New government, old challenges in natural resource management

By Fitrian Ardiansyah, published in Coal Asia, August 17 – September 20, 2014, page 142-143

for the pdf version (9.8MB), please see: Opinion Fitrian Ardiansyah_CoalAsia_AugSep2014

 

CoalAsia_AugSep2014_New Government

The General Elections Commission of Indonesia confirmed Joko Widodo as the winner of the presidential race winner a month ago, paving the way for the creation of a new government that will run for the next five years and address a huge challenge in managing the country’s natural resources.

Although his opponent, Prabowo Subianto, refuses to admit defeat, many scholars and observers believe that Joko Widodo, or ‘Jokowi’ as he is popularly known, will be sworn in as the seventh president later this year.

Officially, the Constitutional Court has to declare Jokowi as the country’s elected president. Nevertheless, whoever the Indonesian next president is, he needs to hit the ground running, taking responsibility for forming a government that can deal with difficult issues such as balancing the country’s economic development, social welfare and environmental protection.

One immediate challenge, that the new president and his cabinet need to address, is regarding fossil fuel and energy subsidies.

High energy subsidies create significant costs for Indonesia and its people, impacting on the economy, the environment and Indonesia’s energy security.

Indonesia-Investment reports that the government allocated IDR300 trillion (US$26.3 billion) on energy subsidies in 2013 (mostly on fuels and electricity), and this year the government will spend at least IDR282 trillion (US$24.7 billion).

In general, such subsidies hinder Indonesia’s sector development, including in poverty alleviation, education and healthcare. In a 2014 report for the International Institute
for Sustainable Development, Ari A. Perdana argues that fossil fuel and energy subsidies do not support low-income households very efficiently and can effectively ‘crowd out’ government spending on alternative policies.

The relatively high subsidies also inhibit the development of indigenous renewable energy sources such as geothermal, biomass, bioenergy and micro-hydro. In 2009, Agus Purnomo, the special advisor on climate change to Indonesia’s president, argued that cutting fossil fuel subsidies is the key to bolstering the renewable energy sector’s
competitiveness.

The new president, therefore, not only has to lay out a policy to cut fuel subsidies immediately but also to develop programs and appoint energy and finance ministers who can use the fund shifted from the subsidies, to help seed investment in
renewable energy development, enabling Indonesia to secure its future energy supply and move toward a sustainable energy growth path.

Jusuf Kalla, the running mate of Jokowi, told Reuters a month ago that a priority program in their first 100 days in office will include the reduction of fuel subsidies. This is likely to be the first big test for the new government since the issue of fuel subsidy reduction is a politically sensitive one.

If the new government is successful to approach and address this, including to convince a ‘divided parliament’ and the general public, the new president and his cabinet have a good platform to create incentives for boosting Indonesia’s economic development, creating incentives for saving energy and finding renewable sources, and eventually reducing the country greenhouse gas emissions.

Another key challenge for the new government in managing the country’s natural resources is to formulate the future development platform of Indonesia, particularly whether the country will still depend heavily on natural resource exploitation.

Continuous natural resource exploitation has contributed significantly to Indonesia’s economic strength but, at the same time, this has led to resource depletion, and environmental degradation and related disasters.

The National Agency for Disaster Management (BNPB) reveals that for the period of 1815-2014, environmental and climate related disaster events have been prevalent, including floods (38 percent), strong wind (21), landslides (16), and drought (12). A study published by the United Nations Environment Program, for example, estimates that in the period of 2010-2013, flood events in Kalimantan have inundated more than 190,000 houses and displaced more than 700,000 people, resulting in significant social and economic costs.

Such disasters reflect on the past and current natural resource management regime of Indonesia as a country, particularly in the management of (or lack of management of) its forests, agriculture, land and key natural resources. Such disasters cost and will eventually shake the very foundations of Indonesia’s economy.

To date, Indonesia has one of the world’s largest rainforest areas but the Indonesian Forestry Ministry and the Center for International Forestry Research show that roughly only one-third of these forest areas are covered by primary forests, one-third by logged-over areas and one-third by vegetation other than forests.

Some scholars argue that forests in Indonesia are still disappearing fast. An article published in the 2014 journal Nature Climate Change suggests that the annual deforestation rate of Indonesia is twice the rate reported by the Indonesian government.

