As Indonesians start to move on from the presidential election process and await the installment of a Prabowo-led government, the nation is at a crossroads with its energy blueprint. Some noted issues include oil production steadily decreasing, renewable integration targets for 2025 having been reduced from 23 to 17 percent, and foreign investment still below expectations. What’s fascinating is, that an economically pragmatic policy to improve the energy situation could secure unprecedented post-reformation political power for the next administration. A possibility which, understandably, may not yet be fathomed at the current moment. 

Nevertheless, Indonesia is due for an economic leap via energy growth after years of slow and underachieving economic progress. Energy consumption per capita, directly correlated to economic growth, has increased only 80 percent from 2002-2022. Larger growth surges, still not experienced in Indonesia, have transformed China and are currently ongoing in countries like Vietnam (nearly a 500 % increase in energy consumption per capita from 2002-2022). 

The new Indonesian leadership will be presented with a dichotomy of choice: a short-term goal to maximize or a long-term vision for perpetual influence. If the new regime chooses the latter, it will be akin to the route taken by the Chinese at the turn of the 21st century. Energy consumption per capita rose 400 percent from 2000-2022 in China. It was a phenomenon that was based on Deng Xiaoping’s free market economy implementation and later utilized as a springboard for Xi Jinping’s power grab soon after his ascent.

Although Jinping consolidated power through an aggressive anti-corruption campaign and the invigoration of a floundering Chinese national pride, the foundation of his rule was the unleashing of aggressive industrial policies. These aims successfully established China as the global manufacturing superpower pillared by coal power generation. In turn, China enjoyed record growth trajectories, eradicated poverty (reduced from 26 percent to  1 percent), and cemented Jinping as its most powerful ruler since Mao Zedong.

Similarly, Jokowi attempted this very tactic at the outset of his presidency by ramping up coal-generated power. While the supply side of the energy was increased, the demand for such energy generation was not created aptly via industrialization due to damaging bureaucratic delays leading to energy oversupply. 

The two countries’ predicaments at their fork-in-the-road moments are not identical, so varying approaches are necessary. Nevertheless, Indonesia has a chance to shift its energy philosophy to fully realize its imminent rise.  A lack of a true understanding of energy principles by the populace enables policies to be executed in any direction. It can then be justified by numerous pundits at the government’s disposal, with little to no consequence. A harrowing reality yet a situation that could ironically be leveraged for useful purposes.

World history has shown, that policies in energy are often used as political tools to reach a specific goal. One such objective is garnering power by lifting a country’s financial standing into new territories. The coming leadership’s narrower power structure should aid in swifter policy execution.

So, what are these energy philosophies for Indonesia to solidify power as a country, a geopolitical entity, and its government?

Eliminate the desire to placate too many viewpoints for the energy transition and focus predominantly on cost and benefits. Emphasis on just the reduction of greenhouse gas emissions is not effective as this one-dimensional tactic could hamper the country economically. Currently, Indonesia is not in any position to sacrifice significant economic growth solely to satisfy an environmental target. It ideally needs to grow while limiting emissions, but if only one option could be achieved, select the economic path.

Climate policy, as renowned professor Roger Pielke Jr. succinctly described is governed by the Iron Law: “When climate policies focused on economic growth confront policies focused on emissions reduction, it is economic growth that will win out (nearly) every time”. For a country like Indonesia whose economic threshold is lower than the more developed OECD countries, the iron policy should reign supreme.  

Next, the government should grant greater freedom to its energy asset holders both private and state-owned enterprises (SOE) to innovate, experiment and create. This can be accomplished by a more favorable investment term and a more lenient permit process. The United States is the world leader in innovation partly due to an embedded national philosophy of absolute property rights still valid today. Once an entity owns a plot of land, it is free to take the most profitable route as it sees fit above and underground. 

In 1870, Bryon Benson an oil distribution entrepreneur built a 130-mile pipeline in three months, a literal pipe dream today. Another example is the shale gas/oil boom that started in 2008 that transformed the global hydrocarbon landscape. US shale companies cut fracking costs by more than 100 percent in a three-year span and astonishingly undercut Saudi oil prices. This was achieved through creative process innovations made feasible by flexible regulations.

Indonesia does not adhere to the US land ownership law, yet the government should still emulate similar principles that could liberate the energy industry. Each nationalized oil block acquired by Pertamina had a marked decrease in production (Rokan from Chevron and Mahakam from Total). It is not a case of incapable human resources, as the national oil company has a plethora of great minds and leaders. The legal framework and a lack of collective synergy are the main culprits.

One way to combat this is through direct incentives of the public sector that could be applied not only to fossil fuel companies but also to renewable players. As Robert Greene, the best-selling author of 48 Laws of Power, asserted, it is best to cater to man’s self-interest rather than appeal to him for a greater good to accomplish an objective. 

SOE employees need to be financially incentivized when exceeding expectations in performance or delivering profitable projects. Some studies showed that cash incentives have raised revenues by as much as 20 percent while cutting costs by nearly 10 percent boosting company profitability. SOE staff also fear criminalization for making decisions deemed erroneous. It simply must change. A narrow and more unilateral path of power in governance could make a world of a difference.

Now we await the confirmation of the new president, yet one fact still remains. Prosperity and power will only come via energy development regardless of which man is in charge. For most Indonesians, it is no matter if the cat is black or white, as long as it succeeds in killing the rat.

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Rizvi Shihab is an oil and gas professional and founder of Enerprogroup.

The views expressed in the article are those of the author.