Energy Ministry in the Compromise Cabinet

President Jokowi has chosen 34 ministers, including Energy and Mineral Resources Minister Arifin Tasrif, and 12 deputy ministers to carry out state duties in the Indonesia Onward Cabinet.

In general, the choice of ministers and deputies was full of political compromises. Jokowi had to accommodate various interests, ranging from supporting parties to political opponents, volunteers and professionals. The public also asked whether the President used his prerogative to choose ministers or whether they were the results of compromise. According to sociologist Karl Mannheim (1940), power is always related to ideological, defense, political and business interests. There is an assumption that the President must consolidate the elite because only with elite unity, political stability can be maintained and economic development can be implemented. If that is the case, Indonesia\'s democracy is the result of elite engineering. As long as the elite have solidarity, this republic can be maintained.

The energy ministry is the most strategic ministry portfolio and related to the lives of the people of Indonesia. Minister Arifin Tasrif represents "professional" circles. He has worked for a long time in the petrochemical industry. However, he is also known to have close relations with cross-party elite and energy entrepreneurs. The minister needs to place himself in the middle of interest groups that often interfere with strategic policy-making in the energy and mining sectors.

The public hopes that the new minister will not be entrusted by political parties or business groups. The energy minister must be clean, have the capacity, be brave against the mafia and oligarchic forces that have long formed a cartel in the energy and mining sectors. The oligarchy cartel monopolizes natural resources, from energy to mining to electricity. Arifin was appointed the energy minister to not just streamline bureaucracy.

The question that arises then: how can the ideals of energy and mining independence be realized if the minister is not genuine in carrying out his duties.

KOMPAS/ARIS PRASETYO

Energy and Mineral Resources Minister Arifin Tasrif (right) when serving reporters\' questions on the sidelines of the release ceremony of a seismic survey vessel owned by PT Elnusa Tbk, on Tuesday (12/11/2019), at Tanjung Priok Port, Jakarta.

Slow decisions

Former World Bank Vice President Joseph E. Stiglitz once exposed the dark side of executives at the World Bank and International Monetary Fund (IMF) in his book Globalization and Its Discontents (2002). Stiglitz questions how two global financial institutions can manage both the development and global monetary system fairly, while policymakers are from large corporations such as Citi Corp and Goldman Sachs. This is only a five-year term. Their policy, according to Stiglitz, will surely favor the business and financial community.

In this country, political positions, such as ministers, represent business and political interests in a greater way so that the scent of compromise is very thick. Faced with various interests, policymakers easily fall into the risk of moral hazard in making decisions.

Moral hazard means executing policies that only benefit some groups and the making of strategic policies becomes very slow. Many examples can be a reference. The investment decision for the largest

oil and gas block, the Masela Block (Maluku) offshore or onshore, for example, takes a long process because it is related to the interests of global-local business groups who want to be able to get ration from the business chain of project work. Some want to be able to get business benefit if it is built on land, such as land and petrochemical businesses. There are also those who want to be able to benefit if it is built at sea, such as a sea pipe project.

There was discussion between the energy minister at that time (Sudirman Said) and coordinating maritime affairs minister Rizal Ramli. Two of them may represent the interests of the camp, both on land and at sea. Without President Jokowi\'s command at the time, the construction of the Masela Block was hanging. This has made the process of approval of a plan of development (POD) with an investment fund of US$20 billion take years and was only approved in September 2019. In fact, the development of the Masela Block could reduce the burden of oil and gas imports which become the main source of the trade balance deficit in the Jokowi era.

The fight involves the interests of Freeport shareholders, Freeport McMoRan (US), the interests of local business partners, and the interests of the state.

The renegotiation of PT Freeport Indonesia\'s gold and copper mining company contract is an example of the slow decision-making because it is related to a business-political multi-interest battle. Renegotiations related to divestment, state revenue, smelter construction have taken place since the SBY era (2010) and have only been completed in the Jokowi era (2019). The fight involves the interests of Freeport shareholders, Freeport McMoRan (US), the interests of local business partners, and the interests of the state.

If the leader is not strong, the power of the country can be lost when dealing with the interests of shareholders and local business partners. The contract renegotiation was only completed when the energy ministry was led by Ignasius Jonan. Jonan forced Freeport to convert the work contract into a special mining business permit with a divestment requirement of 51 percent of the shares, the construction of a smelter if it wanted to extend the contract.

