Indonesian energy reform eyes public-private balance

Subject

Proposed reforms in the oil and gas sector.

Significance

In the face of strong resource nationalism, President Joko 'Jokowi' Widodo's government faces strong pressure to improve the balance between public control and private participation in the oil and gas sector. To that end, the government proposes to amend the 2001 oil and gas law. Its draft amendment proposes, most notably, that state enterprises should control all production operations, while private investors provide technology and capital. The government is also considering revisions to the upstream regime, which is currently based on production-sharing contracts (PSCs). These changes require parliamentary approval.

Impacts

• Private firms, especially foreign ones, are likely to delay fresh investment in energy assets, given the oil and gas market glut.
• Indonesia's vast natural resource endowment will attract private interest, but regulatory uncertainty will be an abiding problem.
• Transparency in the extractive sector will continue to rise at the national level, but local level reforms will be slow.