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Cablegate: Doe's Energy Partnership Dialogue with Indonesia

VZCZCXRO3294
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #2223/01 3460246
ZNR UUUUU ZZH
R 110246Z DEC 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 0910
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBJ/AMEMBASSY BEIJING 5713
RUEHUL/AMEMBASSY SEOUL 5213
RUEHKO/AMEMBASSY TOKYO 2827
RUEHNE/AMEMBASSY NEW DELHI 2496
RUEHJS/AMCONSUL SURABAYA 2327
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 JAKARTA 002223

SENSITIVE
SIPDIS

DEPT FOR EAP/MTS and EEB/ESC/IEC/ENR
DOE FOR PI-32 CUTLER AND GILLESPIE
COMMERCE FOR 4430/NADJMI AND 6930/HUEPER
DEPT PASS USTR EHLERS

E.O. 12958: N/A
TAGS: ENRG EPET EINV EMIN ID
SUBJECT: DOE'S ENERGY PARTNERSHIP DIALOGUE WITH INDONESIA

JAKARTA 00002223 001.2 OF 004


1. (SBU) Summary. The U.S.-Indonesia Energy Policy Dialogue (EPD)
was held in Jakarta on October 21 and 22, 2008. The last EPD was
held in 2005. The U.S. delegation was led by Department of Energy
Deputy Assistant Secretary (DAS) for International Energy
Cooperation Dr. Phyllis Yoshida, and the Indonesian delegation was
led by Ministry of Energy and Mineral Resources Director General for
Oil and Gas Dr. Evita Legowo. Minister of Energy and Mineral
Resources Purnomo Yusgiantoro gave the opening plenary statements.
Both sides discussed global and national energy outlooks,
electricity power generation, geothermal and renewable energies,
nuclear power, as well as fossil fuel production and use, including
coal, oil, and gas. Both sides agreed on some areas for future
cooperation, such as in the areas of geothermal, renewable and
energy efficient technologies, and committed to holding the next
meeting in late 2009 or early 2010. End Summary.

-----------------------------
MEETING WITH MINISTER PURNOMO
-----------------------------

2. (SBU) In a pre-dialogue courtesy call with Minister for Energy
and Mineral Resources Purnomo Yusgiantoro, U.S. government
representatives discussed a wide range of issues with Minister
Purnomo and other Indonesian counterparts. Both sides acknowledged
uncertainties in the current investment climate, and they praised
private sector interest and participation in the EPD. Minister
Purnomo encouraged U.S. cooperation and investment in its geothermal
and renewable energy efforts, including carbon capture and storage
(CCS). Regarding geothermal energy, Minister Purnomo specifically
asked for assistance in technology development to determine the
optimal size of the borehole. The United States discussed the
International Partnership for Geothermal Technology (IPGT) and noted
that the partnership is open to international partners. Minister
Purnomo expressed interest in both the Carbon Sequestration
Leadership Forum and GE's coal gasification technologies, to reduce
carbon emissions.

3. (SBU) The U.S. side encouraged energy efficiency efforts, and
asked about Indonesian government policies preventing foreign
ownership of power plants smaller than 10 megawatts, although
Indonesian officials, including the Minister, were unclear on the
specifics of the investment barrier.

-------
PLENARY
-------

4. (U) In the Indonesian government's plenary statements, Director
General of Oil and Gas Evita Legowo highlighted Indonesia's history
of energy consultations with the United States and other countries.
She stressed Indonesia's goal of increasing domestic energy
production, and hoped that greater bilateral cooperation could help
them achieve this goal.

5. (U) DAS Yoshida acknowledged that it had been "much too long"
since both sides had met but stressed that both governments have
been committed to bilateral talks since 2005. She noted that, as
the second and third largest democracies in the world, the United
States and Indonesia should cooperate to spur development based on
ample supplies of affordable, clean energy.

6. (U) In his plenary opening statement, Minister Purnomo observed
that there had been a "slowdown" in U.S.-Indonesian bilateral energy
talks, but he was hopeful that this dialogue meeting signaled a
return to more consistent engagement. He stressed that the United
States had originally been the biggest energy investor in Indonesia,
and he expressed appreciation for the United States as a continuing
pioneer in the energy field. He called for greater cooperation
between the countries to strengthen company-to-company and
sector-to-sector cooperation.

