IEEFA: Redirecting sovereign capital to accelerate Indonesia's energy transition

Key Findings

• Indonesia’s sovereign wealth fund (SWF), Danantara, ranks as the eighth-largest fund globally, with USD900 billion in assets under management. However, its dividend model is structurally constrained: state-owned enterprise (SOE) contributions have consistently fallen short of the government’s ambitious annual target of IDR800 trillion (USD46.7 billion).

• The financial performance of energy SOEs remains heavily dependent on government support. Government subsidies and compensation for Pertamina and PLN totaled IDR374 trillion (USD23.6 billion) — more than double the SOE dividend contributions. Without this support, both companies would record negative net income, diminishing their dividend capacity.

• Pertamina and PLN are predominantly fueled by coal and imported oil and gas, exposing them to global price volatility and exchange rate fluctuations. Renewables, by contrast, are domestically available, have no fuel costs, and are not linked to currency fluctuations, offering a pathway to greater financial stability.

• International SWF experience demonstrates that embedding sustainability in portfolio strategy ensures resilience, long-term value creation, and alignment with global decarbonization trends, while collaboration with regional actors can mobilize the scale of investment required to accelerate Indonesia’s energy transition goals.

(May 08, 2026) -- Established on 24 February 2025, Indonesia’s sovereign wealth fund (SWF), Badan Pengelola Investasi Daya Anagara Nusantara (Danantara), is mandated to enhance state revenue and strengthen the national economy through professional portfolio and investment management. A key component of its revenue model is optimizing returns from state-owned enterprises (SOEs), primarily through dividends and the active management of SOEs.1 With approximately USD900 billion in assets under management, Danantara ranks as the world’s eighth-largest SWF, placing it among the most significant global players.

Globally, countries have established SWFs as a way to manage national wealth prudently, stabilize economies during downturns, secure long-term prosperity, and invest in national priorities. Their funding typically comes from four sources: oil and natural gas, other export commodities, fiscal surpluses, and foreign exchange reserves.2

In contrast, Danantara’s funding model is not reliant on these sources and is primarily from consolidated dividends of SOEs that were previously absorbed by the State Treasury and supported by market-based instruments.3

A year after Danantara’s launch, President Prabowo set an annual dividend target of IDR800 trillion (USD46.7 billion) for the state budget4 alongside a minimum return of 5%.5 With total current assets of USD900 billion, a 5% return would generate USD45 billion annually for the government.

Historically, dividends from SOEs have fallen short of this target. In 2022, SOEs’ consolidated assets of IDR9,789 trillion generated net profits of IDR309 trillion (a 3.15% return on assets [ROA]) and paid dividends of around IDR78 trillion. As the largest shareholder, the Government of Indonesia (GOI) received dividends totaling IDR40 trillion. In 2024, total dividends increased to IDR145 trillion, with GOI receiving IDR85 trillion. However, even that growth remains far below the stated target, underscoring a structural challenge in achieving fiscal expectations.

To meet the government’s ambitious goal, Danantara should pursue complementary strategies through its two holding entities:

• Danantara Asset Management (DAM) should optimize SOEs’ performance to deliver stronger dividends.

• Danantara Investment Management (DIM) should reinvest available capital from SOE dividends and other proceeds into projects that can generate returns exceeding the 5% minimum rate, starting with the IDR150 trillion from government injections, dividends, and patriot bonds.

Notably, dividend contributions are highly concentrated among the country’s seven leading SOEs (known as the “Magnificent 7”6), with the banking sector as the primary contributor, followed by the energy sector. However, the financial performance of energy SOEs remains heavily dependent on government subsidies, revealing a critical paradox — government compensation to energy SOEs exceeds the dividends they generate.

In 2024, subsidies and compensation to state-owned oil and natural gas corporation Pertamina and national electricity utility PT Perusahaan Listrik Negara (PLN) totaled IDR374 trillion (USD23.6 billion) — more than double the dividends distributed by the country’s seven largest SOEs. This dynamic raises questions about the feasibility of scaling dividends to meet Danantara’s targets without increasing subsidies or undertaking SOE reforms. Scenario analysis indicates that in the absence of subsidies, the energy sector would generate substantial losses, potentially offsetting dividend contributions from other SOEs. This highlights a key vulnerability in Danantara’s revenue model.

Against this backdrop, the energy sector holds significant potential for reform. Pertamina and PLN are highly exposed to global price volatility because they are heavily dependent on conventional energy sources, such as coal, oil, and gas. Government intervention that regulates domestic fuel costs and caps prices at below international levels erodes profit margins, prevents full value capture, and exacerbates operational inefficiencies and fiscal pressures.

Comparative analysis of global SWFs offers valuable insights. Funds in Norway and the Gulf region demonstrate how oil resource rents can be converted into sustainable, diversified investments. Meanwhile, Singapore’s Temasek illustrates how active asset management and global diversification can strengthen domestic resilience.

Clean energy has emerged as a defining investment alternative. Since surpassing fossil fuels in 2019, global SWF investment in renewables rose by 11% in 2024, reaching USD2.1 trillion — double that of fossil fuels. Renewables accounted for more than 92% of global power capacity expansion in 2024, primarily driven by solar and wind.

SWFs are expanding beyond renewable generation assets to encompass networks and grids, energy storage, and green technology supply chains. Their portfolios increasingly include electric vehicles (EVs), sustainable agriculture, recycling, and other transition-related sectors, reflecting a holistic approach to sustainability.

These models emphasize the importance of portfolio diversification, operational efficiency, and sustainability principles that Danantara should adopt to avoid financial risks. Global experiences provide a roadmap for a long-term, sustainability-oriented investment strategy that prioritizes resilience over short-term fiscal targets. Temasek’s practices demonstrate that sustainability should be embedded in portfolio strategy, ensuring resilience, long term value creation, alignment with global decarbonization trends, and simultaneously strengthening national energy security. Additionally, regional collaboration is essential. Partnerships with actors across the Association of Southeast Asian Nations (ASEAN) actors can provide an important starting point, while collaboration with SWFs from the Middle East and North Africa (MENA) and East Asia regions could unlock the scale of investment required to accelerate Indonesia’s energy transition goals.

Danantara’s directives to optimize SOE assets through DAM and strengthen global partnerships through DIM provide institutional mechanisms for reform. These initiatives align with Indonesia’s Golden Vision 2045 to achieve economic sovereignty, social welfare, and sustainable development goals. Crucially, they also strengthen Indonesia’s efforts to achieve energy security and an 8% economic growth target. However, the path forward requires balancing ambition with strategic actions.

Ultimately, Danantara’s success will depend not on the scale of its assets, but on the financial efficiency of its portfolio and the sustainability of its revenue model. If Indonesia can reorient its SOE ecosystem toward profitability and resilience, Danantara could emerge as both a cornerstone of fiscal stability and a catalyst for the country’s clean energy transition. (ends)