Asian Development Bank sets up Indonesian green infrastructure fund

Out-Law News | 22 Feb 2022 | 3:24 am | 1 min. read

The Asian Development Bank (ADB) has approved a US$150 million loan for a facility to encourage public and private funds to invest in green, financially sustainable infrastructure projects in Indonesia.

The new fund is called the Sustainable Development Goals Indonesia One-Green Finance Facility (SIO-GFF) and is the first of its kind in Southeast Asia. The SIO-GFF aims to finance at least 10 projects, of which at least 70% of the projects by value will be green infrastructure projects, according to a statement by ADB.

The SIO-GFF will primarily provide loans and also provide equity, convertible debt, and guarantees to reduce credit risk. It will also design financially sustainable projects to attract funding to supplement public expenditure, including from private, institutional, and commercial sources.

Renewables expert John Yeap of Pinsent Masons said: “Multilateral institutions have undoubtedly a key role to play in catalysing investments in nations that have yet to develop deep domestic capital markets, and in particular in green financing. In turn, the country of investment has to ensure clear and transparent policies including around green taxonomy that is internationally recognised.” 

“Indonesia as the largest nation in Southeast Asia has the potential to lead the region in green and sustainable investments and the current infrastructure fund will be an important building block towards that objective,” he said.

The facility is expected to catalyse a maximum of eight times the value of the fund worth of investment in climate-friendly infrastructure.

Anggia Rukmasari, infrastructure law expert at Indonesian law firm Legalexica, said: “The SIO-GFF is a concrete stimulus for supporting countries like Indonesia in reaching their sustainable development goals. To follow up on this, the government can begin advocating this financing facility to local target stakeholders, ensuring information is crystal clear regarding the eligibility for application. In addition, the government should also create an effective application procedure as well as monitoring system for its implementation.”

ADB will re-lend the loan to Indonesian state-owned infrastructure financing company Sarana Multi Infrastruktur (SMI), which will manage the fund.

ADB has also approved additional technical assistance to broaden the SMI’s services to support other borrowers and catalyse private funding. This additional funding includes US$1.2m from Australia’s Department of Foreign Affairs and Trade and US$375,000 from Luxembourg’s Financial Sector Development Partnership Special Fund.

According to ADB, Indonesia’s annual climate-adjusted infrastructure financing needs were an estimated average of $74 billion from 2016 to 2020, with an annual infrastructure financing gap of $51 billion.