Indonesia: Prabowo Needs Aceh to Realize Upstream Ambitions

What has happened: SKK Migas and BPMA agreed to expand Aceh’s role in the management of its own offshore oil and gas resources, including areas beyond the province’s traditional 12 nautical mile maritime jurisdiction.

Why this matters: Aceh’s offshore position near the Malacca Strait gives the issue broader strategic relevance. The region sits close to major shipping lanes and Indonesia is currently trying to revive investor interest in upstream exploration.

What happens next: As the Prabowo administration seeks to increase upstream investment in Aceh, it will push for a complex working framework for SKK Migas and BPMA to share offshore operational authority. Existing and future PSC structures may be adjusted.

Indonesia’s upstream regulator, SKK Migas, recently signed an MoU giving Aceh a bigger role in managing its offshore oil and gas resources. This will affect energy investment in one of Indonesia’s most sensitive regions.

Under the terms of the deal between SKK Migas and Badan Pengelola Migas Aceh (BPMA), Aceh’s participation in offshore upstream governance will expand to include areas beyond the province’s traditional maritime jurisdiction of 12 nautical miles. The move coincided with the central government signing eight new upstream oil and gas contracts as the administration races to revive exploration to achieve energy self-sufficiency by the end of President Prabowo Subianto's first term.

On paper, the policy looks straightforward. Jakarta wants to improve coordination with Aceh while encouraging investment in offshore hydrocarbons. But politically, the issue is more complicated.

Untapped Potential

Aceh has a special autonomy status that emerged from the 2005 Helsinki peace agreement that ended decades of armed conflict with the separatist Free Aceh Movement. Many Acehnese political actors have long believed that Jakarta benefited disproportionately from Aceh’s hydrocarbon wealth while the province itself remained economically underdeveloped.

This local frustration is not new. During the heyday of the Arun LNG terminal, Aceh was one of the world’s major LNG exporters, yet local industrial development was weak, and inequality persisted. For years, demands for greater control over offshore resources were rebuffed because Jakarta feared broader decentralization pressures and possible nationalist backlash, as other regions would also demand similar treatment to Aceh.

What has changed in recent decades is Indonesia’s worsening upstream situation. Oil production continues to decline, exploration activity remains below target, and the country is increasingly dependent on imported energy. The government urgently needs new investment, particularly in offshore gas.

Aceh’s offshore areas are attractive because they are relatively underexplored compared with mature producing basins elsewhere in Indonesia. Jakarta faces a balancing act: It wants to attract investors to frontier upstream projects while also maintaining political stability in Aceh and respecting most elements of the post-conflict autonomy framework.

The compromise is selective decentralization. Jakarta allows Aceh to have a larger operational and supervisory role, but without fully surrendering sovereign authority over offshore resources. This middle-of-the-road approach creates significant execution risks.

Indonesia’s upstream governance is already highly fragmented. Investors must navigate a complex web of overlapping ministries, environmental agencies, local governments, SOEs and SKK Migas. Adding BPMA to the mix could further complicate decision-making unless responsibilities are clearly defined.

Institutional Ambiguity

Who ultimately controls licensing authority, environmental approvals, revenue-sharing mechanisms and operational oversight for offshore projects involving Aceh is unclear. Even if the legal authority formally stays with Jakarta, upstream investors may still need to negotiate political expectations from local actors in Banda Aceh.

The upstream investment is highly sensitive to regulatory uncertainty. Offshore projects require long timelines, high capital expenditure and stable contractual frameworks. In the current situation, we expect even more overlapping authority and messy accountability.

There is also a broader political economy risk emerging under Prabowo. On his watch, Indonesia is moving toward stronger state control over strategic resources, including recent efforts to centralize governance of major commodity exports. In Aceh, local elites are demanding more regional autonomy over those same strategic sectors — the opposite of what the central government is doing everywhere else.

In other words, the Prabowo administration is simultaneously centralizing and decentralizing resource governance depending on the political imperative. This creates uneven policy signals for investors.

There is also a risk that Aceh becomes a precedent. Other resource-rich regions with historical aspirations for self-determination — such as East Kalimantan, South Kalimantan, South Sumatra and Papua — may push for greater control over local energy assets if Aceh secures expanded offshore authority. They could argue that decentralization should extend beyond Aceh’s special autonomy arrangement.

Investor Outlook

For foreign investors, the good news is that stronger local participation could reduce political resistance, improve community relations and strengthen the social license for future projects. Aceh’s political elites may also become more supportive of upstream development if they perceive direct economic benefits.

However, at the same time, investors will now face bureaucratic duplication and fiscal uncertainty. This will extend to revenue allocation, procurement obligations, local content rules and licensing coordination that could affect project economics.

There's a geopolitical dimension, too. Aceh sits near the Malacca Strait and western Indonesian maritime routes. Offshore gas development in the region intersects with Indonesia’s broader energy security strategy and its effort to maintain strategic relevance in ASEAN energy markets.

In our view, if Jakarta and Aceh establish clear regulatory boundaries, Aceh could become a useful model for balancing regional autonomy with the national energy strategy. But that sweet spot has historically proven very difficult to find, so investors should brace for overlapping authority and competing political interests between central and local authorities.