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Economist report: Indonesia needs reform to ensure energy future

15th January 2014

A new report published by The Economist Intelligence Unit details the need for Indonesia to modify its subsidies and regulations to develop its energy sector

Powering up: Perspectives on Indonesia’s energy future

The Economist Intelligence Unit's (EIU) report titled, Powering up: Perspectives on Indonesia's energy future, reveals that reforms are necessary to ensure Indonesia’s energy future.

It primarily details the reforms that are necessary for Indonesia to manage its ample natural resources in a sustainable way that will guarantee its future energy security.

Some of the issues that are thwarting the development of the country’s energy sector include subsidies, which are affecting investments, hurting fiscal policy and largely benefiting wealthier households. As a result, reforms that are required to maintain Indonesia’s increasing energy consumption will require an investment scheme which has “clarity, consistency and certainty.”

Lukman Mahfoedz, President of the Indonesian Petroleum Association, revealed in an essay that “Indonesia has extensive natural resources, but to make the most of them it needs investors, who in turn want clarity, consistency and certainty.” 

He added that the “implementation of the ‘3Cs’ is necessary to support Indonesia today and tomorrow.”

Lead Economist for Indonesia at the World Bank, Ndiame Diop, detailed in another essay the reason why energy makes up a huge opportunity cost, which has damaged productivity and has greatly benefited for upper income households.  

He describes that Indonesia’s spending on energy subsidies has had both “short- and long-term economic consequences.” In 2012, the total spending on subsidies was equal to the central government’s entire “capital and social spending.”

As a result, Diop concludes that reducing subsidies is a “prudent and fair policy.”




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