Rising borrowing costs complicate Indonesia’s energy transition plans-Finance Minister

By Gayatri Suroyo and Stefanno Sulaiman

JAKARTA (Reuters) – Indonesia’s talks with international partners on setting up a $20 billion fund for the country’s transition from coal to cleaner energy have taken longer than anticipated and are complicated by rising borrowing costs, its finance minister said on Thursday.

A coalition of countries led by the United States and Japan in November pledged to mobilise $20 billion of public and private finance to help Indonesia shut coal power plants and bring forward the sector’s peak emissions date by seven years to 2030. It was based on a similar $8.5 billion initiative in 2021 to help South Africa more quickly decarbonise its power sector.

The plan is known as the Indonesia Just Energy Transition Partnership (JETP) fund and Jakarta was initially due to unveil a financing proposal for it on Aug. 16, but this has been delayed until later this year, according to Indonesia’s JETP secretariat.

Minister Sri Mulyani Indrawati told Reuters in an interview that reaching agreement within the Indonesian government on projects included in the JETP and matching them with the International Partners Group’s (IPG) wishes and funding sources have proven to be challenging.

“Especially now that pricing (for borrowing) has risen and (with) interest rates on capital also becoming increasingly high, we also have to see whether this will fit with our principle of a just and affordable energy transition,” she said.

Among the toughest topics under discussion, she said, is how much of the fund will come in the form of grants, which will be combined with loans from private lenders and multilateral institutions, like the World Bank and the Asian Development Bank, to reduce costs.

Another challenge is it will take time to hold public consultations with communities that could be affected by a project, such as the construction of a renewable power plant, the minister said.

But Sri Mulyani said she remains hopeful that Indonesia will be able to come up with an investment plan “before the end of this year, or if there’s any delay, it won’t be too long”.

Experts hired to draw up the proposal have said that some lenders are reluctant to fund projects for early retirement of coal power plants for fear of being seen as funding dirty coal assets.

Indonesia has been pushing for coal power plant retirement financing to be seen as “acceptable” among global lenders and brought this up at a meeting of G20 finance ministers in July.

The Association of Southeast Asian Nations (ASEAN) has included coal power plant retirement in its green taxonomy – a framework defining what investment is considered environmentally friendly.

(Reporting by Gayatri Suroyo and Stefanno Sulaiman; Editing by Susan Fenton)