Thursday, September 22, 2011

ASEAN's Energy Infrastructure Needs Both Physical and Institutional Development

I first visited Indonesia in 1994, and in my then-law firm’s Jakarta office in Bank Indonesia (it was an advisor to the government) was one of my first impressions of a unified ASEAN market: a huge map illustrating what was to become the Trans-ASEAN Gas Pipeline Infrastructure Project (TAGP), a natural gas pipeline network connecting the whole of ASEAN.  This week’s ASEAN Energy Ministers meeting in Brunei celebrated the progress made in intra-ASEAN distribution in natural gas and electricity, as well as cooperation programs in energy conservation, nuclear power and alternative energy sources.  Energy has a primary importance in the development of the AEC.

Which makes the remarks of the Indonesian Coordinating Minister for the Economy Hatta Rajasa rather unfortunate.  Testifying before the Indonesian parliament, Minister Rajasa stated that “The gas supply to Singapore is too much ... Exports to Singapore should stop.”  He also indicated that he had asked Energy Minister Darwin Zahedy Saleh (the same Indonesian minister who attended the ASEAN Energy Ministers meeting) to set up a legal team to renegotiate all gas sales contracts with Singapore.  This proposal would appear to contradict ASEAN’s regional policy for greater energy interdependence.

Now, all regional groupings have inconsistencies between national policies and regional policy, particularly in energy.  In the EU, the onset of winter brings out disputes among its members regarding gas prices and supply pipelines connecting the EU members with its major supplier, Russia.  So this is nothing new.

Furthermore, Minister Rajasa did not state that Indonesia would unilaterally cut Singapore off.   Rather, Indonesia would seek to revise its contractual obligations so that more of its gas would be committed to domestic use.   This recognizes the sanctity of Indonesia’s supply contracts, which contain penalties for non-compliance and allow for arbitration to settle disputes.  But contracts can be revised.

Singapore, being dependent on its neighbors for gas and water, is used to these issues of pricing and supply being raised.  The energy market also understands that Minister Rajasa had to address domestic concerns with his comments.  Despite the headlines, alarm bells were not set off. 

Nevertheless, it is somewhat jarring to have discordant messages coming from ASEAN chair Indonesia.  It also demonstrates once again that nation-centric priorities will always find ways to express themselves at the national level.  Without continued strengthening of the ASEAN institutions at the ministerial and senior official level, national priorities could overwhelm the overall ASEAN interest.  The physical infrastructure of ASEAN, such as the TAGP, must thus be matched with institutional and legal infrastructure as well.