The art of ‘hydraulic’ diplomacy

How Indonesia-China cooperation in the energy sector has increased Indonesia’s infrastructure

The art of ‘hydraulic’ diplomacy

Energy is the main source of life and every country needs it for national development. Morgenthau’s aspects of national power, energy, and economic sources, as well as diplomatic relations, are important to develop a powerful country. It is very important for countries to cooperate in maximizing relations pertaining to national development, especially in the energy sector.

Indonesia sees that cooperation with China in the energy sector – especially oil, gas, and coal – is very important to increase its infrastructure, since China has been its biggest investor, according to the Ministry of Energy and Mineral Resources. In this essay, the author explains how China has helped Indonesia in developing its infrastructure through cooperation in the energy sector, from 2002 to 2017.

Indonesia and China have cooperated in the energy sector since 2002. The establishment of the Indonesia-China Energy Forum (ICEF) by the Ministry of Energy and Mineral Resources (MEMR) in March 2002 marked the collaboration between the two governments, as well as investors in producing the energy policy of both countries. Through the ICEF, both Indonesia and China have been cooperating under a memorandum of understanding (MoU) to discuss the regulations related to energy investment, the implementation of their energy policies, economic aspects, and the development of energy and mineral resources (MEMR 2017).

There have been five meetings held between Indonesia’s energy ministry and China’s National Energy Administration (NEA). The fifth was in 2017, where ministers from both sides signed a MoU of Energy Cooperation - a milestone of Indonesia-China relations and cooperation on energy resources.

Cooperation under the MoU produced several results for Indonesia. Since 2002, it has exported natural gas to China – specifically to Fujian Province – at up to US$2.4 million per ton. This was agreed to be applied for twenty years (Kurtubi, 2008) . As Indonesia and China continued to strengthen their ties in politics, security, social, and economics – not to mention other non-governmental aspects (relations between businessmen) – it marked the first step of developing a mutual relationship between the two nations.

In 2005, the two signed the Strategic Partnership Agreement, an agreement that encompasses the strengthening of bilateral relations for Indonesia’s national development. The scope of this cooperation includes politics, security, economics, social and culture, and expanding relations in non-governmental aspects (business). The energy sector has been one of the main focuses in increasing Indonesia’s national development, and exports of energy resources, especially to China, have manifested a large amount of financial resources for the development of infrastructure. According to Ministry of Industry data, Chinese investment and imports of energy resources in 2013 reached US$60.2 million, and was allocated for 99 infrastructure projects (Nugroho, 2013) .

Since the Strategic Partnership Agreement was signed, the closeness between Indonesia and China has become more obvious. During a speech delivered by Zhang Guobao, the Minister of NEA and Vice Chairman of the National Development and Reform Commission of China, at the fourth Indonesia-China Energy Forum (2010), he said that China and Indonesia have been “two important Asian nations” that share broad consensus and common interests.

“Our energy cooperation has been deepening and getting more practical in
recent years. With the joint efforts of both governments and enterprises, we
positively explore new operative forms in infrastructure investment as well as
equipment purchase, combined with energy trade, and gained fruits via
cooperation for mutual benefits in the fields like oil, natural gas, power, and
coal.” (China-ASEAN Expo, 2010)

Indonesia was one of the largest coal exporters to China, at 35.4 million tons of steam coal for  electricity. Zhang Guobao said that Indonesia was also the largest supplier of liquefied natural gas (LNG) - every year, Indonesia supplies 3 million tons of LNG to east China’s Fujian Province (Global Times, 2010) . This has helped Indonesia to develop its infrastructure. ISEAS research shows that China’s imports of coal supported Indonesia’s development of railways and ports from 2008 to 2013 (Springer, 2016) .

China’s commitment to reducing carbon dioxide emissions (engendered by the use of coal) saw coal imports from Indonesia decrease drastically in the first quarter of 2014. China has sought to use renewable energy sources, especially to run electricity, and in view of Indonesia’s high potential of renewable energy resources – not to mention large potential in geothermal energy, hydropower, solar energy, and biofuels – the Indonesian government saw a big opportunity to expand its cooperation with China. The National Energy Policy, adopted by Indonesia’s House of Representatives, envisaged the nation could increase its renewable energy supply to at least 23 percent of its energy needs in 2025 and 31 percent by 2050 (Global Business Guide Indonesia, 2014) .

This is why Indonesia and China signed another agreement to strengthen their cooperation in the energy sector. Energy minister Ignasius Jonan and Nur Bekri from China’s NEA agreed to establish a working group on renewable energy for electricity, not just oil, gas, and coal (The Jakarta Post, 2017) . The agreement was signed at the fifth Indonesia-China Energy Forum in Jakarta on November 13, 2017. Since then, Chinese companies have been involved in Indonesia’s electricity program, which has 350,000-megawatts of electricity, through two engineering, procurement, and construction (EPC) arrangements and an independent power producer (IPP). PT Sarana Multi Infrastruktur (SMI), Indonesia’s state-owned financing company for infrastructure, has also allowed Chinese investors to be involved in discussions related to the budget of Indonesia’s energy infrastructure.

In light of Indonesia-China cooperation in the energy sector for the past decade, it can be seen that China is an important partner. This cooperation has produced a number of achievements in developing Indonesia’s infrastructure – both soft and hard – despite the challenges in the energy trade. The MEMR held the fifth Indonesia-China Energy Forum in Jakarta in November 2017, after being postponed for seven years, with hopes that Indonesia- China cooperation in energy could be beneficial for both countries.

Both governments are looking forward to more opportunities to strengthen their relations, including those between Indonesian and Chinese enterprises.

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