Jonan was cooperating with SOEs Minister Rini Soemarno and Finance Minister Sri Mulyani Indrawati to divest Freeport shares. Rini, the SOEs minister at that time, responded quickly to Jonan\'s decision by forming a mining holding led by PT Indonesia Asahan Alumina (Inalum) to buy 51 percent of Freeport\'s shares. With the holding, mining SOE assets become large and the capital for Inalum can obtain a loan of US$5 billion to buy Freeport. The majority of Freeport\'s shares were then again controlled by Indonesia.

The completion of the Freeport divestment process is inseparable from the command of President Jokowi. In addition, Jonan, Rini and Sri Mulyani did not have any burden. Jokowi chose them to work for the state, not for the interests of the political parties and the corporations from which they came. They worked quickly to restore mining sovereignty and have ambitions so that state-owned companies could be relied on. The position of president is very important to strengthen strategic policies in the ministry, especially related to oil and gas blocks and giant mines that have long chains. In the Freeport case, Jokowi immediately ordered Indonesia to obtain 51 percent of Freeport\'s shares. It was political support that made Jonan, Rini, and Sri Mulyani move quickly.

Continuity of attitudes and policies

The next question for the new ESDM Minister, can he continue the mining sovereignty project that had been carried out in the era of the previous ESDM Minister? Can he work together with SOEs Minister Erick Thohir and Finance Minister Sri Mulyani to issue strategic policies in the oil and gas and mining  sectors? In the mineral sector, Arifin is faced with the tough task of completing the contract renegotiation with eight holders of the Coal Mining Concession Work Agreement (PKP2B) given in the New Order era and the contract period will expire in the next few years.

Berau Coal has a land area of 121,589 hectares with a production of 24 million tons.

The eight PKP2B holders include PT Kendilo Coal Indonesia (2021), KPC (2021), Multi Harapan Utama (2022), Arutmin (2022), Adaro Indonesia (2022), Kideco Jaya Agung (2023), and Berau Coal (2025). PKP2B holders are considered giant and major players in Indonesian coal in terms of production and wide area coverage. Arutmin and KPC have coal production capacity of 100 million tons per year. Meanwhile, Adaro Energy\'s production is 40 million tons. Berau Coal has a land area of 121,589 hectares with a production of 24 million tons.

According to the rules, PKP2Bs whose contract period end are returned to the state. The state then has the authority to extend or not, and can reduce the area of land according to Law No. 4/2009 on Minerals and Coal. Former ESDM Minister Ignasius Jonan previously did not renew the contract of PT Tanito Harum and the contract of a subsidiary of PT Borneo Lumbung. Meanwhile, Rini Soemarno asked for special treatment to enable mining SOEs to get priorities on PKP2B mining areas, which are reduced, on the consideration of the state-owned mining company, PT Bukit Asam, only controls 6 percent of the domestic coal market and state electricity company PLN needs coal to meet domestic electricity needs.

This is not easy because the eight PKP2Bs are controlled by conglomerates, political party elites and affiliated with power.

Get out of the trap

Can Arifin coordinate with SOEs Minister Erick Thohir? Is Arifin brave enough to force the SOEs minister to take over the PKP2B mining land, which will be reduced to help state-owned companies, including PLN? PLN will then form its own business unit in the coal sector by obtaining free concessions from PKP2B land to be reduced. PLN has thus far been buying coal from coal producers. The completion of the PKP2B renegotiations could be a benchmark if Arifin is free of interests.

Minister Arifin must encourage transparency and accountability in the management of the energy sector to get out of the multi-interest trap in the energy sector. Tenders for large projects and renegotiations with mining companies must be opened to public spaces so that there are no illicit maneuvers that cause state interests to be hijacked.

Arifin needs to make innovative policies so that oil and gas companies are able to find new oil and gas reserves. Synergy with the SOEs Ministry is necessary to encourage Pertamina to expand in search of oil fields abroad to increase national oil production and complete the construction of refineries for fuel processing. Arifin must find the best strategy to reduce imports of liquefied petroleum gas (LPG). It can be done by encouraging coal companies to boost coal processing by building diethyl ether (DME) to reduce LPG imports. This is all important to suppress the pace of the trade balance deficit. Finally, the vision of an advanced Indonesia needs to be a shared goal to realize energy and mining independence.

Ferdy Hasiman, Researcher at Alpha Research Database Indonesia