IESR: Diversification and economic transformation urgent in coal-producing regions

Jakarta – The Institute for Essential Services Reform (IESR) recommends that the central and local governments immediately diversify and transform their economies to anticipate the social and economic impacts of the decline of the coal industry, along with the planned termination of PLTU operations and increased energy transition and emission mitigation commitments from countries that are coal export destinations. The recommendations are in a report entitled Just Transition in Indonesia’s Coal Producing Regions, Case Studies Paser and Muara Enim.

Drawing on research in Paser Regency, East Kalimantan Province and Muara Enim Regency, IESR recommends that local governments in both provinces utilise coal revenue sharing funds (DBH) and corporate social responsibility (CSR) programmes to plan and support the process of economic transformation, access expansion and public participation for an equitable transition.

“Coal DBH accounted for 20% of the Muara Enim government’s total revenue budget in 2023 and 27% of the Paser government’s total revenue in 2013-2020,” said IESR Executive Director Fabby Tumiwa.

Furthermore, according to him, economic transformation planning after coal mine closure needs to prioritise economic activities that provide more multiplier effects to local communities. In addition, it is also necessary to pay attention to the potential impact of decreased coal production on the informal economy sector, which has not been recorded in macroeconomic analyses.

IESR analysed that the coal mining industry contributed an average of 50% and 70% to GRDP over the last ten years in Muara Enim and Paser. It did not contribute significantly to the income of coal industry workers.

IESR Research Manager Julius Christian revealed that 78% of the added value becomes company surplus, and only about 20% is allocated to workers. In addition, the coal mining industry has caused significant social and environmental impacts on the surrounding communities.

“For example, air and water quality degradation, changes in people’s livelihoods, economic inequality, and increased consumerism and rent-seeking,” said Julius Christian, the study’s lead researcher.

Martha Jesica, IESR’s Social and Economic Analyst, added that each party in the region responds to this energy transition trend with diverse perspectives due to differences in interests, knowledge, and access to information. Coal companies, for example, are more aware of the risks of the energy transition to their business than the government and the general public.

“Both companies and local governments are starting to undertake various economic transformation initiatives. However, local communities are more sceptical about the potential decline of coal because they have seen an increase in production in recent times,” she said.

Communities are starting to have a vision for economic diversification and coal companies are starting to develop businesses in other fields. He hopes the government and various stakeholders can encourage wider awareness and initiate structural changes towards economic transformation efforts.

IESR in the report Just Transition in Indonesia’s Coal Producing Regions, Case Studies Paser and Muara Enim, recommends that realising sustainable development in coal-producing regions requires a comprehensive economic diversification and transformation plan involving stakeholders and community participation.

Second, using DBH funds and CSR programmes to finance the economic transformation process that can attract more investment into sustainable economic sectors. Third, expanding access to education and training to prepare a competitive workforce in sustainable sectors and improving financial literacy for the community. Fourth, increasing the participation of all elements of society, especially vulnerable groups, in regional planning and development. (Hartatik)

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