Country’s energy industry has suffered underinvestment due to subsidies
October 8, 2015: The Asian Development Bank (ADB) has approved a $500 million loan, including $100 million from the ADB-administered ASEAN Infrastructure Fund, to help stimulate Indonesia’s energy sector, support the government’s reform agenda, and unleash the sector’s potential as a key engine of sustainable economic growth.
“Indonesia’s energy sector has suffered severe underinvestment due to long-standing subsidies on fuel and electricity. This has resulted in poor access to modern forms of energy despite the country’s vast energy resource endowment,” said Pradeep Tharakan, Senior Energy Specialist in ADB’s Southeast Asia Regional Department. “The project will help the government to enhance energy security, as well as increase supply from renewable sources and natural gas in the future energy mix.”
The funds will support President Joko Widodo’s reform agenda to improve overall governance in the energy sector by lowering subsidies, adopting cost-recovery-based tariffs and boosting the performance of state-owned enterprises such as PLN, the state-owned electrical utility.
To help enhance private investment in the energy sector, the programme will support the implementation of long-overdue policy actions. This includes streamlining of licensing and permitting of energy projects through the government’s one-stop-shop; allowing private firms to use PLN’s transmission lines to sell power directly to end users in remote locations; and providing greater regulatory certainty in the oil and gas sub-sector, for example, through a consistent process for making decisions on expiring oil and gas production sharing contracts.
The programme will boost government efforts to scale up renewable energy through price incentives for geothermal, biomass and small hydropower, and set up an energy efficiency market place through improved standards and labels for electrical appliances, and requirements for energy efficient buildings and municipal facilities. The programme will also support the government’s electrification agenda and pave the way for adoption of cleaner fossil fuel technologies such as carbon capture and storage, at scale.
The ADB loan will be complemented by about $800 million in potential cofinancing from key development partners.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. In 2014, ADB assistance totaled $22.9 billion, including co-financing of $9.2 billion.