Promoting Green Investment in Indonesia - Climate Policy Initiative

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Ministry of Finance Republic of Indonesia

4th San Giorgio Group Event on Green, Low‐Emissions Finance: 16‐17 October 2014, Venice

Promoting Green Investment in Indonesia 1

1. Introduction

COMMITMENT

26%

Reduce the country’s(GHG) emission in 2020 with national resources.

41%

Reduce the country’s(GHG) emission with international support to mitigation efforts.

President Regulation: Perpres No. 61 Tahun 2011 RAN‐GRK arranged to provide a framework for central government, local government, private sector and other stakeholders.

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2. Role of Ministry of Finance in Green Economy

Int’l Institutions & Mechanisms IFI Policies, Global Funds, Carbon Mkts, Debt swaps

Ministry of Finance Policy Tools Available For Influencing Green Economy Development

By managing • Investment climate • Pricing (fiscal) policies • Direct spending • Risk and financial mkts • Sectoral rules & law

Financial/Investment Policies • Investment Climate (attract capital) • Banking Sector • Non Bank Finance Inst’s • Municipal Finance Rules

Taxes / Subsidies

• Tax/Fees/Charges • Royalties/Rent Capture • Subsidies/Tax breaks

Indirect Indirect Influences Influences Technology Technology Policy, Policy, Strategic Strategic Industries Industries Tech. Tech. Transfer Transfer R&D, R&D, Trade, Trade, etc etc

Can influence: • Incentives • Investments • Industry • Int’l $ flows • Pro Poor Approaches

Expenditure Policies • Strategic Budget Priorities • Direct Investment • Public Service Obligation • Green Procurement • Education – Awareness

Direct Regulation • Enforcement / Incentives • Zoning and Land Use • AMDAL/ Env Audit • Building / Design Standards • Vehicle Emission Standarts

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2. Role of Ministry of Finance in Green Economy Expenditure Side policies Revenue Side policies (Taxation policies) Direct Investment: Government Sovereign Investment Unit (PIP)

The Role of Ministry of Finance

Public budget is the main  driver of green investment While climate public financing has  continued to increase but remain  insufficient

Source: CPEIR (2012) Trillion IDR 20,0 10,0

16,3 9,0

4,7

5,1

5,4

6,6

3,1

5,5

2005

2006

2007

2008

2009

2010



The level of support for  renewable energies  continues to grow

2011 2012 [Approx:$2 billion]

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Scale of Climate Public Expenditure in 2011 MOF and CPI Study In 2011, the central government distributed IDR 7,242 billion (USD 822 million) of public climate finance out of the Indonesian state budget. Approximately IDR 5,526 billion (USD 627 million) originated from domestic sources.

Most of domestic sources is used to indirect used (policy development, capacity building, and institutional development).

Central government disbursements focused on the highest emitting sectors including forestry, land use, agriculture and energy. 73% went to enabling environments while 27% paid for direct actions.

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3. Regulation for Promoting Green Investment incentives from the State Budget 2011-2012

No.

Fiscal Incentives

Type

State Budget

1.

Income Tax

• Reduction of Income Tax  (Investment Allowance)  • Income Tax Exemption (Tax  Holiday) 

Tax on geothermal commodities (2011  Budget: Rp 1 trillion; draft budget 2012:  USD 1.2 trillion)

2.

Value Added Tax

• Exemption VAT  • VAT payable are not subject partly  withheld part or all of the overall 

Import Tax upstream oil and gas  exploration and  geothermal (APBN 2011 Rp 2 5, Trillion)

3.

Tax Paid by the  Government 

Government Borne Import Duty 

• Facilities Duty (2011 Budget: USD 500  billion)

4.

Geothermal Revolving  Fund Incentive Fund 

Managed by PIP (Government  Investment Center) 

Allocation in the 2011 budget: Rp 1.126  trillion

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3. Regulation for Promoting Green Investment 1/2 Eco‐Friendly Car Regulation : Government Regulations  RI/41/2013 • Sales tax of 0% of the Selling Price for motor vehicles  including low cost green car program; Budget Tagging : Minister of Finance Regulation 136/PMK.02/2014 • Seven ministries are legally required to implement  the budget‐tracking system for climate mitigation  activities by 2015;

Minister of Finance Regulation Number 176 / PMK.011 / 2009  •Facilities Exemption of Import Duty on Import of Goods and Materials Engineering And  Construction or Development for Industrial Investment in the Framework, and its  modification;

Government Regulation Number 70 in 2009 •Conservation of Energy, associated with policies to provide incentives for  energy conservation, especially energy users to energy use ≥ 6,000 TOE per  year;

