Indonesia Plans $1 Billion Green Investment Fund

Jakarta Globe, January 26, 2010

The fund is intended to provide equity to help environmentally-friendly projects get bank loans. (JG Photo/Afriadi Hikmal)

Indonesia plans a $1 billion green investment fund this year to drive infrastructure developments that aid growth and help cut greenhouse gas emissions, a finance ministry official said on Tuesday.

Indonesia has promised to slash its emissions by at least 26 percent from business as usual levels by 2020 but recently re-elected President Susilo Bambang Yudhoyono has also vowed to boost economic growth to 7 percent or more by 2014.

At global climate talks in Copenhagen last month, Yudhoyono announced a plan to develop the Indonesia Green Investment Fund, which will catalyse infrastructure development that could speed economic growth, boost food and clean water production and also help cut emissions blamed for global warming.

Indonesia's sovereign wealth fund the Government Investment Unit will put $100 million into the fund and a further $900 million will come from foreign governments including Norway and Australia, plus institutional investors, said Edward Gustely, a senior adviser to the Ministry of Finance.

"We're in the initial stages but the target is to have this fund operational within this year," Gustely told Reuters, adding the fund would rival Brazil's Amazon Fund in size and scope. "There's no reason why this can't, in the next five years, scale to $5 billion or more."

Brazil launched its Amazon Fund last year to promote sustainable development and scientific research in the world's largest rain forest, with donations from European countries and the first projects unveiled last month.

Indonesia last year became the first country to launch a legal framework for a U.N.-backed scheme called Reducing Emissions from Deforestation and Degradation, allowing polluters to earn tradeable carbon credits by paying developing nations not to chop down their trees.

Indonesia's green investment fund will not offer loans or grants but rather top-up funding needed for projects where a bank lender is seeking an additional equity injection.

"Many technology providers and project sponsors don't have the balance sheet to top up the required equity needed to secure financing," said Gustely. "We would come in and play a catalyst role to ensure good projects with good asset quality, with good expertise and proper management, can be deployed and proceed."

The Copenhagen talks failed to achieve a legally binding agreement to reduce greenhouse gas emissions but projects like the Indonesia Green Investment Fund were a way for countries to take initiative at home, said Gustely.

"This is driven by how to create more food, water and energy in a sustainable fashion while trying to achieve Indonesia's growth objectives," he said.

Fitrian Ardiansyah, climate change programme director for WWF Indonesia, welcomed the fund but said more needed to be done to reduce Indonesia's greenhouse gas emissions.

"The Indonesian government heavily subsidies fossil fuels, but investment in renewable energy sources is too expensive. The government must help the private sector by making investment in renewable energy sources cheaper, which will address the problem. But at the moment coal plants continue to be built, which does not help," he said.

Reuters