ADB approves RM4.6b loans for Indonesia’s energy sector

Two projects will help strengthen and diversify Indonesia’s energy sector — considered key to promoting inclusive growth and sustainable development

THE Asian Development Bank (ADB) has approved two loans totalling up to US$1.1 billion (RM4.62 billion) to strengthen and diversify Indonesia’s energy sector — considered key to promoting inclusive growth and sustainable development in the country.

The first is a US$500 million policy-based loan, including US$100 million from the Asean Infrastructure Fund, for the Sustainable and Inclusive Energy Programme.

The second is a US$600 million results-based loan to State Electricity Corp (PLN), guaranteed by Indonesia, which is slated to boost access to sustainable and modern energy services in eastern Indonesia.

“Increased access to affordable and sustainable sources of energy is a pre-requisite for the government to meet its economic growth aspirations,” said ADB Indonesia country director Winfried Wicklein in a statement.

He said the two loans approved will improve the enabling policy environment to increase public and private investments in Indonesia’s energy sector, and support and develop the power distribution network in eastern Indonesia.

Indonesia’s energy sector faces far-reaching and interrelated problems throughout the value chain, from the supply of primary energy to the distribution of electricity, leaving some 23 million people lacking access to power. Energy subsidies over many years have led to underinvestment, according to the statement.

Indonesia also lags many of its South-East Asian neighbours in the development of its abundant renewable energy resources, such as solar, wind and biomass. This leaves the electricity industry dependent on coal, which accounted for more than half of energy generation in 2016.

Indonesia’s total primary energy supply in 2013 was about 1.61 billion barrels of oil equivalent (BOE), according to statistics from Indonesia’s Ministry of Energy and Mineral Resources (MEMR).

The majority of the republic’s primary energy supply comes from fossil fuels: Oil (46.08%), coal (30.9%) and gas (18.26%). The share of other renewable energy resources in the energy mix was below 5%, mostly through hydropower (3.21%), geothermal power (1.15%) and biofuel (0.4%).

“It is also important to note that the use of traditional biomass is prevalent for basic cooking and thermal purposes among millions of rural households in Indonesia,” according to a 2015 ADB report on Indonesia’s energy sector.

According to the MEMR data, Indonesia’s final commercial energy consumption in 2013 was 1.12 billion BOE, up by nearly 40% since 2001. The share of final energy consumption is divided into industry (42.12%), households (11.56%), transportation (38.8%), commercial use (4.25%) and other sectors (3.26%).

With help from the policy-based support, the Manila-based ADB hopes the government will build on various reforms to improve fiscal sustainability, such as further rationalising tariffs; introducing measures to improve private investment in electricity and gas; and supporting the scale-up of renewable energy and energy efficiency measures.

The accompanying technical assistance grant will support the expansion of energy efficiency programmes through efficiency standards and labelling and testing programmes for household appliances, and the development of private-sector investments in energy efficiency projects, the statement added.

ADB said the US$600 million loan to PLN is part of a series of investment programmes to enhance people’s access to sustainable and modern energy services, with a focus on developing the eastern part of the country as a new growth hub.

As part of the project, a strengthened electricity distribution system will help eight provinces across Nusa Tenggara and Sulawesi spur businesses and activities relying on a stable energy supply including agriculture, fisheries, small and medium enterprises, as well as tourism.

Established in 1966, ADB is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Last year, it provided assistance totalling US$31.7 billion, including US$14 billion in co-financing.