To ensure a broad-based growth, and further catapult Indonesia’s growth potential, massive investments in infrastructure is needed. For the next 5 years, the country is aiming to build around 20,000 km of roads, 15,000 MW of power plants, as well as other infrastructure including ports, oil refineries, and other supporting infrastructure. The cost of this endeavor is estimated to be around US$ 160 billion, around US$60 billion some of which will be publicly funded.
The Indonesian government is currently formulating ways to improve the mechanism by which these projects will be prepared, implemented, and monitored. Public-Private Partnership (“PPP”) has long been acknowledged as the funding scheme to bridge the public-private chasm.
In a recent breakthrough, BKPM has been mandated to be the main implementer for five showcase infrastructure projects. Working hand-in-hand with BAPPENAS, Ministry of Transportation, Ministry of Public Works and a few other relevant ministries, BKPM will lead the execution the following five projects shown here.
Being the largest, archipelagic nation in the world, Indonesia is blessed with rich and fertile soil. With a land area of 1.9 million square kilometers, around 12% contains arable land – around 230,000 square kilometers. Moreover, Indonesia’s water resources, accounts for almost 6% of the world’s total resource, and 21% of the Asia Pacific region.
Due to its tropical climate and fertile land, Indonesia has historically been the perfect place to grow high priced plants and spices such as cloves, vanilla and nutmeg, which are rare and high in demand.
Nowadays, Indonesia has been able to place itself as the global leader in the production of palm oil and the second largest producer of rubber in 2010. The production and export of crude palm oil has been the biggest contributor to the plantation subsector in Indonesia’s GDP.
*FOOD AND AGRICULTURE
There has been continuous expansion of the palm oil plantation area, with the last five years seeing an increase of approximately 40% for areas of cultivation. The figure rose from 5.4 million hectares in 2005, to 7.8 million hectares in 2010. Given this expansion was recent, further growth in production is anticipated as plantations reach maturity and yields grow. There is strong government commitment to utilizing concessions that are already used for agricultural purposes, in order to increase productivity of land already earmarked for agricultural purposes, as well as prevent any degradation of forest land. This will mean there will be a decrease in the rate at which areas of cultivation will grow for this sector; however, we view this as a positive step towards sustainability. Expansion of production areas will continue in the provinces of Jambi, West Sumatra and West Kalimantan. Responding to the growing global concern of deforestation caused by the opening of new palm plantation area, Indonesia’s government is going to launch the Indonesia Sustainable Palm Oil (ISPO) certification. This certification will be awarded to the palm oil producers that are able to achieve all the environmental and sustainable standards in all of the production and processing stages.
Currently Indonesia also has the largest area of rubber plantations in the world, with 3.4 million hectares producing 2.4 million tons of rubber per year, this means Indonesia is the 2nd largest producer globally, second only to Thailand. By early 2011, new rootstock will be planted on approximately 400,000 hectares of land in order to improve yields and lessen impact of ageing trees, as well as boost production of high quality of crumb rubber, a semi-processed raw material used in the production of rubber products such as tires and rubber gloves.
For other food crops, below are lists of other agricultural products which have flourished in Indonesia:
Table 1. Estate Production by Crop, 2004-2008 (tons)
Source: Central Bureau of Statistics Indonesia
Indonesia’s rapidly expanding economy has helped boost domestic energy demand. With vast potential of energy resources, Indonesia has become main energy supplier for both neighboring countries and world’s major economic power such as Japan and China. However, the growing demand for domestic industry and household consumption makes the need for optimization more important. The government is finding ways to develop new sources of energy and balance local needs with the advantages of exports. Please find the following data on Indonesia’s vast natural resources:
Source: Ministry of Energy and Mineral
Oil and Gas
The key challenge for the government, especially in the oil and gas sector, is how to balance exports with domestic needs for energy. With daily domestic demand of approximately 1.5 million barrels per day, Indonesia needs to build at least needs two new oil refineries. New discoveries have helped Indonesia’s oil production, and with the right technology, Indonesia’s competitiveness of oil production has seen an improvement in 2009; according to Ministry of Energy and Mineral of the Republic of Indonesia , the cost to produce oil in 2009 is US$ 11.95 per barrel, better than industry average of US$ 34.34 per barrel.
As the single largest holder of proven natural gas reserve in the Asia Pacific region, Indonesia’s gas plays important role for East Asia’s (Japan, China and Korea) energy supply. With reserve of 112 trillion cubic feet (TCF), Indonesia has expanded gas pipe network to neighbouring countries (Singapore and Malaysia). Hence, exponential growth demand of gas from domestic market has pushed Indonesia’s government to secure national interest by rebalancing of export and domestic market. This demand creates new opportunities for investors to support domestic gas logistics.
By the end of 2009, generating capacity of the whole of Indonesia stood at 30,500 MW. The electrification rate has only reached 65%, and this is disproportionately distributed on the islands of Java and Bali. This low electrification rate is reflected in per capita consumption of just under 600kWh. In order to increase underserved areas and increase electrification rates, Indonesia must generate new capacity at a rate of 9.2% annually up until 2027 (National Electricity Planning). Meanwhile, consumption is growing at a pace of 6-7% annually.
In order to bridge this gap, the government has embarked on two successive Fast Track 10,000 MW programs, which have been implemented in stages. These two phases’ of power capacity build-up will be fully operational by 2014.
While these two phases still rely most on coal fired power generation, as the owner of 40% world potential of geothermal, the next step is to optimize supply of geothermal energy. Other than that, to overcome transmission problem, there are many potential investments to build local or regional electric generation plant using local resources such as micro/mini hydro, wind or solar power.
Indonesia’s coal production reached around 320 million tons in 2010, while output in 2009 was above 250 million tons. This places Indonesia as the sixth largest producer of coal in terms of output, behind China, US, Australia, India and Russia. However, in terms of exports of thermal coal, Indonesia has emerged as the world’s top exporter due to its strategic location. In addition to strategic location, Indonesia is a low-cost producer because of its low cost of labor and its geology, whereby much of the coal is found near the land’s surface. Most coal development activities take place in South Kalimantan, Riau, Central Kalimantan, Jambi and East Kalimantan.
Indonesia is striving to create a low-carbon economy and President Yudhoyono has taken a lead on committing to cut carbon emissions by 26% from business as usual case by 2020, without international support, and up to 41% with the help of international donors. In our national energy strategy, Indonesia has also committed to allocating 20% of the energy mix for renewable resources by 2025.
In the future, to prepare for fossil energy depletion and to support the national carbon reduction program, Indonesia must more actively engage in developing environment friendly energy supplies. The table below shows Indonesia’s renewable energy potential.
Source: Ministry of Energy and Mineral