Having a total population about 220 million with 61.9 per cent of the population residing in Java, which is only 7 per cent of the national area, Indonesia has one of the largest populations in the world.

The country has a plethora of cultures, flora, fauna and natural resources in over 17,000 islands stretching over a distance of more than 5,000 kilometres from west to east.

Its coastline measures 81,000 kilometres reaching out to a 5.8-million-square-kilometre sea area.

The geographic nature of Indonesia with such uneven population distribution has posed challenges in developing infrastructure, especially considering the diverse availability of natural resources.

In the process of accelerating economic growth, Indonesia's regional disparity has created serious challenges.

Lack of infrastructure has halted efforts in developing and realizing the economic potential of the developing and newly developing regions.

There are many things to be accomplished in order to rehabilitate the economy, such as ensuring political stability and reviving the financial sector to mobilize funds for investments in expediting economic development, including infrastructure.

However, there is optimism for the future of the infrastructure in Indonesia and the multiplier effect it will bring to the economy of Indonesia.

Indonesia needs investment for infrastructure development considering that the total amount of the state budget and local spending allocation being used for infrastructure development was Rp20 trillion (US$2 billion) or only 5.4 per cent of the total state budget.

For the next five years, the government predicts an amount of US$72 billion is required to turn the objective of functional infrastructure for all into reality.

The private sector is encouraged to take part in investing around 40-50 per cent of the funding required. As for the rest of the funding, that becomes the responsibility of the government.

Power sector

The objectives of the national electric power industry expansion policy are to support sustainable national economic activities and at the same time to support the recovery of the macro economy through: 1) the provision of adequate, efficient and environment-based electric energy; 2) fair prices, reliability and safety; 3) the preparation of rules and mechanisms for procurement in accordance with a competitive market mechanism.

The efforts of the Government of Indonesia to restructure the Indonesian electric power sector toward a competitive sector have already been going on for more than five years.

The establishment of a competitive electric power sector is generally marked by the presence of a competitive electricity market.

To that end a series of not-so-simple activities will be required covering: 1) compilation of supportive laws and regulations, 2) the establishment of a credible regulatory agency, 3) improvements to the structure and implementation rules of the electricity market, 4) compilation of a tariff mechanism that is in accordance with the line of business which still constitutes a monopoly.

In addition, for the effective operations of the electricity market implementation, prerequisites are needed in respect of the conditions of the already existing system, namely: 1) the system must have adequate energy reserves to maintain the reliability of the system, wherein the ideal reserve margin should be about 30 per cent of the peak load, 2) minimum transition constraints, 3) equitable position of the market players, 4) the system must already be equipped with an automatic tariff adjustment mechanism, 5) metering system, 6) an electricity market operation system (MOS) that is in accordance with the market rules that are in force.

For example, the implementation of a competitive electricity market in the Java-Madura-Bali system is considered to be more mature compared to the electric power system in other areas and is the first system in Indonesia that will apply a competitive electricity market.

Since the launching of the Indonesian Sector Restructuring Policy by the Minister of Mining and Energy last August, several endeavours have been undertaken although not yet to the maximum, in order to realize an electric energy system that is in accordance with the description in the said document, namely an efficient, competitive and transparent system that protects the interests of the consumers and that will be able to guarantee the continued availability of electric energy of good quality and at reasonable prices.

Energy sector

The demands for energy have grown rapidly during the past two decades, which saw an increase in the services and trading sectors in the Asia-Pacific region.

The commodity of energy in international trading is vital in the development of social and economic affairs, more than ever with the discovery of new oil and gas fields which are significantly large and geographically adjacent to the centres of demand.

The improvement of the Asia-Pacific economy over the past two decades shows that the demand for oil is very dominant particularly from the Middle East, and that additionally the required technology for formulating natural gas and coal for transportation purposes continually improves.

In the meantime, in order to be able to reach the market, transportation is therefore an important factor that can be approached by the construction of an extended gas pipe or by the construction of the processing facilities.

Both issues have become very important elements in the marketing of natural gas.

The long distance between the source gas field and the market in Asia has caused LNG (liquefied natural gas) to become less economical in small scale due to the fact that the transportation of gas requires a sea-vessel as well as the construction of its maintenance plant (LNG plant).

The largest natural gas producers such as Indonesia need to develop alternative transportation, which should be more appropriate both economically and socially, considering that the domestic and the trans-border requirements continue to grow.

To satisfy such domestic and trans-border requirements, a gas transmission network needs to be developed, expanded and extended in the future.

If this can be accomplished then this shall impact the pricing of natural gas, which shall decrease while exploration activities shall increase, and the development of gas transmission for regional network shall accelerate.

Additionally, the increase in demand for natural gas shall mainly cause the price to compete with the price of LNG which all this time has been in competition with the price of crude oil.

This activity also changes the structure of the energy industry. This is because the electricity power plant sector is the biggest market of natural gas, then the option to construct a power plant close to the location of the source of energy or possibly to export the electricity so-produced shall become more attractive for satisfying the demand for electric power in the regional area.

The rapid growth of demand for gas and the prospect for gas usage in the years to come constitute a large opportunity for the government to continuously excavate the potential gas in its provision towards domestic requirements for energy as well as for export requirements.

It is forecasted that:

The domestic requirement for gas shall increase by 5 per cent per year in line with the potential growth of national economy.

The energy requirement shall increase in line with the growth of demand for environment-friendly energy.

The requirement for petrochemical products shall increase in line with the development of industries

The global requirement for energy from one year to another shall continue to increase as a whole.

The above opportunity can be taken advantage of by optimizing the largest potential of natural gas in Asia and at the same time as the market leader in the international gas business.

At this point proven gas reserves in Indonesia are known to amount to 94.75 trillion cubic feet (TCF or 2.61 trillion cubic metres), whereas the potential reserves amount to 75.56 TCF (2.07 trillion cubic metres) thus altogether totalling 170.31 TCF (4.68 trillion cubic metres). With a production rate of 2.8 TCF (77 billion cubic metres) then the ratio of reserves against production exceeds 50 years.

Public transportation

Indonesian air transportation has grown rapidly especially during the five years after the economic crisis in 1997-1998.

This growth has continued until the end of 2004, marked with a jump in the national air passenger growth in 2003 compared to 2002 for the period January-September amounting to 51.75 per cent.

The significant drop in national airfares has boosted the desire of transportation users to shift modes.

This can be seen from the Indonesian Central Bureau of Statistics' data of 2003 showing a drop in the train transportation mode by 15.80 per cent and the sea transportation by 13.99 per cent.

(China Daily 08/30/2005 page1)