Indonesia warns $27b climate deal looks too expensive

JAKARTA – A US$20 billion (S$26.8 billion) international effort to accelerate Indonesia’s shift away from coal hinges on the availability of low-cost funding – and Jakarta fears there simply isn’t enough.

Indonesian President Joko Widodo and his US counterpart Joe Biden made headlines in 2022 with their agreement to kick-start the effort to clean up South-east Asia’s largest economy,

a deal known as the Just Energy Transition Partnership

and considered a potential model for other cash-poor, coal-dependent countries.

An initial investment plan detailing how Indonesia will green its power supply and cut greenhouse emissions is due mid-August. As at now, though, government officials say far more money needs to come in at terms the country can live with.

“We don’t want our economy to be affected by the JETP,” said Mr Luhut Binsar Pandjaitan, Coordinating Minister for Maritime Affairs & Investment and the Jakarta government’s point man on the deal.

“There is no issue on our side. The point is, if we get the money with good terms, we proceed. If not, we will go ahead with our own plans.”

Mr Luhut argues that partners in the deal must offer sufficient funding at low enough rates, so the green push does not add to a debt burden that currently stands at just under 43 per cent of its gross domestic product, the fourth-lowest among G-20 nations. 

“Show your money,” Mr Luhut said in an interview in his Jakarta office. 

Under the deal agreed in November 2022, funds to back the JETP would come from a mix of government and private sources, with concessional loans, grants and more crowding in private finance. The overall cost, in theory, should be manageable as a result.

But Indonesian officials have expressed concern about just how much would be made up of grants, and where cheaper funding would be allocated. So far, Mr Luhut said, he is underwhelmed.

“Just to remind them we have 2½ months to go. This is your credibility. We don’t lose anything if the deal doesn’t materialise.”

The JETP plan has broad ambitions, ranging from improving the grid to encouraging renewable energy investment and providing a fair transition away from fossil fuels for workers and communities that depend on them.

At the heart, though, is a concerted effort to speed up the move away from coal in a country with ample resources – by buying out power plants and restructuring debt so they can be closed early.

The US$20 billion promise is only one step. According to BloombergNEF, transition in Indonesia would require US$2 trillion of investment into its energy system through 2050. Reaching net zero by 2050 could cost US$3.5 trillion. BLOOMBERG