Regulatory capture in energy sector: evidence from Indonesia

Abstract

ABSTRACT Regulatory capture reflects a phenomenon in which a regulatory agency, initially established to cater the interests of the public, formulates a policy based on private or ‘special’ interests. Actors within the legislative process are influenced by external parties or may even fall for regulatory capture as they have engraved a mindset that sides with the regulated industry. Regulatory capture is more likely to occur when there is a lack of public participation, transparency, and imbalance access to information. It is also much more prominent when the regulation is made to govern a profitable sector. Although regulatory capture has been numerously addressed, this paper focuses specifically on the challenges posed by regulatory capture in Indonesia’s energy sector, particularly with respect to one of its profitable sectors – the coal-fired power plant industry. Despite Indonesia’s expressed intention to transition to renewable energy and the apparent environmental impacts of coal-fired power plants, regulations regarding such a sector are still made to favour businesses. This relates to the fact that many political actors who hold positions as legislators and regulators also wield important positions in Indonesia’s coal-fired power plant companies. This paper illustrates the tension and struggle between the two contrasting interests of businesses and the public by looking into the theoretical framework of regulatory capture and public interests. Subsequently, it extracts the elements of regulatory capture and utilizes it to identify whether regulatory capture is inherent in Indonesia’s coal-fired power plant industry. Ways to prevent regulatory capture are further explored. In doing so, this paper resorts to a doctrinal and normative method. The analysis conducted leads to the conclusion that there are apparent signs of political influence in the coal-fired power plant industry, indicating the existence of regulatory capture. As such, measures to prevent and eradicate regulatory capture should be implemented by the government.