The U.S. secretary of commerce arrived today in Jakarta, leading the first high-level American trade mission to Indonesia since the Asian financial crisis in the 1990's. This trade delegation is focusing primarily on increasing U.S. investment in the development of clean energy production.
Although Indonesia has significant oil, gas and coal reserves, the country has become a net importer of energy, to fuel its growing economy. To develop its domestic energy production capacity and reduce the production of greenhouse gases associated with global warming, the Indonesian government has mandated that, by 2025, 15 percent of the nation's electricity should come from renewable energy sources.
At a clean energy conference in Jakarta, United States Secretary of Commerce Gary Locke said U.S. businesses can help Indonesia achieve its goal to develop geothermal and hydroelectric and other alternative energy resources.
"We need to help the people of Indonesia achieve their dreams by supplying them with energy, clean alternative energy and also pursuing energy efficiency, so that the energy that is produced, can go a lot farther and serve the needs of many more people," said Locke.
Accompanying the U.S. commerce secretary in the cabinet-level trade delegation to Indonesia are companies with expertise not only in clean energy production, but also in construction and engineering.
Although the opportunities for U.S. businesses are great, the obstacles for foreign investors in Indonesia are many. Business leaders say government subsidies, the lack of infrastructure and overlapping regulations weakens investor confidence.
With its numerous volcanoes and hot springs, Indonesia has 40 percent of the world's geothermal energy resources. Geothermal power comes from heat stored in the earth. Chevron Indonesia operates two geothermal power plants. Despite growing demand, no new plant has been built in the last decade. Chevron's Indonesia managing director, Steve Green says investors lack confidence that their contracts with the Indonesian government will be honored.
"The investor needs confidence that, once those terms are negotiated and he makes the investment decision, that he can rely on those terms and those agreements being honored by both sides over the life of that infrastructure investment," said Green. "That has been a challenge here, frankly, in the past."
Arian Ardie, with the American Chamber of Commerce, says Indonesia could expedite investment and development by guaranteeing a negotiated price for the electricity it produces.
"I think the Indonesian government should pick up a policy for renewable energy projects and you can put a cap on the size, 20 megawatts, 50 megawatts, but I think they should adopt a 'if you build it, we will buy it' policy based upon very clear pricing instructions and a very clear and replicable power purchase agreement," said Ardie. "What's the worse that could happen? We could have a whole bunch of renewable energy projects at a guaranteed price that the government could live with."
The U.S. trade mission hopes some of these issues can be resolved by engaging its Indonesian counterparts about both the opportunities and obstacles to foreign investment.