Building Regional Sovereign Wealth Funds for Sustainable Futures: Lessons from Berau for Nusra

Najmuddin Haikal Fikri

Centre for Renewable Energy and Materials

The fiscal autonomy of Indonesia’s regions has long been tied to the transfer of central government revenues, particularly the Dana Bagi Hasil (DBH) derived from natural resource extraction. For resource-rich provinces, this mechanism was intended to ensure fairness while enabling local governments to fund public services and development priorities. Yet the reality has been one of volatility and dependency. Fluctuating commodity prices and weak management of DBH have left many regions fiscally fragile, undermining their ability to plan long-term development.

The Emergence of Regional Endowment Funds in Indonesia (Dana Abadi Daerah)

Recognizing these challenges, the Indonesian government introduced Dana Abadi Daerah (Regional Sovereign Wealth Funds, DAD) through Law No. 1 of 2022 on Fiscal Relations between the Central and Regional Governments. This mechanism allows resource-producing regions to allocate part of their DBH revenues into an investment fund, whose returns can finance development in perpetuity. By transforming volatile resource rents into stable and recurring revenues, DAD serves as a tool of fiscal sustainability and intergenerational equity.

Global precedents show the potential. Norway’s Government Pension Fund Global, Alaska’s Permanent Fund, and Timor Leste’s Petroleum Fund all demonstrate that sovereign wealth funds can safeguard finite resources, stabilize economies, and ensure benefits reach future generations. Indonesia now has the opportunity to apply these lessons at the regional level.

Berau as a Case Study

Berau Regency in East Kalimantan, one of the country’s largest coal producers, received IDR 2.58 trillion in DBH in 2025, of which IDR 2.32 trillion came from coal royaltiesDANA ABADI DAERAH (DAD) DARI DA…. Faced with the risks of declining fossil fuel markets and the imperative of fiscal resilience, Berau became an ideal case study for how DBH can be integrated into a regional investment fund.

Simulation models suggest that by allocating 15% of DBH annually into a DAD and investing conservatively with an average 5% return, Berau could accumulate a corpus of around IDR 4 trillion within a decade. This would generate a recurring annual revenue stream of approximately IDR 145 billion, earmarked for education, healthcare, infrastructure, and economic diversificationDANA ABADI DAERAH (DAD) DARI DA….

Such a mechanism not only cushions local budgets against commodity shocks but also positions the region for a just economic transition as coal reserves dwindle.

Implications for East Indonesia and Underserved Regions

The Nusra region, though not as dependent on coal as East Kalimantan, faces similar structural challenges. Lombok, Sumbawa, Flores, and surrounding islands rely heavily on extractive industries, fisheries, and tourism—all sectors vulnerable to market volatility and environmental pressures. Integrating DBH from mining, oil and gas, and other natural resources into a Nusra-based DAD would provide a critical buffer while funding strategic investments in sustainable sectors such as renewable energy, bamboo industries, and regenerative tourism.

Moreover, Nusra’s role as a frontier region for Indonesia’s energy and ecological future makes fiscal innovation imperative. Establishing a Nusra Sovereign Wealth Fund, inspired by the Berau model but adapted to local realities, could secure long-term fiscal independence while embedding principles of climate resilience and intergenerational justice.

Key Governance Principles

For a Regional Endowment Fund to succeed, three elements are essential:

1. Independent Governance – A professional, apolitical body to manage investments with transparency and accountability.

2. Clear Legal Framework – Regional bylaws aligned with national legislation to safeguard the fund’s integrity.

3. Strategic Capitalization – Phased contributions from DBH, supplemented by local revenue, corporate social responsibility (CSR), and international climate finance.

With these safeguards, Nusra can pioneer a model of fiscal prudence and sustainable development that complements Indonesia’s national strategy.

Toward a Strong Regional Investment Future in Indonesia

The case of Berau offers a timely lesson: regions cannot rely on finite resources or unstable transfers for their future prosperity. By establishing their own sovereign wealth funds, resource-producing areas can convert today’s extractive rents into tomorrow’s sustainable wealth.

For Nusra, this is more than a fiscal innovation—it is a generational responsibility. A Nusra Regional Investment Fund could channel current resource revenues into enduring prosperity, ensuring that the wealth of the land and sea continues to support not just today’s citizens, but those of tomorrow.

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