To address this issue, the new government needs to adopt a policy that ensures that halting deforestation and peat land loss is the center of Indonesia’s development policies and programs.

The current president, Susilo Bambang Yudhoyono, and his cabinet have managed to introduce forest and peat land conversion moratorium as well as establish a national REDD+ (reducing emissions from deforestation and forest degradation) agency.

Such a policy and new agency, however, have already been confronted by a huge task, particularly in being seen to be inclusive, taking into account the voices and interests of various ministries, sectors, layers of governments, and groups of stakeholders such as from local communities and the private sector.

The new government needs to realize that in a big, democratic and decentralized country such as Indonesia, any policy formulated or institution set-up needs all the support it can get to ensure that the desired changes can take place on the ground.

The new government, therefore, needs to rethink its future cabinet structure that allows good coordination among key ministries, such as development planning, forestry, agriculture, energy and the environment, and key agencies, such as the national climate change council and the REDD+ agency.

The new government will be judged by its selection of these ministers and heads of these agencies, and whether these leaders are those representing big businesses or willing to see Indonesia achieving sustainable development outcomes.

In addition, the new president should be much firmer in showing his leadership so that any decision would be followed and applied by those ministries and agencies accordingly.

Fred Stolle of the World Resources Institute, for instance, highlights this issue by stating that Indonesia has relatively good policies on forestry but the biggest challenge of all is to follow up the policies with effective implementation and law enforcement.

This first 100 days of the new government, therefore, would serve as the period for Indonesians to scrutinize the selection of ministers and formulation of key policies of their elected president and vice president.

In general, Indonesian citizens during this period, and even before, have to voice out and remind the elected government about the needs for significant transformation of the country’s current natural resource development, pushing for more efficient and sustainable use of natural resources.

For the elected president and vice presidents, they have to show that they can lead Indonesia, by formulating and implementing their vision, policies and programs that bring about the country’s sustainable development outcomes.

————————-

The author is acting executive director of Pelangi Indonesia, a doctoral candidate at the Australian National University, and the recipient of Australian Leadership Award and Allison Sudradjat Award. He can be reached at fitrian.ardiansyah@anu.edu.au.

Challenges for better natural resources management beyond 2014

By Fitrian Ardiansyah, published in Coal Asia, December 20, 2013 – January 20, 2014, page 144-145

for the pdf version, please see Opinion Fitrian Ardiansyah_CoalAsia_Dec13Jan2014

CoalAsia_Dec13Jan2014_BetterNRM2014

With the 2014 general election on the horizon in Indonesia, one may wonder whether the issues of better natural resource management and environmental protection would be in the mainstream debate among political parties and presidential candidates.

To date, Indonesia has experienced a stable growth since its economy recovered from financial crisis in the late 1990s and maintained its real growth performance at average above 5 percent in the period of 2000-2011, as reported by the World Bank.

The 2012 McKinsey Global Institute Report states that Indonesia is the 16th largest economy in the world.

The strength of Indonesia’s economy has been helped by its strong exports of natural resources, such as oil, gas, coal and crude palm oil (CPO), making up around 50 percent of Indonesia’s exports, as argued by the Global Edge of Michigan State University.

Indonesia has abundant resources and reserves of coal and gas, and has pushed the production of this type of energy sources in recent years, not only for domestic consumption but also for meeting the export demand. The Energy and Mineral Resources Ministry (MEMR) records that the proportion of coal export reaching above 90 percent in the period of 2007-2009.

With regard to palm oil, Indonesia in 2009 surpassed Malaysia to become the biggest producer this commodity in the world. Indonesia’s CPO exports and resultant revenues have increased dramatically over the last several decades, from 3.8 million tons (valued at US$1 billion) in 1999 to 21 million tons in 2013 (US$22.40 billion).

Commodities from forests and oceans also contribute to Indonesia’s economy. The 2011 International Trade Strategies (ITS) Report showed that various forest commodities contributed roughly 3 percent to the country’s GDP (gross domestic product).

Furthermore, natural resources and commodities have contributed significantly to the country’s employment, energy supply and food security.

The forest related sectors, for instance, employed a combined total of 3.76 million people or 4 percent of Indonesia’s working population, according to the 2011 ITS Report. While in 2010, 38.3 percent was reported by the World Bank as the figure of employment in agriculture (percent of total employment) in Indonesia.

