PROSPECTS FOR INDONESIA'S NUCLEAR POWER PROGRAM--POLITICAL AND ECONOMIC CONSIDERATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000606630001-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: April 1, 2011
• Sequence Number: 1
• Publication Date: September 26, 1986
• Content Type: MEMO

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Central Intelligence Agency
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and Economic Considerations
DIRECTORATE OF INTELLIGENCE
26 September 1986
Prospects for Indonesia's Nuclear Power Program--Political
Summary
nuclear program.
US-Indonesian cooperation in nuclear energy will be high on
Indonesian Minister of State for Research and Technology Habibie's agenda
during his 26 September - 31 October visit to the United States.
Indonesia, a signatory of the Nuclear Nonproliferation "Treaty, is preparing
an ambitious nuclear program to help meet growing energy needs and
free more oil for export. Habibie's ministry controls the program, and is
now in the process of forming a nuclear power agency. Personnel and
budgetary constraints are delaying final decision on the construction of a
nuclear power plant, however, and we believe it is unlikely that Indonesia
will meet its goal of an on-line plant by the year 2000. Furthermore, the
program's future depends upon the strong backing of President Soeharto,
who in our judgment might divert Jakarta's already limited development
funds to more immediate social and economic concerns. Without
Soeharto's support, we doubt Habibie could sustain the momentum of the
This memorandum was prepared by Office of East Asian Anal si
Office of Global Issues, with contributions from
Office of Scientific and Weapons Research, and Office of Leadership Analysis.
Information available as of 26 September 1986 was used in its preparation. Comments
and queries are welcome and may be directed to the Chief, Islands Branch, Southeast
EA M 86-20147
GI M 86-20229
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Jakarta's Commitment is Strong So Far...
Minister of State for Research and Technology Habibie 25X1
is the driving force behind Indonesia's nuclear program and the country's efforts 25X1
to organize and absorb a wide array of advanced technology. Habibie advocates
industrial development based on high technology, and has stated publicly that nuclear
power will help provide the energy and technology transfer such a development strategy
requires. l 25X1
Habibie's close personal relationship with Soeharto has enabled him to secure the
political and financial backing necessary to gain control over Indonesia's nuclear power
program. Soeharto's support for the nuclear program has become more tangible since
early 1986.
Soeharto also recently approved a plan that, in our judgment, will effectively
institutionalize the nuclear power program under Habibie's control. According to US
Embassy officials, Habibie will establish an intergovernmental committee to explore
forming an independent agency to oversee nuclear electricity generation. The agency
would assume most of the relevant responsibilities of the state electrical company, PLN,
a past critic of nuclear power. PLN would be limited to distributing electricity bought
from the new agency--which will also be open to foreign investment, possibly as a joint
venture project. We believe the formation of this agency would formally establish
nuclear power in the Indonesian bureaucracy and realistically address the problem of
funding the project.
Despite Soeharto's strong support for the nuclear program, acceptance of nuclear
power within the government is not unanimous. Minister of Population and Environment
Salim, for one, has repeatedly criticized the safety of nuclear power.
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...but Some Questions Remain
Availability of qualified manpower will be, in our judgment, a serious constraint to
Indonesia's nuclear power program. Indonesia has the unskilled workers needed to
construct a nuclear plant, but lacks competent managers and engineers from various
disciplines such as nuclear, civil, mechanical, and electrical engineering to operate and
maintain a nuclear facility. Foreign suppliers will probably construct the first power
plant on a turn-key basis, and provide the Indonesians with the training in construction
and operation to support the facility.
Jakarta has instituted training-programs--including technical exchanges, grants, 25X1
skilled manpower.
In our view, however, these programs are unlikely to have a substantial
impact on the level of nuclear energy related expertise in Indonesia before the end of
the century.
In addition, in our judgment, economic difficulties caused by the recent plunge in
world oil prices will severely limit resources available for Jakarta's ambitious nuclear
plans. Oil revenues account for about 70 percent of Indonesia's total export revenues,
and slightly more than half of the national budget. The $6 billion in current annual oil
revenues are used mostly to service foreign debt, and leave Jakarta with little foreign
exchange to finance a nuclear development program heavily dependent on imported
capital equipment. Moreover, the 31 percent devaluation of the rupiah against the US
dollar earlier this month makes imports even more costly.
Declining oil revenues have forced Jakarta to cancel or cut all major development
programs, and this year's budget--already the most austere since the early 1970s--has
been cut 7 percent. The Minister of State for National Development Planning recently
stated that Jakarta believes low oil prices will persist for at least the next two years,
implying possible further budget cuts. In our judgment, energy diversification projects
such as the nuclear plant and coal-fueled electric power plants will be slowed not only
as a result of cutbacks in spending, but probably because the government will find it
necessary to divert a larger share of funds to more immediate social and economic
needs to head off social unrest Even in the unlikely event that oil prices do rebound
soon, Jakarta would probably first restore funds to on-going development programs
before allocating funds to long-range programs in the early stages of development such
as the nuclear program. As a result, we believe that budget constraints alone
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could thwart Indonesia's goal of having an operating nuclear power plant by the year
hydropower--before investing in nuclear power.
Beyond financial constraints, we believe the economic benefits of nuclear power
may be less than Jakarta anticipates. For one thing, we believe manpower shortages
and technical problems will probably produce construction and operating costs higher
than Jakarta's current estimates. In addition, IAEA studies show that for nuclear power
to be economical for Indonesia, Jakarta must commit to a plant of at least 900 MW--but
Jakarta's current plans call for a facility of only 600 MW. In our judgment, this suggests
that nuclear power might not be economically viable, especially because since oil costs
Indonesia only $3 to $3.50 a barrel to produce, according to industry estimates. We
believe that energy economics suggest Jakarta should first develop and consume more
of its abundant conventional energy resources--oil, natural gas, coal and
In our judgment Habibie's political power would dissipate quickly without
Soeharto's support, thus jeopardizing the nuclear energy program. Habibie's
capital-intensive approach to development is already at odds with Indonesia's more
conservative economic technocrats who favor labor-intensive economic growth to
alleviate serious and growing unemployment.
disaffection at the expense of longer term development needs.
Jakarta seems willing to support, at least in the preparatory stages, the
considerable time, effort and investment that building a nuclear infrastructure takes. In
the near term at least, we expect the nuclear program to continue under its own
momentum if only because of international prestige considerations. Over the longer
term, we believe the key to the program is Soeharto and his continued strong support
for Habibie. On this score we are not sanguine because we believe Soeharto will--in
light of the country's severe financial constraints--respond to growing public
growth into the early 1990s.
Indonesia will experience zero or negative economic growth this year, according to
some Indonesian technocrats. Even under optimistic conditions, we estimate that
economic growth will average no more than 3 to 4 percent annually for the
remainder of the decade, and soft world oil prices will continue to hamper economic
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SUBJECT: Prospects for Indonesia's Nuclear Power Program--Political
and Economic Considerations.
Original - OEA/SEA/IB
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