1March 22nd, 2006

Satrio Wibowo

Executive Researcher

Banking Research and Regulation Directorate

Bank Indonesia

Financing Policy for Renewable Energy Development

in Indonesia

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• Background• Financing• Conclutions

Outline

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Increase in:

- population

- Economic activities

- Living Standard

Increase in:

- population

- Economic activities

- Living Standard

- Energy Demand Increase (200%)

- Electricity Demand Increase (350%)

- Energy Demand Increase (200%)

- Electricity Demand Increase (350%)

Environmental Issue:- Global Warming- Air Pollution- Acid Rain- Health

Environmental Issue:- Global Warming- Air Pollution- Acid Rain- Health

TYPE OF ENERGY SELECTION

Fossil Energy(hydrocarbon

resources)

OIL COAL Gas

NEW AND RENEWABLE ENERGY

Hiydro,Microhydr

o

Solar, wind, biomass,

geothermal, hydrogen

Nuclear

Environment INFRASTRUCTURE ENERGY RESOURCES SOCIO-CULTURAL GEOPOLITICS ECONOMY

BASED ON NATURAL RESOURCES BASED ON TECHNOLOGY

NATIONAL ENERGY PLANNATIONAL ENERGY PLAN 2000-20252000-2025

“Comprehensive Assessment of Different Energy Source for Electricity Generation in Indonesia”, 2002.

Source: Ministry of Research and Technology

Background (1)

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Prospects: Good

• Prospects of Renewable energy:

– Higher oil price and limitations of fossil energy push renewable energy development.

– Population growth and development of industry that needed electrical energy is bigger than development of energy resources.

– PLN capacities only serve 65% of Indonesian populations

– The rest of people doesn’t have access from the PLN services of which 80% live in rural areas.

Background (2)

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Financing Alternative of Hydropower

• Sources:1. Direct Investment:

Government Private

2. Banking3. Non Banking:

Capital Market (bond, shares), Finance Companies

Financing (1)

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Current Banking Development

Financing (2)

(T Rp) Growth (%)

2004/2005Total Assets 1030.50 1272.28 1469.83 15.53Deposit 699.10 963.11 1127.94 17.11Credit 320.50 595.06 730.16 22.70SBI 67.094 125.94 93.999 -25.36Government Bonds 429.98 290.34 289.65 -0.24Loan to Deposit Ratio (LDR) 45.84 61.79 64.73

2000 2004 2005

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Constraints

• Some Constraints:a. Renewable energy such as hydropower

project is something new for banking business. Most of banks don’t have enough knowledge about the prospects and risks of this business.

b. Small Medium Enterprises (SME’s) who run business usually not bankable due to the lack of legal status and the collateral.

c. The payback period of the investment is relatively long term.

Financing (3)

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Recommendations

Some recommendations:1. Enhance the knowledge of bankers

Government support to provide workshops, training, and business meeting

2. Make the project bankable Guarantee scheme by government/PLN Guarantee scheme in cooperation with

PT.Askrindo or local credit guarantor institution.

Financing (4)

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Financing (5)

Guarantee Scheme

Local ParliamentLocal Parliament

Debtors (SME’s)

BANK INDONESIA(Mediator)

BANK INDONESIA(Mediator)

BankingAssociation, BDS Local gov.

MOU-MOU-GuaranteeGuarantee

Building Building skillskill

ASKRINDOMOU *)

Guaranteed credit

Approval

Guarantee Scheme Proposal

Local credit guarantee institution

Local credit guarantee institution

*) 1. Overhead cost or

2. Risk Sharing

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Conclusion

• Renewable energy resources for Indonesia is a need.

• Need strong committment from all national elements.

• Besides the financing from banking sector we have to develop capital market, securities, finance companies, etc. to fulfill the purpose.

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Thank You