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Interview

with Kuntoro Mangkusubroto, Head, Presidential Delivery Unit

10.08.2012 / Energyboardroom

You have been on the forefront of Indonesian politics for a long time, serving in various roles from Minister of Energy to President Director of PLN and the person in charge of the Post Tsunami reconstruction efforts in Aceh. After successfully fulfilling these various positions, what made you decide to take on the challenge of leading the Presidential Delivery Unit?
This office is the first of its kind in Indonesia. It is the equivalent of the West Wing in the White House, which supports the American president in identifying and solving strategic problems. Here in Indonesia, we monitor and de-bottleneck key strategic projects and programs and consult to solve the problems and then let the technical management do the rest. It is a small office consisting of 30 high-calibre people: PhDs and lawyers that combine hands-on experience and intellectual capability to come up with solutions.
My motivation is simple: I have a chance to make a difference for my country and to bring innovation to the government. The Presidential Delivery Unit is a new office, which means that we have a lot of freedom of movement. I know from my experience in leading the post tsunami reconstruction efforts in Aceh that a lot can be achieved in an efficient manner if we can open up our mind to innovation and have the capacity to implement. This country is so big, and there are so many problems that need to be solved, but the bureaucracy is not always part of the solution. With the capacity and capability of this office and the support from the president we can get things done.
A previous attempt to set up a Presidential Delivery Unit during President Yudhoyono’s first mandate failed. Why was it successful this time?
The nuance of politics is very thick. This unit could lead to a reaction from other political factions, but I want to emphasize that we are a-political. We do not have any colour and we are not associated with any party. The president is elected by the public and he is related to a political party, but we are related to the president as the head of state and hence non-political. Our approach is technical, no-nonsense and based on very rational and objective measures.
The current lack of infrastructure is seen as one of the single greatest barriers to achieving greater economic development for Indonesia. What are the key bottlenecks to solving this problem and how are you contributing to it?
Our economic growth is hampered by poor logistics. I was very disturbed by a comment of a CEO of a major car manufacturer, who explained that his manufacturing cost in Indonesia is thirty percent less than in Thailand, but by the time the car produced in Indonesia reaches the deck of the ship, it costs 20 percent more than the one produced in Thailand. This means that 50 percent is lost from the gate of the plant to the deck of the ship, which is a problem that we have to solve immediately. Power plants, major logistics, land transport, ports: we understand that our economic growth will linger if we do not solve problems in these areas.
Indonesia has to modernize harbours, make land transport efficient and improve all things related to the transport of goods. The Presidential Delivery Unit monitors progress very closely. We know exactly what is happening today when it comes to major projects such as power plants, harbours, and airports, and we do our best to smoothen processes in order to launch projects quicker.
Recently the House of Representatives endorsed a 2012 land acquisition law to speed up the development of government infrastructure projects. How much of a help will this new law be in speeding up infrastructure development in Indonesia?
This is a very important step, especially when it comes to realizing much needed toll road projects. Indonesia has been trying to develop toll roads on Java for the past 15 years, but no real progress has been made. The land acquisition law represents a major step forward for those projects.
Impediments regarding uncertainty over cost-recovery still present a major hurdle to the oil & gas industry. How do you perceive the issue of cost-recovery?
The bottom line is that cost recovery is part of the system and we have to honour it. We do have to make it more rational: nobody would accept it if the expenses for playing golf would be included in cost recovery. Abuse was excessive during the Suharto regime that fell in 1997, which was followed by a process of democratization and a more open economy called ‘Reformasi.’ Cost recovery rationalization has been a result of the Reformasi, when public and parliament started to demand a clear explanation and transparency regarding this issue. Again, cost recovery is part of the law and the regulation, and we have to respect it.
Regional administrations now assert greater influence, which also affects the energy sector as was seen with the Cepu block delay. How will the development of a harmonious regulatory environment benefit Indonesia’s development and what is the way to reach it?
