INPEX's Abadi FLNG and BP's Tangguh expansion.

Whilst Jokowi is not the only candidate who would have strengthened Indonesia's grip on its energy sector by consolidating PERTAMINA's standing as the National Oil Company, he is more inclined to recognise the benefits of working with international investors to secure investment.

Overall, we believe Jokowi's victory will generate short-term positivity in the energy sector.  However, a lack of a majority in the senate will weaken the government's mandate and ability to push through all the reforms required to reinvigorate the energy sector and revive the Indonesian economy.

Read more
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