Economic Transformation of Paser Regency Towards Renewable Energy: Adaptation and Sustainability Solution

Fabby Tumiwa, Direktur Eksekutif Institute for Essential Services Reform (IESR),

Paser, May 8, 2024 -Indonesia is trying to reinforce its commitment to renewable energy development to achieve its net-zero emission targets by 2060 or even earlier. These efforts are part of the global initiative to tackle climate change and are expected to significantly impact the coal industry, including the one in Paser Regency, East Kalimantan.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), underlined the importance of economic transformation in the region to respond to the ongoing energy transition. This was revealed during the Development Planning Conference (Musrebang) of the Initial Draft of the Regional Long-Term Development Plan (RPJPD) of Paser Regency for 2025-2045 on Wednesday (8/5/2024),

“Economic transformation needs to be carried out in the face of the energy transition because of the decline in local revenue (PAD) from the coal sector, and a decrease in the number of jobs in the coal sector and the opening of jobs in other economic sectors,” Fabby said.

Fabby emphasized that based on an IESR study, the contribution of the coal sector to the gross regional domestic product (GRDP) of the Paser district is enormous, more than 70 percent. However, the GRDP per capita of the Paser district has been relatively stagnant in the last decade. It is essential to undergo an economic transformation to address the issue at hand. This is where the capacity of local governments comes into play. They need to have a well-defined direction and strategy for the energy transition, establish a systematic and cohesive monitoring and evaluation system, and enhance collaboration between agencies at the regional level.

“However, the challenge is local governments’ limited authority and budget. For example, different agencies at the regional level handle new and renewable energy (NRE) affairs and NRE project funding that is not sustainable. IESR suggests the establishment of a special agency in charge of energy affairs at the City / Regency level by the direction of Government Regulation (PP) No. 18/2016 and building a horizontal communication forum between the central, provincial, and local governments, with assistance from international cooperation organizations,” said Fabby. 

According to Fabby, in the context of economic transformation, several potential sectors in Paser Regency can be maximized, citing the IESR study, including agriculture, transportation, financial services, and education. However, in developing these new economic sectors, aspects of justice and equity need to be considered to avoid injustice due to extractive industries.

“Paser Regency can also utilize corporate social responsibility (CSR) funds and revenue sharing funds (DBH) for initial funding of the economic transition process. The existence of a ‘pooling fund’ for the transition program encourages regions to become independent and helps regions prepare for economic sector transformation,” said Fabby.

Furthermore, Fabby suggested that preparing human resources, such as formal educational institutions, universities, vocational schools, and training programs focused on energy and environmental transition, can help individuals prepare themselves for the workforce and increase public participation in equitable energy transition planning. This economic transformation is a crucial step towards addressing global climate change goals. It will help Paser Regency adapt to and sustain itself in the face of challenges and opportunities in the renewable energy era.

Meanwhile, Rusdian Noor, Acting Head of Bappedalitbang Paser Regency, said the Paser regional economy’s diversification is still low due to the suboptimal growth of agricultural business fields, the suboptimal development of the tourism sector, the lack of downstream industry, and the suboptimal diversification of derivative products based on natural resources (SDA). For this reason, the initial draft of the RPJD needs to answer this problem, among others. 

“Paser’s RPJD will be divided into four stages. First, we strengthen the foundation of transformation as a driver of the agricultural economy. Second, focusing on accelerating transformation. Third, regional expansion in sustainable economic development. Fourth, the realization of a noble Paser that is prosperous and superior and competitive,” Rusdian said. 

Mitigate the Impact of the Energy Transition in Coal-Producing Regions with Economic Transformation

press release

Jakarta, September 1, 2023 – The Institute for Essential Services Reform (IESR), a leading energy and environmental think tank based in Jakarta, Indonesia, released a report on the potential impact of the energy transition on coal-producing regions in Indonesia. This report, entitled Just Transition in Indonesia’s Coal Producing Regions, Case Study Paser and Muara Enim, finds that economic diversification and transformation must be immediately planned to anticipate the social and economic impacts of the decline in the coal industry along with plans to end coal-fired power plants (CFPP) operations and increased commitments to energy transition and emissions mitigation, from countries that have become coal export destinations so far.

IESR recommends that the central and regional governments realize the potential impact of the energy transition on the economy and development of coal-producing areas and start planning for economic transformation as soon as possible in these coal-producing areas.

A recent study conducted in Paser Regency, East Kalimantan Province, and Muara Enim Regency, South Sumatra Province, has recommended the utilization of coal’s revenue sharing (dana bagi hasil, DBH) CFPP and corporate social responsibility (CSR) programs to plan and support economic transformation. The study also highlighted the importance of expanding public access and participation to ensure a just transition. In 2023, Coals’ revenue sharing fund (DBH) is projected to account for 20% of the total revenue budget of the Muara Enim government. Similarly, between 2013-2020, it accounted for 27% of the total revenue of the Paser government.

“The importance of prioritizing economic activities that benefit local communities and have a greater multiplier effect towards post-coal mining economic transformation. It is equally important to factor in the potential impact of a decrease in coal production on the informal economy sector, which has not yet been included in macroeconomic analysis,” mentioned Executive Director of IESR, Fabby Tumiwa.

According to a recent study, the coal mining industry has contributed 50% to 70% of GRDP in Muara Enim and Paser over the last ten years. However, despite this significant economic contribution, coal industry workers earn little. Only around 20% of the added value is allocated to workers, while as much as 78% becomes company surplus. This means that the enormous economic value generated by the coal mining industry contributes little to the income of its workers.

“The coal mining industry has also caused significant social and environmental impacts on the surrounding communities. These impacts include degradation of air and water quality, changes in people’s livelihoods, economic inequality, and increased consumerism and rent-seeking,” stated Julius Christian, the leading author of this study and also the Research Manager of IESR.

According to him,  different parties in the region are responding to the trend of energy transition in various ways based on their interests, knowledge, and access to information. Coal companies are more aware of the energy transition risks posed to their businesses than governments and ordinary citizens.

“Both companies and local governments are starting to carry out various economic transformation initiatives. However, local people are more skeptical about the potential decline in coal because they have seen increased production recently,” said Martha Jesica, Social and Economic Analyst at IESR.

However, according to her, changes in perspective are occurring in both society and coal industry companies. The local community has called for economic diversification, and coal companies have started branching into other fields. She hopes that various stakeholders and the government can work towards raising awareness and implementing structural changes to drive economic transformation efforts.

The report “Just Transition in Indonesia’s Coal Producing Regions: Case Studies Paser and Muara Enim” by IESR suggests that to achieve sustainable development in coal-producing regions, firstly, there needs to be a comprehensive plan for economic diversification and transformation that involves stakeholders and community participation. Secondly, utilizing DBH funds and CSR programs to finance the financial transformation process, which can attract more investment into sustainable economic sectors. Thirdly expanding access to education and training to prepare a competitive workforce in the sustainable industry and increasing financial literacy for the community. Fourthly, expanding the participation of all elements of society, especially vulnerable groups, in regional planning and development.

“All matters related to the transition in coal-producing areas should be included in the respective central and provincial governments’ Medium Term Development Plan (RPJM). This will provide clear support and direction for local governments,” said Ilham Surya, Environmental Policy Analyst IESR.