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Further complicating this picture is the inadequacy of necessary energy infrastructure. For
example, the country’s natural gas distribution network is still very limited and serves only
approximately 1% of Indonesian households. A modern interconnected electricity system has been
built only in the Java-Madura-Bali region, while other regions still rely on hundreds of small systems
that provide limited services. 13 The geography of the Indonesian archipelago, which comprises
over 17,000 islands, also hinders the progress of achieving the target of 100% electrification set by
the current national medium-term development plan. 14
Affordability
Not only do many Indonesians struggle to pay their energy bills, but the government complains
about the burden of the energy subsidy on the state budget. Because of the nature of Indonesia’s
underdeveloped energy infrastructure and the challenges of delivering supplies consistently to a
geographically complicated country, villagers living in remote areas or on small, isolated islands
must pay more for energy services than the rich living in urban areas. This disparity exacerbates
the existing inequality that the government of Indonesia is trying to reduce.
To address affordability issues so that average Indonesians can pay their energy bills, most
fuel and electricity prices in Indonesia are regulated by the government. Consequently, if revenue
from selling energy is less than the costs of delivering it (by the state energy companies), the
government must provide subsidies from the state budget. Yet as the studies in this report and
elsewhere have highlighted, energy subsidies have become a large burden on the government. The
government’s own analysis of its proposed 2015 budget estimated subsidies for oil and LPG to
cost 276.0 trillion rupiah and subsidies for electricity to cost 68.7 trillion rupiah. These subsidies
are much larger than the central government’s 2015 budget for education (146.4 trillion rupiah)
and healthcare (21.1 trillion rupiah). 15 The high cost of subsidies thus not only complicates
efforts to expand access to electricity but also limits national efforts to address inequalities in
other areas.
Acceptability
A core consideration for Indonesian policymakers is the acceptability of the country’s energy
systems, particularly the power sector. This problem has two key elements: (1) addressing the
numerous complaints about the low reliability of electricity services, including frequent blackouts
(particularly in the eastern regions), and (2) reducing the harmful environmental impacts
associated with the delivery of energy (e.g., poor mining practices in several areas and decaying
infrastructure).
Securing social license to operate—that is, taking into account local culture and land ownership
concerns in the development process—is also a challenge for Indonesia’s energy development. For
example, the country has been using small-scale nuclear energy facilities for research purposes
for over five decades. However to date, no commercial nuclear power plant has been constructed
despite the large demand for electricity (in Java in particular). Nuclear power is not accepted by
many Indonesians due to fears about exposure to radiation and the lack of understanding of the
13 Hanan Nugroho, “Developing the First Nuclear Power Plant in RI,” Jakarta Post, July 1, 2010.
14 Government of Indonesia, “Rencana pembangunan jangka menengah 2015–19.”
15 General Directorate of Budget, Ministry of Finance (Indonesia), “Budget in Brief: APBN 2015,” October 2014, 14 and 22, http://www.
anggaran.depkeu.go.id/dja/acontent/BIBENGLISHVERSION.pdf.
REDEFINING INDONESIA’S ENERGY SECURITY u NUGROHO
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