This is one of the excesses that accompanied the introduction of democracy as it is now. When I use the word democracy I refer to the democracy we know today, not to the system under the old regime, which it called democracy as well. This new kind of democracy was introduced some 14 years ago, and at the same time Indonesia started a process of decentralization in which autonomy was given to the regions and the districts. Outside the areas of defence, fiscal matters, and foreign affairs, everything is in the hands of the local government. Two things were ignored at the time when the decision was made to decentralize: the capacity of the local government to manage their own region, and how local regulations would be issued. In the past twelve years almost 12.000 new local regulations were issued, and the majority of them are in conflict with the regulations of the central government. We have to rectify this, and today almost 10.000 of those 12.000 regulations have been resolved. The remainder of the local regulation is subject to review.
It is understandable that investors can be confused about the way they should invest in a certain region. It can be unclear who holds authority, whether it is the central or the local government, the police, or the district attorney. This is the side-effect of decentralization and democracy. Lesson learnt: do not introduce democracy and decentralization at the same time. What is happening in Cepu is a reflection of what is happening in this democracy and decentralization. The local government wants to get a substantial chunk of the income of any project, and they want it tomorrow. Local politicians cannot wait for another five years: he might no longer be in place, his political enemy might have taken his spot. Of course no investment will bring result tomorrow. Time is needed – easily eight years in oil and gas.
Since the introduction of the Oil & Gas law in 2001, the oil & gas sector saw crucial changes. How would you assess the openness and attitude of the current government towards private sector investment, public – private partnerships and the role of foreign companies in the energy sector?
The new oil & gas law had a very positive impact from a government perspective. Although some mistakes have to be corrected, I do not believe that it hinders the objective of the new law introduced in 2001.
When it comes to investment coming to Indonesia, things have changed for the better. Nonetheless, the efficiency of BP MIGAS can be improved. We still see many delays, which represents a high economic cost for the investor and for the Indonesian economy.
The participation of the private sector in Indonesia is going as planned. Pertamina was spoiled by protection during the thirty years of the old regime, which weakened its muscles. Now they have to train their muscles and make it strong. But if you want somebody to exercise, then you have to provide the right environment. It is not fair to ask Pertamina to strengthen its muscle without providing the proper environment. This does not mean that we have to protect Pertamina, but it does mean that we have to give more attention to the company to increase its capacity and become a world-class company. The environment that the government creates today is not enough for Pertamina to reach this, the company needs more time to modernize.
Why don’t we see more successful Indonesian oil & gas companies?
Oil and gas is high risk and high investment, and the size of Indonesian companies cannot cope with the risk. Risk and investment are less on land, but today the potential for finds is offshore, and Indonesian companies lack the know-how to go offshore.
We need a solid national program if we want to develop the domestic capacity for the oil & gas sector. Now we have to think very carefully and plan very strategically on how to develop domestic capacity.
What do you consider the main goal of your current tenure?
Make Indonesia a modern country and manage government in a modern way. Make the government more efficient and transparent and better capable to get things done. I am a proponent of no nonsense: if you have a problem, solve the problem, if you have a goal, achieve the goal. A goal is a political objective, it depends on the President’s vision, and he is the one elected by the people. He has his vision, and based on that vision we set goals and try to achieve it for the benefit of the people. We are here to fight corruption and inefficiency and increase transparency.
What is your final piece of advice on Indonesia for our readers?
For the past four years our macro economy has been better than ever before. Our national reserve is nearly USD120 billion, inflation is less than five percent, we have an unemployment rate of under seven percent, and economic growth stands at 6.4 percent (Q2-2012). Indonesia is now the fifteenth biggest economy in terms of GDP, and it is a matter of time before we reach the top five of global economies. With the balance of economic growth in the world moving towards the east, Indonesia is at a prime location.
Nonetheless, we need a total investment of USD200 billion every year if we want to keep economic growth between six and eight percent. That is part of our goal, and the energy sector has to attract an important part of it. Great parts of our country have been unexplored. The potential is huge and not only in oil & gas, but also in shale gas, geothermal, CBM, coal gasification,etc. Oil & gas is the prima donna of our economy.
For sure we have to improve the way we manage decentralization in the regions and the countryside, but it is a matter of time before we solve these problems, and it is basically a side-effect of democratization.

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