Pancasila Economy and Indonesia’s Green Supply Chain Strategy
Energy transition is reshaping the global economic landscape, presenting Indonesia with significant opportunities to position itself at the heart of this shift. In recent years, energy transition-related issues have become a new arena for industrial, technological, investment, and geopolitical competition. Major nations are racing to secure green energy supply chains, from critical minerals and batteries to solar panels, wind turbines, smart grids, and energy storage technologies.
In this new landscape, those who control the energy transition supply chain will gain strategic advantages and the potential to dominate future economic value. Indonesia currently holds a highly strategic position with substantial critical mineral reserves, a large domestic market, rising energy demand, and a crucial geographic location in global trade routes. However, these assets do not automatically translate into industrial strength. Without the right strategy, Indonesia risks remaining a raw material supplier and a market for other countries’ green technologies—a risk that must be anticipated early.
This is where Pancasila Economy must be reinterpreted pragmatically. It should not remain a normative jargon confined to policy documents. In the context of global green industrial competition, this concept offers a highly relevant framework. The core principle is straightforward: the state acts as a guide, incentive regulator, justice guardian, and driver of national value addition. Thus, the market does not determine its own direction, but the state still provides sufficient room for healthy industrial innovation. Global realities show the world is not moving towards a completely neutral free market for green energy.
Developed nations are providing large subsidies, fiscal incentives, research support, industrial protection, and manufacturing facilities to keep green technologies produced domestically. As other countries aggressively use industrial instruments, Indonesia must also build a smart, legal, and nationally aligned green industrial strategy.
The critical mineral downstreaming policy, especially for nickel, is an important step worthy of appreciation. However, downstreaming must not stop at mineral processing. Indonesia needs to advance to the next stage: building a comprehensive green manufacturing ecosystem. We must discuss producing solar cells and modules, wind turbine components, inverters, cables, energy storage systems, batteries, smart grid devices, and other supporting technologies. Otherwise, Indonesia will only capture a small fraction of the economic value generated by the global energy transition.
The green supply chain must be understood as a long value chain, starting from mining and refining, moving to component production, manufacturing, energy projects, operations and maintenance, and finally recycling. The more links Indonesia can control domestically, the greater the value added for the country. Conversely, the shorter Indonesia’s position in the value chain, the more economic benefits flow overseas.
Therefore, green energy investment policies must be more selective. Indonesia needs foreign capital to accelerate development, but incoming capital must bring technology transfer, strengthen local industry, absorb national labour, and build long-term manufacturing capacity. Investments focused solely on the domestic market without committing to local production bases are insufficient for Indonesia’s strategic needs.
In this context, the Domestic Component Level (TKDN) instrument remains important but must be managed more smartly. TKDN should not become an administrative barrier causing uncertainty for investors. Instead, it should drive deeper national industrial development. Local content requirements must be phased, realistic, and aligned with domestic industry capabilities. Simultaneously, the government must assist local businesses in meeting global quality standards.
National incentive orientation also needs updating. Subsidies and fiscal facilities should not be based solely on investment size or project capacity. Incentives must be tied to value creation. Companies building manufacturing facilities, transferring technology, using local suppliers, training Indonesian workers, and establishing research centres domestically deserve greater support. This approach turns incentives into strategic investments rather than mere fiscal costs, strengthening the national industrial foundation.
This major agenda requires substantial financing. Energy transition demands large funds for power plants, grid strengthening, energy storage systems, manufacturing, and new workforce development. Relying solely on the national budget is insufficient. Foreign debt is also not ideal if not carefully managed. Indonesia needs more innovative and sovereign green financing architecture.
One option worth considering is strengthening the national green fund through sovereign green funds, blended finance, or other strategic financing instruments. These could finance pioneering projects critical to national interests but not yet commercially attractive—such as battery research, renewable energy component manufacturing, facilities…