Indonesia’s $20bn climate deal needs eye on debt: experts

November 21, 2022

JAKARTA – A recently announced international climate funding agreement will launch Indonesia’s efforts to wear from coal power plants, although the country has to manage its debts and the program with caution, experts said.

A coalition of rich countries will mobilize $ 20 billion in subsidies and concessional loans over a period of three to five years to help Indonesia close coal power plants and advance the date of the date of emissions from the emission sector until 2030.

The financing commitment, known as a partnership for a fair energy transition (JEP), reduces the $ 600 billion that Indonesia will need to gradually eliminate coal energy in favor of renewable energies.

Putra Adhiguna, energy economist at the Institute of Economy and Financial Energy Analysis (IEEFA), said that the country had to ensure that funds were used with caution for the early withdrawal of power plants coal and new investments in renewable energies.

The country should also take into account the burden of its current debt, in particular given the number of investment projects spent in infrastructure with “less than shiny results”.

“Expanding the Indonesian energy sector to meet future demand will require financing. Thus, the availability of concessional loans should be appreciated, but we must know the details and conditions of financing, “he said on Wednesday at the Jakarta Post.

Putra added that information on the share of concessional loans, subsidies and commercial loans in the total package of $ 20 billion had not yet been disclosed to the public.

“All stakeholders must ensure that the process is well governed because many eyes look at the Indonesian JetP model and its promise to be reproduced in other countries,” he said.

Indonesia has enormous funding needs for energy transition and development, but the country also has a low appetite for debt. It has a relatively low debt ratio of 42.71% of the gross domestic product (GDP), the fourth lower among the countries of the G20, according to data from the International Monetary Fund (IMF).

Andri Prasetiyo, researcher at Trend Asia, said that he feared that a large part of the agreement consists of loans that would aggravate the debt of Indonesia, rather than subsidies and funding on conditions more favorable. He continued by saying that the country would need major help to correct current policies that make it difficult to add more renewable energy to the network.

During the next three to six months, Indonesia, the United States and other partners aim to finalize the details of the plan, including the identification of policy changes that Indonesia will have to bring as well as the establishment of the financing structure.

“It won’t be easy at all, and everything will depend on the details,” Andri said on November 16.

Meanwhile, the director of the Trend Asia program, Ahmad Ashov Birry, is concerned about the absence of criteria for the early retirement of coal power plants. This could lead to overcompensation, he said, citing the example of the early retirement agreement of the Cirebon 1 power station of 660 megawatts, worth 250 to 300 million dollars.

“How to do [stakeholders] Calculate it [refinancing costs]? Do they consider [the fact that] Will the value of the asset decrease over time? “He said in a webinar organized Thursday by the Center of Economics and Law Studies (Celios) reflection group. “[Relevant parties] must not leave [the funding] Go to power plants that do not fully match the criteria.

The Minister responsible for the coordination of maritime affairs and investment, Luhut Binsar Panjaitan, had previously declared that Indonesia would only accept JEPP if the prices proposed were as low as those of the developed markets. “If it’s the same as for emerging markets,

so what good is it for us? He said during the Bloomberg CEO Forum in Bali, which was broadcast live on November 11.

Public and private funding should be welcome to allow the transition from Indonesia to cleaner energy, said Elrika Hamdi, an energy analyst at IEEFA.

“Any debt is likely to become a debt trap, but that does not mean [Indonesia] must avoid going into debt [altogether]“, she told the Post on Wednesday. “The biggest challenge [for stakeholders] Guarantees that transparency, responsibility and political engagement will coherent in the long term.

Rising global borrowing costs are eating into the finances of some of the most climate-vulnerable countries, just as they need the money the most to fight the effects of global warming.

It’s a confluence of events that risks pushing developing countries into a ‘debt trap’, according to Pakistani Prime Minister Shehbaz Sharif, speaking at the 27th UN Climate Change Conference (COP27) in Egypt on 8 November.

Countries that borrowed heavily when interest rates were low are now struggling to finance projects that would make them more resilient to extreme weather conditions, leaving them vulnerable to even higher borrowing costs in the future.

Leaders of the nations most vulnerable to climate change have long argued that the countries that contribute the bulk of emissions should foot the bill for mitigation and adaptation, but wealthy nations have consistently failed in their promise to deliver. 100 billion dollars in annual climate financing in developing countries. world.

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