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Indonesia is at a turning point in its energy development. The country is looking to reverse years of declining production and investment in the oil and gas sector through new exploration contracts, the development of potentially vast offshore reserves, and acquisitions. Dozens of new contracts have been signed since 2008, however, including 11 new production-sharing contracts in November 2011 worth over $200m. Several new working areas have also been approved, with a number of the fields primarily containing natural gas. In the electricity sector, demand is increasing due to a growing, ever-wealthier population. With electrification rates at only 67% and the replacement of biomass with electric energy sources, the country is looking at nearly 10% annual growth. Indonesia will look to meet this demand by deploying a number of cheap coal-fired power plants, which will draw on vast domestic supplies. This chapter contains interviews with Evita Legowo, Director-General, Oil and Gas Directorate, Ministry of Energy and Mineral Resources; Karen Agustiawan, President Director, Pertamina; and a roundtable with Jim Taylor, President Director, ConocoPhillips; Sammy Hamzah, CEO, Ephindo; Terry McPhail, President & General Manager, ExxonMobil; and Hilmi Panigoro, President Commissioner, Medco.

Efforts are under way to transition the economy from one based on the export of raw materials, particularly hydrocarbons, to more advanced production. Recent trends show that this push is gaining traction, as Indonesia’s GDP grew 6.1% in 2010 despite a 2.3% contraction in the oil and gas sectors. The country aims to become an industrialised country by 2025. To facilitate this transformation, state planners have identified six core sectors capable of contributing significantly to Indonesia’s GDP, and divided the country into six “economic corridors” that will focus on a specific set of industries for which they are most suited. Infrastructure development will be key to industry’s success. This section includes interviews with Sudhamek AWS, President Director, GarudaFood; John Gledhill, President Director, HM Sampoerna; and Suryo Sulisto, Chairman, Indonesia Chamber of Commerce (KADIN); and a viewpoint by Fransiscus Welirang, Director, Indofood.

Largely impervious to recent economic woes in the developed economies, Indonesia’s mining sector is riding high on a wave of high commodity prices. Meanwhile, the government has undertaken to revise regulations governing the sector in a bid to improve clarity and attract more investors. However, parliamentary opposition to some of the changes, including the removal of a requirement that foreign mining companies divest a majority of their companies to Indonesian entities, has resulted in uncertainty. Moreover, the government has clashed with mining companies over a measure that would require 99% refinement of all exports within five years of beginning production. Final clarification will be necessary to enable full investor confidence in this key sector. This chapter includes an interview with Martiono Hadianto, President Director, Newmont and Chairman, Indonesia Mining Association (IMA).

With a population of 245m, including a rapidly growing middle class, the Indonesian market is widely regarded as having huge potential. However, infrastructural deficiencies are threatening to cramp growth. Limited transport infrastructure, from ports to roads and rail, has increased manufacturing costs and shipping times. Indonesia is attempting to address this deficit through public-private partnerships (PPPs), and has projects worth around $115bn planned or under construction. The infrastructure drive will rely on several government bodies, such as the Indonesia Infrastructure Guarantee Fund, which underwrites private investment in infrastructure projects to encourage such financing. This chapter includes an interview with Kuntoro Mangkusubroto, Head, Presidential Delivery Unit (PDU).

As one of the markets at the forefront of the South-east Asian growth story, Indonesia is seeing a surge of investment attention from capital managers eager to avoid the malaise lingering in developed economies. Indonesia now has a chance to strengthen its capital markets’ offerings, by broadening the options available, fostering a bigger roster of investors and smoothing operations at the country’s exchanges. The Indonesia Stock Exchange (IDX) teamed up with the Asian Development Bank in 2009 to plan improvements to the bourse. The stock market’s profile has been raised through adjustments to the country’s sovereign debt ratings, which Fitch labelled investment grade in December 2011, with Moody’s and Standard & Poor’s expected to follow suit in 2012. This chapter features an interview with Nurhaida, Chairman, Bapepam.

At 1.7%, Indonesia’s insurance penetration rate is the lowest in the region, compared to 3.7% in Thailand, 5.1% in Malaysia and 11.1% in South Korea. Underwriters hope that as disposable income grows, the middle class – now estimated at up to 40% of the population – will purchase more coverage. In fact, gross premiums have grown an average of 23% annually since 1996, reaching a total of $16.02bn in 2010. This potential has brought foreign insurers into the market, mainly through buying up local players, and opportunities for mergers and acquisitions still remain. Sectors with potential include Islamic insurance, or takaful, which grew 47.6% in 2010. Other areas for growth include microinsurance, which would benefit from the more than 120m Indonesians living on less than $2 per day. This chapter includes an interview with Hotbonar Sinaga, CEO, Jamsostek.