--------------
ENERGY OUTLOOK
--------------

7. (U) In an overview of its energy outlook, Indonesia stressed that
its growth would require more energy. Their national plans call for
a change in their energy mix from the current reliance on petroleum
to a greater use of coal, geothermal, biofuel and renewable

JAKARTA 00002223 002.2 OF 004


energies. They also hope that the shift of energy sources will
result in a reduction of carbon dioxide emissions over baseline
projections.

8. (U) In his overview of the global and U.S. energy outlook, Acting
Assistant Secretary (Acting A/S) for Fossil Energy James Slutz
projected increased energy use outside the OECD, with a growth in
liquid fuels, gas, and coal. Although there will be growth in
renewable energies, and biofuels will remain a part of the energy
mix, there will also be significant CO2 growth.

9. (U) Acting A/S Slutz stressed that U.S. energy goals include
maximizing production worldwide; working toward greater energy
security; and promoting greater technical development, including
greater energy efficiency and improved fuel economy standards.

--------------
ELECTRIC POWER
--------------

10. (U) The Indonesian presenters summarized Indonesia's electricity
goals: 1) increase electrification from 64% in 2008 to 76% in 2015
and 93% in 2025; 2) add generating and distribution capacity,
equaling nearly $100 billion by 2025; and 3) change the energy mix
to favor alternative and renewable energies.

11. (U) To accomplish these goals, the Indonesians noted that they
must address some daunting challenges, including shifting from a
system of subsidized electricity to a market-based system, and
encouraging Independent Power Producers (IPPs) to enter the
electricity generation market. It does not yet have timetables for
the accomplishment of either goal, and the PLN (Indonesia's
state-owned power company) representative acknowledged that
currently, PLN's fuel costs exceed its tariff revenue. PLN's
current Phase I expansion plans, adding 10,000 MW of coal-fired
generating capacity, must be entirely financed by the company,
although the bonds for that project are backed by an Indonesian
government guarantee.

----
COAL
----

12. (U) Indonesian officials stressed the need to increase the use
of coal in their energy mix, due to the country's large deposits of
this fuel. They encouraged foreign investment and capital, although
they also pointed out that future investment will likely be subject
to new licensing requirements under the new mining law (not yet
passed by the legislature), which will give fewer protections to
mine operators than current contracts of work.

13. (U) To maximize the use of coal, Indonesians seek to develop
coal liquefaction and gasification, both in electricity generation
and industries such as fertilizer. Officials claimed significant
government interest in coal liquefaction, and they hope to start
building a plant next year and begin producing in 2013. Indonesian
officials also highlighted the importance of geothermal energy in
their future energy mix.

14. (U) The U.S. discussed its ongoing efforts advancing clean coal
technologies and presented a brief history of coal beneficiation
technologies developed in the United States. U.S. clean coal
technologies include the restructured FutureGen, the Clean Coal
Power Initiative, and carbon sequestration programs. Coal
beneficiation is a process by which low-ranked coal can be upgraded
by removing moisture and ash, sodium, and other impurities.

-------------------------
GEOTHERMAL AND RENEWABLES
-------------------------

15. (U) Indonesians hope to maximize their use of geothermal energy,
of which they currently have 1,052 MW of installed capacity.
Indonesia is estimated to have about 27,000 MW in geothermal energy
reserves, although observers estimate that only about 10,000 MW of
it is commercially viable. DOE EERE Program Manager for Geothermal
Technologies Ed Wall pointed out that U.S. geothermal capacity was
also concentrated geographically in less-populated western states,
requiring upgrades to distribution systems to maximize the benefits.

JAKARTA 00002223 003.2 OF 004


However, he highlighted a number of government-funded projects in
the United States that seek to maximize geothermal efficiency and
facilitate its integration into the market. Wall also advocated the
International Partnership for Geothermal Technology that enables
countries to share information on geothermal development strategies,
and collaborate on new projects, thereby maximizing the
effectiveness of their research.

16. (U) U.S. officials also highlighted other renewable energy
goals, including energy efficiency programs, promotion of hybrid
cars, geothermal, wind, solar, and biomass programs. They also
underscored renewable energy facilitation efforts through programs
at the Department of Energy that seek to overcome barriers to
commercialization of new technologies by reducing financial barriers
to the production and distribution of new technologies.

17. (U) Indonesian officials detailed their goal of changing their
energy mix by 2025 to decrease reliance on oil and increase other
sources, including new and renewable sources. They highlighted
three key goals of this policy: 1) rural electrification through
small-scale generation, including micro hydro and solar; 2)
interconnection of renewable energy power generation; and 3) the
Phase II 10,000 MW electricity program, 70% of which will be from
renewable energy sources, primarily geothermal and hydro power.

