What Indonesia’s Natuna Gas Means

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What Indonesia’s Natuna Gas Means

It’s unlikely those living in Natuna will see much benefit from the government’s development plans.

What Indonesia’s Natuna Gas Means

Workers upload LPG (liquid petroleum gas) canisters in Jakarta (January 27, 2011).

Credit: REUTERS/Crack Palinggi

This time, will Indonesia do it right? One of the world’s most resource-rich countries is about to embark on another massive development project in the rich gas reserves in the Natuna Sea region, in the far north of the archipelago. As Pertamina, the national oil company, signs deals with foreign oil giants, Indonesia’s leaders are already talking about how this massive, multi-billion dollar project will help aid economic development and increase the wealth of regular Indonesians. However, if the the country’s history is any sign, chances are, it may do little for regular people, and instead enrich the well-connected, and, judging from the location, the military as well.

A Vast, Wasted Wealth

The Natuna Sea gas fields are, in fact, some of the largest unexplored gas reserves in the world. They can’t come online soon enough for Indonesia, which has gone from being, at one time, the world’s largest exporter of natural gas to one with national shortages, as reserves in Aceh and East Kalimantan begin to go dry. And it’s not just gas. In fact, Natuna’s gas could provide a valuable source of revenue right as the country is seeing its other top exports – coal and palm oil – suffer from low global commodity prices, directly impacting government spending. This is a pattern, as for much of its post-independence history, Indonesia’s government has been heavily dependent on resource revenues for its national budget.

The country’s first resource boom took place during the three-decades long reign of Suharto, and back then, Indonesia was actually lauded as relative success compared to other resource-rich newly independent nations such as Nigeria or the Congo. As it developed those gas fields in Aceh, exploited timber in Sumatra and Kalimantan, and embarked on an often contentious relationship with American mining giant Freeport McMoRan in West Papua, Indonesia avoided the Dutch Disease, and saw significant strides in both poverty alleviation and human development.

“The resource boom [was] utilized for significantly improving the county’s basic health, basic education, rural-agriculture infrastructure, and the pace of industrialization,” said Zulfan Tadjoeddin, an Indonesia Development expert at Western Sydney University.

Of course, this did not mean that all resource wealth was spread evenly. A lot of it stayed in the hands of the Suharto family, or his close friends. By the time he stepped down in 1997, his family had amassed a staggering $35 billion dollars in wealth, leading the NGO Transparency International to call him the most corrupt world leader of the latter 20th century. Still, Indonesia was far better off post-Suharto than pre-Suharto.

“[These] positive developments were achieved despite corruption and cronyism in the resource sector,” said Tadjoeddin.

In fact, according to Tadjoeddin, the post-Suharto resource boom in palm oil, coal, and minerals has seen worse management, partly due to the decentralization process that came alongside democracy, allowing more people to dip their hands into the country’s resource pot.

“During Suharto, the oligarchic structure was simple as it was centralized around, and tamed by, Suharto,” said Tadjoeddin. “Now… the structure is much more complicated as it is linked to political parties, the cabinet members, the president himself, NGOs, more than 500 heads of provincial and district governments and powerful power brokers both at national and local levels.”

This means that spending on health and education have actually stagnated, even as Indonesia’s population grew and demand for better infrastructure skyrocketed. This has especially impacted the country’s many millions of rural poor.

“What has happened since 1998 is that some of the most effective types of pro-poor public spending, such as infrastructure and irrigation, have been neglected,” said David Henley, Professor of Contemporary Indonesian Studies at Leiden University.

This is one of many reasons that inequality has been on the rise since Indonesia became a democracy, and, especially, as it shifted from a more manufacturing and service based-economy to one more dependent on resource exports over the past decade, without implementing adequate governance.

“Resource sectors… do not automatically generate equitable growth without active intervention by the state to redistribute the resulting benefits,” said Henley.

Wanted: Better Governance

The impacts of the wasted opportunities of the past can be felt throughout the economy. Today, Indonesia has among the highest logistical costs in the world, and spends far less on infrastructure than its neighbors.

That’s because funds that could go into improving the nation’s infrastructure are instead ending in the hands of politicians and cronies. Case in point; in the last presidential election, two of the top three vote-getters in the first round, Prabowo Subianto and Aburizal Bakrie, were extremely wealthy, connected to vast family business empires, with extensive holdings in natural resources. This can be replicated many times over, as one goes down to the local level, particularly in resource-rich regions. That is why many want a greater emphasis on tackling corruption in the resource sector.

“The [Corruption Eradication Commission] must put corruption in the natural resources sector, particularly coal, as its top priority,” said Arif Fiyanto, a campaigner with Greenpeace Indonesia.

This is closely connected to, not surprisingly, the devastating environmental impacts. Last year’s fires were linked to illegal deforestation and corruption in the palm oil and paper pulp industries, and cost the Indonesian economy an estimated $16.1 billion. More recently, a report found that little was being done to mitigate the massive clean up costs of the recent coal boom in East Kalimantan Province, on the island of Borneo. The use of cheap, strip mining techniques, and the dumping of waste in valleys and rivers made coal more profitable, but has left local communities with a lasting negative impacts that will outlast whatever benefits the short lived boom gave them.

Increasing the capability of the anti-corruption fight is just one piece of a larger puzzle that must be in place in order to properly utilize natural resource wealth for national development, while mitigating environmental impacts. This includes effective financial management, the equitable sharing of resources, and the creation of funds like Norway’s, that ensure resource spending is spread out, and, ideally, shared with future generations.

Unfortunately, in Indonesia, little of this was set up in the past, and little is being set up today.

“One thing remains similar in the two resource boom eras: Indonesia has not been able to significantly upgrade their technical, managerial, and financial capabilities to manage their own resource sector,” said Tadjoeddin. In fact, he argues, it may have only gotten worse.

“Despite global appreciation directed towards Indonesia’s democratization and decentralization… these institutional changes have created more disorder in the resource sectors.”

Future Flashpoint

There is, of course, another angle to this. The Natuna Sea is the northernmost limit of Indonesian waters, and it also happens to be the one area where the country has a maritime dispute with China, whose infamous nine-dash line brushes up right to Natuna and encroaches Indonesia’s exclusive economic zone.

That is why resource development in Natuna is occurring alongside increasing militarization, with a military base even planned for the remote region. This is not too dissimilar to what happened in West Papua several decades ago, when a strong military presence both enabled – and profited from – a mining boom, while also enabling stronger government control over a territory in which, to this day, there is agitation. The large military role likely makes good governance, and transparency, unlikely.

This means that Natuna, thousands of miles from Papua, may see a similar story in its near future, with China, not a repressed local populace, the chief target of this show of force, and the money, like always, going into the hands of the few.

Nithin Coca is a freelance writer and journalist who focuses on cultural, economic, and environmental issues in developing countries. Follow him on Twitter @excinit.