Formulating Revolving Fund Scheme to Support Energy Efficiency Projects in Indonesia Dhani Setyawan Promitheas Conference, Athens, October 10, 2013 Badan Kebijakan Fiskal, 23 Mei 2012

President’s Commitments to Reduce GHG Emissions in 2020 Sector Reduction Target (Gton CO2e) 26% 41% Forestry and LULUCF 0,672 1,039 Energy and Transportation 0,036 0,056 Agriculture 0,008 0,011 Industry 0,001 0,005 Waste 0,048 0,078 Others Total 0,767 1,189

Background In the last ten years, the average number of total subsidies for energy has absorbed about 80% of the total budget allocation for subsidy. (NK, 2013) The huge energy subsidy has hindered the efforts to encourage the development of different types of energy alternative as well as renewable energy (Keyuraphan et.al, 2012), (Dartanto, 2013). The Government has provided various forms of incentives. However, until now, those incentives could not able influencing the development of energy efficient investments (Sarkar and Singh, 2010). The market still needs other forms of support such as low-interest financing (IEA, 2011) PP No 70/2009 of ENERGY CONSERVATION “the central government and/or local government can provide facilities and incentives to energy users and producers of energy-efficient appliances that implement energy conservation program “

Purpose & Methodology Purpose to formulate a financing scheme for energy effiiciency projects; to examine the possibility its implementation (the possible sources of funding, criteria projects, institutional arrangements amongst related stakeholders, etc) Methodology literatures study (regulations, journals, papers, etc). Cost and Benefit Analysis. field survey and in-depth interview and discussions with key government agencies and related private stakeholders such as Ministry of Finance, Ministry of Development and Planning (Bappenas), Ministry of Energy, Ministry of Environment, Bank Indonesia, Commercial Banks and private sectors.

Lesson Learn... Thailand Energy Efficiency Revolving Fund Scheme ENCON Fund Revolving Fund 11 Banks EE/RE Developers DEDE additional other sources e.g. ESCO Fund Repayment + Interest (max. 4%/year) Repayment + Interest (0.5%)) Credit Lines of USD 2.5 – 10 m/bank Loan (max. 7 year period) Lesson Learn... Thailand Energy Efficiency Revolving Fund Scheme Thailand has successfully implemented energy efficiency revolving fund scheme This funding get revenue from the excess of levies on fuel at 0.04 THB (USD 0.001) per liter  THB 2 billion (USD 50 million per year) In order to distribute the funds, the Government of Thailand is involving 11 commercial banks, with maximum loan is restricted up to THB 50 million (USD 1.25 million) the government charging interest rate to banks 0.5%, The bank then lends it to the projects with interest not more than 4% per year. The loans can be utilized to financed projects i.e. (Vorasayan, 2012) : Purchasing and installing the energy efficient equipment projects; engineering design and supervision costs as well as cost savings guarantee for the ESCo; installation cost and operational cost of energy efficient appliances; Transportation costs, demolition costs, etc.

Indonesia EERF - Goals 1 To encourage the utilization of energy-efficient technologies; To reduce energy subsidies; 2 To stimulate the involvement of the financial sector (banking institutions) in order to support the government's energy efficiency programs 3 To reduce greenhouse gas emissions (GHG). This inline with the government policy direction in the RAN-GRK with stated to implement efficiencies in energy utilization in all sectors of energy users, namely transportation, industrial, residential, and commercial

Analysis - Indonesia EERF Scheme Government (MOF) Fund & Monev Technical Committee Coordination Indonesia Investment Agency(PIP) Loan (2% per year) Monitoring & evaluation Monitoring & evaluation Loan Energy Efficiency Projects Banks (7-9% per year)

EERF Application Process Disbursement www.themegallery.com

Formulating Indonesia EERF The funds (EERF) will be placed through the Indonesia Investment Agency (PIP) before it distribute to the designated Bank with interest rate around 2% per year; Further, Banks will lend the fund to the energy efficiency projects at a maximum interest rate of 7-9% per year, far below the corporations Prime Lending Rate (SBDK); The PIP will act as Fund Channeling, and the Bank will be the Executing Agency; Loans are given from the range between IDR 1 billion to 20 billion for financing small and medium-scale investments; The loan period can be provided with a range of 5 to 6 years including 1 year grace period (payback period up to 4-5 years) Monitoring and evaluation will be conducted by a technical commission from related line ministries 9

Opportunities and Challenges The implementation of revolving fund scheme for energy efficiency in Indonesia is very potential to be executed, due to various forms of legislation and fund management mechanism has been established. However, there are several steps that need to be considered, namely: Fund Preparations. The source of funds shall be determined in the initial stage. If the government set the source of fund from the state budget, it is necessary to set the legal basis under a constitution in order to accommodate the allocation budget. Institutional Arrangements for Energy Efficiency Revolving Fund scheme. As defined in the chapter analysis, the revolving fund program can be implemented and managed by PIP. Therefore, it is necessary to establish a legal basis under constitution in order to give PIP the legitimacy to manage the energy efficiency revolving fund. In-depth discussion with banks / financial institutions. Discussions with the banks / financial institutions are strongly needed, in order to get feedback on the revolving fund initiative policy. It is very urgent, since at the end, the banking sector is the one who run the policy. Inputs from the banks are strongly needed to capture ideas of ​​the best-suit revolving fund scheme.

Thank You !

COST AND BENEFIT ANALYSIS

COST AND BENEFIT ANALYSIS

Interest Rate Lending rate is the total of Suku Bunga Dasar Kredit (SBDK) plus risk premium SBDK comprises of: Total of Harga Pokok Dana untuk Kredit (HPDK) i.e. deposits, savings, etc, Overhead cost (operational cost and taxes) Profit margin Ilustration: HPDK = 5-6% Overhead = 2-3% Margin = 2% Risk Premium = 1,5-2% Total Lending Rate = 10,5-13% 7,5% - 9%