US commerce secretary slams Indonesian investment laws

US Commerce Secretary Gary Locke delivered a speech in Jakarta on Wednesday about enhancing cooperation between the two countries on clean energy.

He started with a scary picture of the environmental catastrophe that awaits the world unless we stop burning so many fossil fuels and make the switch to cleaner energy.

He points out Indonesia’s natural advantages in terms of geothermal potential (40 percent of known world resources) and biomass (he did not mention palm oil), wind, solar and hydropower.

Locke also noted President Yudhoyono’s promise to reduce Indonesia’s greenhouse emissions by at least 26 percent by 2020, and 41 percent with foreign assistance. 

US companies are lining up, he said, to help Indonesia achieve its national energy policy, which calls for increasing renewable energy production from 7 percent of Indonesia’s generating capacity to 15 percent by 2025.

So far so good.

But then the time came for Locke to get real:

As I talk to American business leaders, the overriding concern that I hear is that there is not enough government transparency. Businesses frequently don’t know what the rules are, how they will be enforced or how decisions are made.

This is particularly true at the local level, where permitting authorities create bureaucratic bottlenecks that lead to years-long delays, or produce vaguely written government tenders that make it almost impossible for companies to know how they are being evaluated.

Especially in the energy sector, where upfront capital investments can be in the hundreds of millions of dollars, this uncertainty has the potential to inhibit foreign corporate investment here.

In addition, the Indonesian government also has policies that make operating difficult for clean energy companies.

Heavy subsidies for fossil fuels continue to make dirty transportation and generation cheaper than clean alternatives.

And then there is Indonesia’s “Negative Investment List,” which limits foreign investment in a variety of sectors and projects, including in power plants producing less than 10-megawatts of energy. 

I have been told Indonesia is working to amend this law, and I do hope the government will continue to roll back this, and other anti-competitive regulations.

The “Negative Investment List” may have the laudable goal of nurturing a stronger innovation ecosystem in Indonesia.

But in practice, laws like this limit foreign direct investment, and imports from abroad that can deliver new products and services to the Indonesian people, and enhance innovation within Indonesian partner companies.

Ultimately, all the United States seeks is a level playing field for its companies, where the cost and quality of their products determines whether or not they win business.

I have been discussing these and other concerns with my Indonesian counterparts.

As you might expect, we do not always agree.

 (Photo from US Dept. of Commerce)


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