The new president has communicated a simple and clear vision of his priorities as leader; he describes a government that listens and responds to the needs of the people, and that is open, accountable and professional. Styling himself as a pragmatic problem solver, Mr. Widodo campaigned on his nawa cita, or “nine priorities agenda.” The manifesto emphasizes effective, reliable and democratic governance and at the same time aims to strengthen the national economy by improving strategic sectors, including the energy sector.
The new government will nonetheless assume power with a long list of challenges, solutions to which will require concerted effort and extensive public communications. Long a major global oil producer, Indonesia’s production has declined by 25 percent in the last ten years. Despite the country’s status as a net importer of petroleum, the Indonesian population remains heavily dependent on fuel subsidies, which comprise about 20 percent of national budget expenditures—an issue that Mr. Widodo has vowed to tackle as a near-term priority.
The hard mineral sector presents the incoming government with similar challenges. There has been a significant decentralization of the power to award mining licenses, and a lack of effective coordination between national and subnational governments has resulted in overlapping titles and weak enforcement of legislation and regulation. The government is embroiled in complex negotiations with major international mining companies in the wake of its announcement earlier this year that it would not allow companies to export mineral products that are not processed in Indonesia.
In recognition of the critical juncture at which Mr. Widodo takes office, NRGI has collaborated with Gadjah Mada University to prepare two policy briefs that present key considerations for governance of the natural resource sector.
The first brief focuses on steps that the government can take to bolster existing efforts to promote transparency and greater government-citizen dialogue around natural resources. Its recommendations touch on:
Mechanisms to increase the transparency of licensing processes, especially in the mining sector
The benefits that Indonesians could gain from public disclosure of petroleum and mining contracts
The elements of the new, stricter EITI Standard that Indonesia will have to implement beginning in 2015, and the benefits that rigorous implementation can confer on Indonesia
The importance of closer communication and coordination between national and subnational governments around extractive-sector management
Indonesia is also revising its oil and gas law, which necessitates a thoughtful approach to restructuring petroleum-sector institutions, particularly in the wake of a 2012 Constitutional Court decision which invalidated the role played by the regulatory agency BP Migas (which had been responsible for enforcing Indonesian legislation and monitoring the activities of international oil companies and the national oil company Pertamina). A new system that ensures rigorous and consistent enforcement of the rules and includes strong performance incentives for Pertamina and other public agencies will be essential. To this end, our second brief builds on Gadjah Mada University’s expertise on oil-sector institutions in Indonesia and NRGI’s global research on oil-sector administrative structure and national oil company management, to share:
Pros and cons of various institutional models under consideration by Indonesian officials
An assessment of the implications of different possible rules for enabling Pertamina to participate in (and lead) the operating groups that manage oil projects
Lessons learned from international experience around various accountability mechanisms—including audits, advisory committees and rigorous reporting requirements—and the performance of national oil companies and regulatory bodies
We hope that these considerations will be of value to the new government and to Indonesia’s citizens as they seek to take advantage of this historic moment to make sustained progress in managing the Indonesia’s natural resources in the national interest.