indonesia

Resource Nationalism
Nationalist sentiment across all important extractive sectors of the economy (including the
mining and oil and gas sectors) reflects the perception that Indonesians are not benefitting
enough from their natural resource wealth. Article 33 of the 1945 Indonesian constitution is
routinely referenced in support of this view. A specific application of this sentiment in the mining
sector is the promulgation of the 2009 Mining Law. The basis of this law reflected dissatisfaction
with the contracts of work and coal contracts of work arrangements and set up a system whereby
the Indonesian government would have greater control over licenses in the mining sector. The
law has resulted in tremendous uncertainty in the mining sector and created disputes between
mining companies and the government over contract renegotiations and procedures for acquiring
export permits.
There have been similar trends in the oil and gas sector. In 2012 the Constitutional Court
ruled to disband the upstream oil and gas regulator, BP Migas, on the grounds that it contravened
Article 33 of the constitution. The court determined that BP Migas had neglected its obligation to
ensure that all natural resources would be “controlled by the state to be exploited to the greatest
benefit of the people.” 44 The political motivation to disband BP Migas centered on the belief that it
had become too liberal and disproportionately favored foreign interests.
The Constitutional Court used the same legal argument to overthrow the 2002 Electricity Law
that sought to liberalize the electricity sector, and more recently (in April 2015) it overturned the
2004 Water Resources Law. There are currently calls for the court to review over one hundred
laws related to investment on the grounds that they contravene Article 33 of the constitution,
with cases pending against the 2007 Investment Law, the 2011 Foreign Exchange Law, and the
2009 Electricity Law. 45 If this undercurrent of resource nationalism is not kept in check, it will
deter needed foreign investment.
Corruption and Lack of Governance in the Energy Sector
Corruption in the energy sector leads to a significant loss of revenue that threatens the sector’s
operational performance while undermining its attempts to attract foreign investment, finance
new projects, and increase production. Indonesia’s Supreme Audit Agency and the Corruption
Eradication Commission have both found evidence of irregularities pointing to significant
corruption, including cases involving a number of high-profile government officials. The former
energy and mineral resources minister, Jero Wacik, and former head of Commission VII, Sutan
Bhatoegana, from the previous administration are currently on trial for corruption. In April
2014 the former head of SKK Migas, Rudi Rubiandini, was sentenced to seven years in prison for
corruption and ordered to pay a fine.
Since assuming office, Jokowi has made it a priority to place reformers in key positions. To
address concerns surrounding governance and corruption issues, the new minister of energy
and mineral resources, Sudirman Said, has initiated a shake-up of his ministry and vowed to
root out corruption in the energy sector. He does not come from the oil and gas industry but
has an extensive background in accounting and corporate governance. One of his first actions
44 See Article 33 of the 1945 Indonesian constitution, available at http://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---
ilo_aids/documents/legaldocument/wcms_174556.pdf.
45 Gilang Ardana, “Muhammadiyah to Carry On with Constitutional Jihad,” AmCham Indonesia, August 5, 2015, http://www.amcham.or.id/
fe/5041-muhammadiyah-to-carry-on-with-constitutional-jihad.
INDONESIA’S ENERGY POLICY u STUART
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