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. 

Towards an Energy Transition in South Sumatra

Podcast Ruang Redaksi RMOL Sumsel

Palembang, December 6, 2023 – South Sumatra, also known as Sumsel, is a province in Indonesia that has immense economic potential. To promote sustainable economic growth, shifting towards renewable energy sources is crucial. This transition not only benefits the environment but also positively impacts the financial sector in South Sumatra.

Marlistya Citraningrum, Sustainable Energy Access Program Manager, Institute for Essential Services Reform (IESR), explained that Indonesia should prepare for the energy transition to ensure its people’s and economy’s well-being. Marlistya has observed that the perspectives on energy transition differ globally, nationally, and locally. For example, while some countries have already started adopting renewable energy and secured financing, Indonesia has only recently begun the energy transition process in the last ten years, which may take longer due to the presence of coal-producing areas that require long-term planning. To ensure a successful transformation, it is crucial to consider the opinions of various stakeholders, including entrepreneurs, workers, and communities living in the vicinity.

“The energy transition has the advantage of promoting an energy “democracy” in the economic system, where various parties can pursue renewable energy. For example, individuals can aim for renewable energy by installing solar panels in their homes. This creates opportunities for many parties to enter the renewable energy industry.,” said Marlistya Citraningrum in the RMOL South Sumatra Editorial Room Podcast on Wednesday (6/12).

Furthermore, Marlistya stated that exploring alternative economic sectors in coal-producing areas is essential during the energy transition process. Marlistya emphasized that South Sumatra is not just an energy granary but also a food granary. This means that certain agricultural commodities and plantations can contribute to the economy and improve the quality of life, access to financing, and capital.

“Diversifying the economy in the energy transition requires preparation, not only in terms of regulations but also the readiness of the business world and how the community will deal with it. Business diversification is one of the strategies for the business world, especially those engaged in fossil energy. However, we need to emphasize social justice for those affected should be a priority. For instance, providing certification or training for working in the green economy may be necessary,” Marlistya explained. 

Brilliant Faisal, Functional Planner Associate Expert, Regional Development Planning Agency (Bappeda) of South Sumatra (Sumsel), mentioned that his party plans to create new training programs for the community to prepare for the energy transition process. Faisal also said that they will prepare regional regulations related to economic transformation to ensure an equitable energy transition.

“We have planned eight main strategies to be implemented from 2024 to 2026. These strategies aim to achieve economic transformation, enhance the regional economy’s conduciveness, promote equitable development, and improve the workforce’s quality and competitiveness. This is necessary because South Sumatra heavily relies on its primary sectors, such as coal,” said Faisal.

Hermansyah Mastari, Chairman of the Regional Executive Board (BPD) of the Indonesian Young Entrepreneurs Association (HIPMI) of South Sumatra Province, explained that his party always synergizes with companies that will invest in South Sumatra. However, it is crucial to have the support of the local government, particularly in guiding major companies operating in the fossil fuel industry to prepare themselves and the local community for the shift towards renewable energy.

“In the past, there was a phenomenon where job seekers invaded one factory since dawn, and they were willing to queue since dawn. Such occurrences should not happen. Therefore, it is essential for big corporations to not only fulfill their corporate social responsibility but also take initiatives to train residents in skills that can help them earn a livelihood and contribute to the economy’s growth,” said Hermansyah.

Anticipate the Impact of Decreasing Coal Consumption to Prepare for Economic Transformation

press release

Jakarta, September 27, 2023 – Indonesia has established various energy transition policies that will affect domestic coal consumption. Apart from that, Indonesia still relies on 75-80 percent of its coal production for exports to several coal export destination countries such as China, India, and Vietnam, which have also set targets for reducing coal consumption to align with their net-zero emission (NZE) marks. The Institute for Essential Services Reform (IESR) views that Indonesia needs to anticipate the potential decline in Indonesian coal exports by ensuring that the energy transition somewhat takes place, achieving sustainable economic transformation, and collecting data on the impact of reduced coal consumption on various aspects of life such as financial, social and environmental.

The Executive Director of IESR, Fabby Tumiwa, in the seminar “Sunset CFPP and the Coal Industry: Reviewing Multisectoral Direction and Impact in a Just Energy Transition” organized by IESR, estimated that the demand for coal in the country will peak between 2025 and 2030. After that, the market is expected to decrease significantly. Furthermore, the data suggests that coal exports will follow a similar trend and are expected to decline after 2025.

“If domestic demand and coal exports fall, production will fall. IESR estimates that Indonesia has 5-10 years to make adjustments by carrying out economic transformation in coal-producing regions in Indonesia in line with the decline in coal production, which has an impact on reduced demand for coal-producing countries and regions,” said Fabby.

Fabby emphasized that in ensuring a just energy transition, it is necessary to consider at least three factors: assessing the connection between the local economy and coal, the readiness of existing human resources, and developing mitigation plans considering alternative economic options that can be implemented in the area.

