May 11, 2023
JAKARTA – Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan has expressed his frustration over a lack of clarity on United States commitments to provide funds it has pledged to Indonesia to help the country move away from fossil fuels.
At the Group of 20 (G20) Summit in Bali last year, Indonesia received pledges amounting to US$20 billion in a five-year period from developed countries and global private lenders through the Just Energy Transition Partnership (JETP).
The JETP is a partnership led by the US and Japan to help the energy transition in developing countries. According to a US Treasury official the deal with Indonesia was “the single largest climate finance transaction or partnership ever”.
Indonesia’s figure far surpassed that of South Africa, which negotiated $8.5 billion, and Vietnam $15 billion.
However, months have passed and the availability of the funds remains unclear, according to Minister Luhut, who said he had traveled to Washington to meet John Kerry, the US Special Presidential Envoy for Climate, to follow up on the commitment.
“When I presented [the commitment], they said yes to it. Then I asked ‘where is the money?’ They just ‘Ao! Ao!’ [stuttering, cannot provide a direct answer],” Luhut said on Tuesday, as quoted by Bisnis.com.
“If you [the US] offer us a loan at a cost on a par with commercial loans, then forget it. We can do that by ourselves. Why do you try to dictate to us? If you can’t give us interest rates [that are similar] to AAA countries, forget it, because you will just disrupt our economy,” the minister added.
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In a nutshell, the JETP’s $20 billion pledges are comprised of a mixture of loans, which make up the larger part, and grants.
Half of the funding will be provided by the private sector, under the coordination of an entity called the Glasgow Financial Alliance for Net Zero (GFANZ). The body consists of Bank of America, Citi, Deutsche Bank, HSBC, Macquarie, MUFG and Standard Chartered.
Another $10 billion is supposed to be raised from the public sector, particularly from countries under the International Partners Group (IPG) led by the US and Japan, with its members comprising Canada, the United Kingdom, France, Germany, Italy, Ireland, Norway and Denmark.
Arsjad Rasjid, chairman of the Indonesian Chamber of Commerce and Industry (Kadin) told The Jakarta Post, the success of the JETP hinges on the clarity of commitments by IPG member countries and the GFANZ.
“The investment drawdown schedule must be clarified, with clear financing structures that reflect the social benefits of the energy transition,” Arsjad said on Wednesday.
Arsjad added that Indonesia must accelerate the energy transition by building infrastructure for renewables, while at the same time pushing for early retirement of its coal plants, which currently account for the majority of its electricity generation. He stressed “this is not a time for business as usual”.
The path for Indonesia to transition is not easy, Arsjad said, as the country is an archipelagic nation and it requires a significant change in its energy supply. He reiterated that the country would remain committed despite all these challenges.
“The question is, are our partners equally committed to achieving a just energy transition?” Arsjad asked.
The US International Development Finance Corporation and the Japanese Embassy did not immediately respond for comments.
Read also: Indonesia’s JETP may draw in more funds for SE Asia’s energy transition: Fitch
Indonesia has made the necessary preparations to realize the partnership. In February, Indonesia inaugurated a JETP secretariat in the office of the Energy and Mineral Resources Ministry. A day later, state-owned electricity monopoly PLN made a presentation to the IPG regarding its transition plan.
A study from Sustainable Fitch, a subsidiary of financial services company Fitch Group, mentioned that the JETP initiative, if successful, could serve as a road map for other carbon-intensive economies in Southeast Asia.
“The [program] has the potential to inspire more confidence among investors to fund early-stage emerging-market transition projects where capital is often most needed,” stated the report, which was published in December last year.