A big question remains whether the country can retain its strong growth and support the livelihood of its population when these resources are extremely degraded or depleted.

In the general context of economic growth and GDP, resource depletion may not create immediate negative impacts. The McKinsey reveals that currently and to a large extent, Indonesia’s economic growth is propelled by its domestic consumption rather than export of natural resources.

The report further suggests that the resource sector’s share of the economy has fallen since 2000, with mining, oil and gas accounting for only 11 percent of Indonesia’s nominal GDP.

In the mid to long-run, however, resource depletion may shake the very foundation of Indonesia’s exports and eventually its economy. With the global demand for commodities likely continuing if not increasing, especially in fast-growing emerging markets, export growth from Indonesia can only remain buoyant if the country manages its resources wisely.

Resource depletion will also hurt the country’s economy domestically. In fact, it has done some damages if oil subsidy is used as a case.

Indonesia has become a net importer of both crude oil and refined products since 2004. Oil consumption has been heavily subsidized as part of energy subsidies and this has cost the government Rp306.5 trillion (US $31.5 billion) in 2012, a figure much higher than that in 2010 (Rp139.9 trillion or US $14.4 billion), according to Directorate General of Treasury of the Finance Ministry.

To address this issue, in mid-2013, the Indonesian government and parliament approved a government budget that increased the price of a liter of petrol by 44 percent and diesel by 22 percent. This intervention may have helped the government’s budget deficit but even after the price rises, as stated in the Economist, the deficit is still expected to reach 2.4 percent of GDP, up from 1.8 percent in 2012.

The same fate of resource depletion can happen to gas, coal and other mineral commodities especially if these resources are not managed carefully, which in turns may hit back at the country’s economy.

In 2012, for example, the Vice Minister of the MEMR stated that high energy consumption has caused and could accelerate the imbalance between the exploitation of fossil energy resources (such as oil, gas and coal) and the speed of inventing new reserves, leading to a depletion of Indonesia’s reserves and increasing dependency on imported energy.

Moreover, resources depletion often brings about other economic costs in the forms of environmental degradation.

Destructive, illegal and uncontrolled resources extraction in forestry, agriculture, mining and fishery sectors have usually led to deforestation and forest degradation, and depletion of fish stock which eventually created environmental related disasters such as floods, landslides, fires and haze, land, air and water pollutions, and biodiversity extinction.

Some of these impacts and disasters may not be easily reflected in the GDP of the country.

The loss of natural resources and the associated environmental impacts will surely be felt by Indonesian people and affect their daily livelihoods.

Droughts, floods and landslides, for example, often adversely affect agricultural production, in which the impacts are felt both on the level of the local economy and in the balance of trade and the current account, potentially upsetting a country’s macroeconomic equilibrium.

According to the Agriculture Ministry, more than a million hectares of the country’s paddy fields and more than 100,000 hectares of corn fields have been impacted by diseases, floods and drought in the period of 2007-2011. Out of these areas, approximately 140,000 hectares of paddy fields and 18,000 hectares of corn fields have suffered from crop failures.

If such production losses are not dealt with seriously, Indonesia may face difficulties in reaching its goal to ensure food security for its people. Even if such losses are compensated through imports, similar imbalances may surface in other areas, which include putting further dependencies of the country’s economy on foreign agriculture commodities.

Therefore, it is undoubtedly important to continue reforming the management of Indonesia’s natural resources and put this as one of the country’s development priorities.

Potential Indonesian presidential candidates and political parties should be reminded that Indonesia’s economy could be in jeopardy if its current and future economic platforms will only lead to further resource depletion and environmental degradation.

Indonesian people may need to see the track records of their candidates toward 2014 with regard to resource management and environmental protection, and identify and only support leaders who have had commitments and actions in transforming Indonesia’s natural resource management for the better.

The upcoming election once again brings an opportunity as well as challenge for us, the public, to contribute to an important decision-making process for the future of our economy and livelihoods.

It is time to demand for better natural resource management and environmental protection from our politicians and leaders.

————————-

The author is climate and sustainability specialist, a doctoral candidate at the Australian National University, and the recipient of Australian Leadership Award and Allison Sudradjat Award.