Green Banking

Minister of Finance Regulation Number 21 / PMK.011 / 2010 

• August 2003 :  Bank Indonesia (Central Bank of RI) and  Ministry of Environmental RI held a Media Briefing on the  Role of Banks in Development and Implement Green  Banking. (draft of regulations status : ongoing) ;

•taxation and customs facilities for the utilization of renewable energy. * Tax:  reduction of net income of 30% of total capital investment;

Minister of Finance Regulation Number 154 / PMK.011 /  2008  • Exemption of Import Duty on Capital Goods Imports in the  Context of Development and Industrial Power Plant  Development for Public Interest, and amendments.;

Minister of Finance Regulation Number 24 / PMK.011 / 2010  •VAT is borne by the government to import goods for the upstream oil and gas  exploration and geothermal exploration;

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3. Regulation for Promoting Green Investment 2/2 Minister of Finance Regulation No. 35 / PMK.011 / 2010 • The mechanism of tax paid by the government and not the  state income tax calculation for the utilization of geothermal  energy for power generation;

Feed‐in Tariff for electricity from power PLT Municipal Solid  Waste: PPESDM No. 19 in 2013  • Power Purchase by PT PLN (Persero) from Municipal Solid  Waste Power Plant; 

Minister of Finance Regulation Nomor 139/PMK.011/2011 • Procedures for Granting Guarantee Feasibility of PT PLN  (Persero) For Construction of Power Plants Using Renewable  Energy, Coal, and Gas Forum and through cooperation with the  Private Power Developer;

Feed‐in Tariff for electricity from hydropower and wind  (ongoing);

Minister of Finance Regulation No.3/PMK/2012

Feed‐in Tariff for electricity from geothermal energy:  Minister of  Energy and Mineral Resources Number 22 In  2012 

• Geothermal incentives Fund Facility (FDG). FDG is given to the  Local Government (Pemda), holder of the Mining Business  Permit (IUP) and also geothermal PT Pertamina Geothermal  Energy (PGE);

• on Assignment to PT PLN (Persero) To Perform Purchase of  Electricity from Geothermal Power Plant and Power Purchase  Price Benchmark by PT PLN (Persero) of geothermal power plants; 

Feed in Tariff for biomass:  Minister of  Energy and Mineral  Resources Number 04 in 2012

Regulation of the Minister of  Energy and Mineral Resources  Number 17 in 2013 

• Power Purchase Price by PT PLN (Persero) From Power Plants Using  Renewable Energy Small and Medium Scale Or Excess Power; 

• Power Purchase by PT PLN (Persero) of Solar Photovoltaic  Power Plant;. 8

3. Financing to Support Green Investment

Pusat Investasi Pemerintah

Indonesian EXIM BANK

Indonesia investment institutions managed by the MoF

Indonesian Export Financing Institution

Based on PMK No 177/KMK.01/2010 PIP set to carry out direct investment in the field of environmentally friendly investments that include renewable energy, environmentally friendly transportation, waste management, water management, biomass, bioethanol and REDD+. Investment Strategy Type: Funding via Flexible Soft Loan and Convertible Debt Maximum funding: not restricted per project Grace Period: 1‐3 years (depending on the future development of the project and the results of the feasibility assessment) Interest Rate: the average BI + 2% (depending on risk) Period Returns: 5‐10 years

Asian Development Bank Energy Efficiency Project Finance Program (USD. 30  Million) • Investment in energy efficiency activities • Supported by technical assistance for several first  projects Status : LAUNCHED

KfW – Germany Industrial Efficiency and Pollution Control Phase II   (EUR 4,5 juta) • Investment in industrial efficiency or pollution  control activities • Some portion can be utilized as working capital Status : FULLY UTILIZED

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4. Climate Change Related Program in Indonesia’s Development Planning

Focuses of Middle Term Development Planning in 2015‐2019 • Implementation, achievement, and supervision of greenhouse emission reduction; • Capacity building in climate change (mitigation and adaptation); • Adaptation implementation in 15 locations.

Startegic Issues in 2015

Target in 2015

• Supervision and evaluation of greenhouse emission reduction and the implementation of REDD+; • Increase in resilance of people caused by climate change.

• Greenhouse emissions reduction at 17,3% in 2015; • Increase in resilance of people caused by climate change in 3 vulnerable areas, the implementation of National Action Plan for Climate Change Adaptation.

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Promoting Green Investment in Indonesia - Climate Policy Initiative

Ministry of Finance Republic of Indonesia 4th San Giorgio Group Event on Green, Low‐Emissions Finance: 16‐17 October 2014, Venice Promoting Green In...

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