Widodo’s smoke and mirrors hide hard truths



Yudhoyono played this game back in mid-2011 when the Australian government suspended live cattle exports to Indonesia over animal welfare issues, and Jakarta decided some payback was in order by ordering a ban of its own.

Over the next two years, it slashed cattle imports by half and sought to convince consumers that the local industry could fill the gap when rising prices – and one of the lowest per capita beef consumption rates in Asia — clearly showed it could not.

Fast forward to the much-vaunted China-backed US$5.8 billion Jakarta-Bandung fast-rail project, once seen as the showcase of Widodo’s ambitious infrastructure program and now stalled over land acquisition issues that should have been foreseen.

Getting it started hasn’t been for the want of trying. Widodo attended a ground-breaking ceremony in January 2016, only to see Transport Minister Jonan Ignasius call a halt to the project five days later because of several “unresolved issues.”

Widodo and the Chinese weren’t amused. In July, the same month the construction permit for the project was finally issued, Ignasius — the former, highly successful chief executive of state-run railway Kareta Api — was unceremoniously sacked.

The president should have already learnt his lesson. In mid-2015, he had presided over the ground-breaking of the US$4 billion, Japan-funded Batang power station in Central Java, only to discover local farmers were still refusing to sell a key patch of land.

The courts finally resolved that one, but the railway still isn’t going anywhere despite the efforts of State Enterprise Minister Rini Soemarno, who showed up last July for yet another ground-breaking event – this one a tunnel.

It takes a lot to beat the whole Freeport saga, though, starting with last year’s framework agreement which was hailed at the time as a major victory for the Widodo government in forcing the company to agree to divest 51% of its shares in its local subsidiary.

Maybe so, but no-one seemed to notice that the devil was in the small print. In fact, the Indonesia media failed to point out at the time that the crucial questions of valuation and management control had yet to be settled.

Little surprise then that the negotiations continue, interspersed on frequent occasions with reassuring pronouncements by senior government officials that a final, final deal is just around the corner. It has been a long corner.

So far, there have been at least four government-imposed deadlines, all based on the extension of Freeport’s permit allowing it to continue exporting copper concentrate from its high-altitude Grasberg mine in Papua’s Central Highlands. The next one is in June.

Refusing the permit would clearly hurt the company’s profits, but it would also cut deeply into government revenues and, perhaps more importantly, lead to worker lay-offs that could spark unrest in the country’s already volatile Papua region.

In the latest show-and-tell, the government last week ceremonially signed a memorandum of understanding under which it will hand over 10% of the Freeport Indonesia shares it still needs to acquire to the Papua provincial administration.

The government spin machine has also recently turned to eastern Indonesia’s Marsela natural gas project, which for reasons even some senior Indonesian politicians can’t figure, Widodo wants to be developed on a remote, sparsely-inhabited island.

Joint venture partners Inpex and Shell have been dragging their feet, arguing that only an offshore facility makes sense, given the undersea terrain and a lack of existing infrastructure.

With the project seemingly in limbo, the government announced earlier this month that the partners were working on detailed plans for an onshore plant that would be finished by the end of this year. Tellingly, there was no word from either company.

“The officials are talking on behalf of the company, without the company knowing anything about it,” says one Indonesian oil veteran. “That’s politics, but for me as an industrialist it is very troubling.”

The French oil giant Total has maintained a similarly stoic silence since the state-run Pertamina oil company claimed the firm wanted back into the Mahakham gas field, which it had to leave when its contract expired last December.

In fact, with little money to maintain the Mahakham, it is the government that has been offering Total a slightly higher 39% participating interest to entice it to return as a partner in the field it ran for more than 40 years.

Widodo also adopted Yudhoyono’s cattle chicanery, part of an economic self-sufficiency program in which, with little planning and a lot of wishful thinking, Indonesia was hoping to produce all its own beef, rice, sugar, corn and soybeans.

In 2015, it was proudly announced that the proportion of beef imports to total consumption had dropped from 31% to 24%, without anyone noting that Indonesians were eating just 2.7 kilograms a year, the lowest per capita rate in the region.

A year later, that figure had shot back up again to 32% and last year it increased yet again to 41% with the price of beef at US$10 a kilogram and officials acknowledging the obvious: that Widodo’s five-year self-sufficiency target was now unattainable.

Again, that has a familiar ring to it. By importing rice, seen as almost a crime in some nationalistic quarters, past governments have often been forced to admit (if anyone is listening) that Indonesia’s supposed self-sufficiency in rice is nothing but a myth.

That would have former President Suharto, who did achieve rice self-sufficiency back in the early 1980s with careful planning and a slew of coordinated programs, rolling over in his grave.