December 22, 2023
JAKARTA – Nine new renewable energy projects worth a combined Rp 51 trillion have seen their financing dry up as a result of international lenders’ unwillingness to meet government local content requirements, state-owned electricity company PLN said on Tuesday.
Zainal Arifin, executive vice president of renewable energy at PLN, said the financing issues had led to delays in the development of the renewable energy capacity called for in the government’s electricity procurement plan, alongside other factors such as an ongoing oversupply of electricity, as quoted by Kontan.
“We are obtaining funding from the Asian Development Bank (ADB), World Bank and the Japan International Cooperation Agency (JICA), [but this] is currently hindered as local content is not part of their procurement process,” he said.
He added that the company was seeking to auction off the Cisokan Hydroelectric Power Plant in West Java, the Matenggeng Hydroelectric Power Plant in Central Java and the Hulu Lais Geothermal Power Plant in Bengkulu but had so far been unsuccessful.
“[This is] because the local content couldn’t be accepted in the procurement process for the ADB, World Bank and JICA,” he said.
Indonesia has implemented local content requirements in many sectors, including renewable energy and electric vehicles. The regulations are set by the Industry Ministry to favor Indonesian industry.
Zainal said the local content requirements would be a barrier to receiving funding from abroad, adding that it was difficult to incorporate local content into green energy projects.
He also hoped the government would relax local content requirements in particular for projects that received international funding.
Previously, chairman of House of Representatives Commission VII overseeing energy and mineral resources, Sugeng Suparwoto, voiced similar concerns that strategic projects in the energy and the electricity sectors were being hindered by local content requirements.
“Many renewable energy and electricity projects that receive grants or funds from abroad don’t comply with the existing local content regulations,” he said on Nov 20.
Energy and Mineral Resources Minister Arifin Tasrif has said local content requirements will be made more flexible through the renewable energy bill being discussed by the government and lawmakers.
Prioritizing domestic products should come with several criteria, he said, such as the need to maintain competitive renewable energy prices and sources of financing for renewable projects.
He also suggested it was important to assess domestic capacity and capability when making decisions about domestic content requirements. He said such regulations should not hinder renewable energy projects or make green power too expensive.
“Therefore, we need to see the road map of each industry and their readiness for local content at any time,” Arifin said.
Andi Rizaldi, who heads the standardization and industrial services policy agency at the Industry Ministry, acknowledged the importance of maintaining national energy resilience through renewable energy projects, which required significant financing.
However, he maintained that such projects still needed to meet local content requirements.
“In general, international funding should also consider and accommodate domestic interests and national interests.”