How Indonesia’s Pertamina Is Tackling the Energy Transition

By Lenita Tobing

Decarbonizing is a challenge for most energy companies, but it’s particularly tough for Pertamina, which must provide power to Indonesia’s 260 million citizens spread over 1,000 islands—while also powering the country’s strong economic growth. Pertamina’s CEO, Ibu Nicke Widyawati, spoke with BCG about her ambitions for creating a greener future for Indonesia.

Key highlights of the company’s efforts:

• Boosting renewable energy production from 11% of the country’s energy mix in 2020 to 32% by 2050.
• Restructuring the business into six holding companies, one of which is explicitly focused on new and renewable energy, aimed at business development and boosting production from solar, wind, ocean, and geothermal power.
• Replacing fossil fuels with biofuels powered by sources such as palm oil, which reduces greenhouse-gas emissions during both the production and combustion of fuel.

Read more about Pertamina’s efforts here.

In an interview with BCG, one of the few women CEOs in the energy industry talks about how she’s making sustainability a part of everything Pertamina does.

In late 2022, Indonesia will host the G20 summit. The event will have special significance for Ibu Nicke Widyawati, CEO of Pertamina, Indonesia’s state-owned oil company. One of the G20’s priorities is decarbonization, and Nicke—a rare woman CEO in the energy industry—is chair of the organization’s energy transition task force. Decarbonizing is a challenge for most energy companies, but it’s particularly tough for Pertamina, which has a government mandate to provide for the country’s 260 million citizens and its fast-growing economy.

Nicke spoke with Lenita Tobing, a partner and managing director at BCG, about Pertamina’s operating environment and ambitions for powering a greener future for Indonesia.

Can you talk about some of the operational challenges that Pertamina faces?

We’re the only integrated energy company in Indonesia. We face competition from other international players, either in upstream or downstream businesses, but we do it all—production, refining, distribution, and retail. Because of the country’s geography, distribution is challenging: we need to get fuel to more than 1,000 islands, and our prices for end users need to be consistent across the country. At the same time, the country’s strong economic growth brings heavy demand for energy. GDP growth for Indonesia is projected at 8% to 12% a year. Also, we’re publicly traded, so we need to generate financial returns. With about $42 billion in annual revenue in 2020, we were the only Indonesian company listed in the 2021 Fortune Global 500.

What are the country’s goals regarding the energy transition?

The government set a target of net zero by 2060. One of our major resources in Indonesia is abundant coal. That has helped power the country’s growth, but we know that we need to move beyond coal as a fuel source in the long term. In 2020, renewables contributed only about 11% of the country’s energy mix, but the national energy plan targets new and renewable energy to reach 23% in 2025 and 32% in 2050.

What key steps are you taking to reach these targets?

In 2019, Pertamina was restructured into six holding companies, and one of them is explicitly focused on new and renewable energy. The aim was to drive operational excellence and business development in that area. Within the portfolio are initiatives to boost solar, wind, ocean, and geothermal power. In geothermal alone, we’ve committed to investing about $2.5 billion through 2026 to expand our production capacity.

Upstream, we’re launching a pilot initiative for carbon capture, utilization, and storage for our dormant oil and gas fields. It’s a huge opportunity for Indonesia based on the country’s forests and undeveloped land, which can serve as carbon sinks. In distribution, we’re exploring alternate fuels for our ships to reduce their carbon footprint. We’re even doing things like installing solar panels on the rooftops of the 5,000 gas stations in our retail network. Those measures are already generating results. In 2020, we reduced our greenhouse gas emissions by 27% in absolute terms.

How do biofuels factor into this plan?

It’s a big part of our work, and it’s where we’ve made the most progress so far. Replacing fossil fuels with biofuels—produced from renewable organic material like vegetable oil or waste cooking oil—reduces the environmental impact of both the production and combustion of fuel. Across the entire life cycle, ethanol can reduce greenhouse gas emissions by 29% to 77% compared to traditional fossil fuels. The precise amount depends on feedstock and production methods. Biodiesel and hydrotreated vegetable oil have even better emissions performance, though they carry other tradeoffs.

Indonesia currently has a mandate called B30. It stipulates that 30% of biofuels need to be blended with palm oil, which we produce domestically. Over time, the mandate will be stepped up to 40% and then 50%. We’re building the refinery units to increase palm oil production to help us hit those targets. We also developed a version of biofuel that can be used for aviation—another big potential means of reducing emissions.

How are you addressing the workforce capacity needed to make this all happen?

It’s a key component of the transition. We want to make sure our workers are treated fairly, and we won’t accomplish our goals unless we have the right skills in place. The company has a big initiative to upskill and reskill workers who currently specialize in fossil fuel-related roles, making sure they have skills that apply to the sustainability ecosystem. That includes skills related to renewables, biofuels, and the circular economy. We’re building a dedicated training center to house this effort.

Beyond environmental work, what are your broader ESG ambitions?

In terms of social measures, we’re proud of our One Price Fuel program, which ensures that all Indonesians pay the same energy costs regardless of where they live. We are also helping build the local business ecosystem by supporting small and medium-size enterprises. Since 1993, Pertamina has helped foster development of over 65,000 SMEs and we are committed to continue that work. In terms of diversity, we have an empowerment program to hire more people with disabilities and promote gender equality. Of the six directors on our board, two are women, and more than 16% of our senior leadership team are women.

Sustainability is now a key part of our identity. Like most companies, we have more work to do, but we have strong targets in place and a plan to achieve then. I’m proud of our progress, and I’m excited about the next steps in our journey.

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