Ilham Surya, Environmental Policy Analyst of IESR, mentioned that the energy transition would impact coal-producing areas in Indonesia, such as Muara Enim Regency, South Sumatra, and Paser Regency, East Kalimantan. Based on the IESR report entitled Just Transition in Indonesia’s Coal Producing Regions, the Paser and Muara Enim Case Study found that the Gross Regional Domestic Product (GRDP) has contributed approximately 50% and 70% to Muara Enim and Paser over the last decade. Moreover, the coal mining taxes and royalties profit-sharing funds, known as DBH, have contributed significantly to the government’s revenue (APBD), up to 20 percent in Muara Enim and an average of 27 percent in Paser.

“Our input-output modeling analysis in Kab. Muara Enim shows that coal only provides added value in compensation of around 20 percent for workers, compared to 78 percent used for the coal company. Despite the mining sector’s high contribution towards GRDP (50-70%), locals do not receive an equitable share, leading to an imbalanced distribution of benefits and no significant multiplier effect,” explained Ilham.

Ilham emphasized that coal-producing areas require economic transformation to reduce dependence on the coal-based economy. The IESR study found several leading sectors that could be developed, such as in Paser Regency, which could create Financial Services, Manufacturing, and Education. Meanwhile, Muara Enim Regency can focus on developing manufacturing capabilities and providing accommodation, food, and beverages.

To monitor the impact of the energy transition on the coal sector, IESR has developed a coal impact tracking platform, or Coal Impact Tracker, which creates three scenarios for the future of coal. The Coal Impact Tracker platform tracks the impact of coal from various sectors such as population, employment, health, and others. The three scenarios are the BAU (Business as Usual) scenario, the Best Practice Policy (BPS) scenario, and the System Dynamic scenario in collaboration with the Bandung Institute of Technology. The platform is still in progress and is expected to be released in February 2024.

“The platform, which will be called radarbatubara.transisienergi.id is a form of IESR’s contribution in educating relevant stakeholders through visualization of information on important economic, social, environmental and health indicators. Regional governments, communities at coal industry locations, and coal industry workers can use this platform to anticipate the impact’s magnitude and prepare in advance,” explained Deon Arinaldo, Program Manager of Energy Transformation, IESR.

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.

Indonesia Needs to Increase its Efforts to Transition Towards Green Economy to Achieve NZE

press release

Jakarta, 18 August 2023 – The President of the Republic of Indonesia (RI) Joko Widodo (Jokowi), in his state address for the 78th Indonesian Independence Day, which also served as an introduction to the 2024 state budget bill and 2024 financial note stated that the 2024 state budget is directed toward accelerating economic transformation that is inclusive and sustainable. In his speech, the president mentioned the potential crisis due to climate change. For this reason, the transformation of the economic sector that is sustainable and environmentally friendly is crucial. The president emphasized that the transition to the use of green energy needs to be carried out progressively but remains fair and affordable.

The Institute for Essential Services Reform (IESR) appreciates the direction of the 2024 state budget. It encourages the government to accelerate the development of a green economy and the utilization of renewable energy so that Indonesia can gradually reduce the portion of fossil energy while simultaneously reducing greenhouse gas emissions, which are the cause of global boiling. boiling) and climate change.

Fabby Tumiwa, Executive Director of IESR, stated that to achieve the 23% renewable energy target in 2025, the president must direct his staff to increase the renewable energy mix by 2024. This would require the construction of 11 GW of renewable energy generators in the next 2.5 years. The progressive penetration of renewable energy would necessitate the cessation of coal-fired power plant operations, which are old and inefficient, even under conditions where the PLN electricity system is still overcapacity.

The 2024 state budget should support renewable energy use outside Java-Bali, reform policies hindering its acceleration, prepare for the coal-fired power plant’s early retirement, and offer large-scale renewable energy projects to investors.

Indonesia needs to take more aggressive steps to avoid the climate crisis by showing a more substantial political commitment to reducing the use of coal and confirming the termination of coal-fired power plant operations in 2050. According to Fabby, amid Indonesia’s independence celebrations, the National Capital, Jakarta, was covered in severe air pollution. IESR notes that one of the sources of pollution comes from burning coal in power plants and industries around Jabodetabek.

“Last year, the government and IPG agreed on the Just Energy Transition Partnership (JETP). This agreement is Indonesia’s opportunity to accelerate the transition to increasing green energy before 2030, which is fair and affordable. For this reason, the 2024 State Budget must also be allocated to support the implementation of the Comprehensive Investment and Policy Plan (CIPP),” said Fabby.

During preparing the JETP Comprehensive Investment and Policy Plan (CIPP) until October, Deon Arinaldo, Manager of the Energy Transformation Program, IESR, emphasized the importance of identifying policy changes to accelerate the energy transition. He suggested that policy change should focus on integrating implementation between various ministries and agencies.

“There must be a priority in policy directions, for example ending fossil energy subsidies, especially the coal DMO price policy, building massive solar PV, and developing the solar manufacturing industry. Determining the main strategy is important so that execution can be carried out smoothly in the next 3-5 years or even faster with implementation support from various ministries and agencies. Implementation of this integrated strategy can support achieving the vision of Indonesia Gold 2045,” explained Deon.

IESR hopes that the preparation of state budget (APBN) spending will also include efforts to reduce fossil energy subsidies and anticipate the impact of the energy transition on society. The budget from reducing fossil energy can be used to develop renewable energy, early termination of coal-fired power plant operations, and structured programs to anticipate the impact of the energy transition on communities, workers, and coal-producing areas.