18. (U) Indonesian officials gave an overview of their efforts to
change Indonesia's energy mix, including increasing the proportional
use of gas and coal, as follows:

- Current Mix: Oil 52%; Gas 29%; Coal 18%; New and Renewable Energy
4%.

- 2025 Business as Usual: Oil 41%; Gas 21%; Coal 35%; Hydro 2%;
Geothermal 1%

- 2025 Goal: Oil 20%; Gas 30%; Coal 33%; Renewables 5%; Biofuel 5%;
Geothermal 5%; CTL 2%

Although biofuel use will soon become mandatory in Indonesia,
officials acknowledged that most of their programs are in the
experimental stages.

-------
NUCLEAR
-------

19. (U) Indonesia made a presentation on its planned nuclear energy
development. The GOI is in the process of developing the technical
capacity and regulatory structure for nuclear energy, although they
have not made the political decisions as to whether or not to go
forward.

20. (U) DAS Yoshida pointed to a similar renewal of interest in
nuclear energy in the United States, and she advocated for Indonesia
to participate in the Global Nuclear Energy Partnership (GNEP).
Luluk Sumiarso indicated that the Indonesian government was still
having "internal discussions," and had not yet made a decision as to
whether or not to participate in GNEP.

-----------
Oil and Gas
-----------

21. (U) The EPD's final session dealt with oil and gas, and had the
most robust private sector participation. The Indonesians stressed
the need for increased investment and greater production. In their
overview of their sector, they stressed their reserves, as follows:

Oil Reserves:
Proven - 3,747.5 MMSTB
Potential - 4,471.7 MMSTB
Total - 8,219.2 MMSTB

Gas Reserves
Proven - 112.5 TSCF
Potential - 57.6 TSCF
Total - 170.1 TSCF

22. (U) In order to increase production, Indonesians stressed the

JAKARTA 00002223 004.2 OF 004


investment opportunities in production, including exploration,
enhanced recovery at old wells, deepwater exploration, LNG
production and receiving terminals, and coal bed methane.

23. (U) They also highlighted downstream sectors, which
traditionally have not received as much foreign investment, and in
some cases were only recently opened to foreign investment. They
sought investment in refining, pipelines, fuel storage and
transportation, and gas distribution infrastructure

24. (U) The U.S. delegation also gave an overview on the
Methane-to-Markets (M2M) and Global Gas Flaring Reduction programs
and encouraged the GOI increased participation in GGFR and in
joining M2M. A presentation on coal bed methane (CBM) development
noted the increasing use of CBM in the United States. Indonesia has
not yet developed this vast (estimated at 450 trillion cubic feet)
domestic energy resource, but seeks to expand its use. The two
sides agreed to share more information on CBM technology.

25. (U) Acting A/S James Slutz gave an overview of the National
Petroleum Council'sreport "Hard Truths," which states that
increasing global energy needs requires the use of all energy
sources, both traditional fossil fuels as well as new and renewable
energies. He stressed that it is therefore important for countries
to have policies that maximize production as well as use energy
efficiently. Slutz concluded with a strong warning against the
erosion of contract sanctity that some observers have noted in the
Indonesian energy sector, indicating that it may reduce the
participation of private sector companies as the competition for
financing and investment dollars increases.

-----------------------------------------
Closing Statements and Future Cooperation
-----------------------------------------

26. (U) In closing statements Indonesia's Abdul Muin, Vice Chairman
of BP MIGAS, stressed the need for the United States and Indonesia
to address issues such as the recent spike in oil prices, and the
impact on our societies, together. He also pushed for a commitment
for the next meeting of the Energy Policy Dialogue, to ensure that
they are held regularly. DAS Yoshida indicated that, because of
pending elections in both countries, the next round would most
likely occur in late 2009 or early 2010. She suggested that the
United States host the next meeting.

27. (SBU) Both delegations agreed to hold interim meetings on areas
of mutual benefit, including through digital video conferences.
They will seek cooperation in several areas, including:

- The development of conventional, renewable and energy-efficient
technologies;

- Geothermal technology development through multilateral agreements
such as the International Partnership for Geothermal Technology;

- Additional cooperation through multilateral partnerships such as
Methane to Markets; and

- The exchange of experiences and information on policies and
activities that support and improve the investment climate, build
capacity, and promote economic development.

28. (U) This cable has been cleared by U.S. Department of Energy
Deputy Assistant Secretary Phyllis Yoshida.

HUME

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