The Indonesian government has stepped up its efforts to limit the export of raw commodities such as coal, gas, LNG and minerals.
In the case of coal and gas, the government’s intention to limit exports is driven by growing energy demand from the domestic market thanks to expanding industrial activities, population growth and increased electrification, Wood Mackenzie writes in its report.
Consequently, WoodMackenzie expects Indonesia’s energy consumption to almost double from 226 Mtoe in 2015 to 418 Mtoe in 2035, with demand largely met by fossil fuels.
However, Indonesia’s deteriorating trade balance, which has been negative in the last three years, has raised concerns about the negative impacts of the curtailment policy on the country’s current account and currency strength.
Job losses and suppressed production are expected as the resource sector adjusts to the new regulations. Longer term, increased scrutiny and policy uncertainty could reduce investment and slow the exploration and development of new resources.
Overall, Wood Mackenzie identified a mismatch between policy implementation and market readiness. Given Indonesia’s immense domestic demand potential, it would be worthwhile to accelerate reforms in the power and industrial sectors, strengthening the economy for longer-term gains.