The Contribution of Low Rank Coal Liquefaction in Indonesian Economy in 2025

AbstractOne of the objectives of the Indonesian National Energy Policy (KebijakanEner giNasional – KEN) as outlined in Presidential Decree (Perpres) No. 5/2006 is the realization of an optimal energy mix by the year 2025, which includes reducing oil consumption to 20% and increasing the utilization of coal to more than 33%. KEN also mandate s that 2% of national energy needs be sourced from the liquefaction of coal.This study also aims to analyze the economic impacts and intersectoral linkages based on the Indonesian Input -Output Table for the year 2005 which is projected to 2025 by including the low-rank coal synthetic oil (CSO) sector as a new classification. Econometric models (regression analysis) and linear programming are applied for this study.Results from economic analysis found that with an assumed coal price of US$60/ton, CSO selli ng price of US$111/bbl and interest rate (i) of 5%, investment in CSO plants will give an Internal Rate of Return (IRR) of less than 10%. Backward linka ge analysis found that the CSO sector has the potential to generate more yield for the economy than othe r energy sectors, but also a lower rate of forward (downstream) linkage. Multiplier analysis, on the other hand, found that the development of CSO plants is capable of driving other sectors of the economy equal to the petroleum refining sector and other en ergy providers, albeit with a lower business surplus. The government needs to give incentives for the effort, such as through regulatory and financial supp ort, tax incentives/tax holidays, price subsidies, or arrangements in the coal price-fixing scheme