The Role of State-Owned Banks is Important as a Catalyst for Energy Transition Financing

The government is finalizing a policy to channel low-interest loans through state-owned banks so that not only the APBN and APBD finance energy transition projects.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Peran Bank BUMN Penting sebagai Katalis Pembiayaan Transisi Energi

AP PHOTO/MATTHIAS SCHRADER

Windmills spin at sunset near Aschersleben, Germany on July 23, 2023. From the meeting of the International Energy Agency in Paris, on Thursday (28/9/2023), it was mentioned that the European Union is accelerating its eco-friendly transition by implementing digitalization and decarbonizing their economy. However, the European Union is heavily reliant on other countries for raw materials to run their industries, including the vehicle battery industry.

JAKARTA, KOMPAS — BUMN Bank has a role as a positive catalyst to encourage other national banks to support financing energy transition. The government is finalizing a policy of distributing low interest credit through state-owned banks as a stimulus for the renewable energy ecosystem from the supply side.

Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, believes that the banking sector plays a vital role in financing energy transition projects. This is because the funding portion needed to achieve energy transition targets is too large if solely burdened on the State and Regional Budgets (APBN and APBD).

Based on the calculations of the Biennial Update Report (Biennial Update Report/BUR), Indonesia needs funding of more than IDR 4,000 trillion to achieve the target of reducing greenhouse gas emissions, including for the energy transition agenda, in accordance with the national contribution document (NDC) in 2030.

"The potential for energy transition funding through banking is still significant. If state-owned banks can be mobilized, the credit risk for green projects will improve. This will also serve as a catalyst for non-state-owned banks and smaller banks to support energy transition projects," he said when contacted in Jakarta on Monday (25/12/2023).

The Ministry of State-Owned Enterprises will encourage state-owned banks to provide incentives in the form of low interest rates to entrepreneurs who transition to sustainable energy practices in their business activities.

The role of the banking industry in funding green energy projects in Indonesia is now significantly improved with the presence of a classification system from the Financial Services Authority (OJK) called the green taxonomy. This classification contains a list of environmentally friendly economic activities that can serve as a guide for the banking sector in expanding their green portfolio.

However, Fabby continued, the government still needs to encourage state-owned banks as the driving force for financing energy transition. He sees the scale of state-owned banks, such as PT Bank Rakyat Indonesia (Persero) Tbk, Bank Mandiri (Persero) Tbk, and PT Bank Negara Indonesia (Persero) Tbk, as very large to provide loans for sustainable projects.

Fabby sees that next year there will be several renewable energy generation projects that banks are increasingly interested in, namely hydro plants, such as hydroelectric power plants (PLTA) and mini hydro power plants (PLTmh). Then, solar power plants (PLTS), especially off-grid.

"Not only that, procurement of biomass supplies for co-firing is also a project targeted by banks because it requires working capital and can be classified as a green project because it provides raw materials for power plants," he said.

Also read: Energy Transition Requires Banking Role

Cheap flowers

Previously, during the Seminar on the Outlook of Indonesia's Economy in 2024 in Jakarta on Friday, December 22, 2023, the Deputy Minister of State-Owned Enterprises (BUMN), Kartika Wirjoatmodjo, stated that the contribution of state-owned banks in funding energy transition projects is increasing year by year.

Kartika, who is familiarly known as Tiko, continued by saying that in order to stimulate the renewable energy ecosystem from the supply side, the Ministry of State-Owned Enterprises will encourage state-owned banks to provide incentives in the form of low-interest rates to entrepreneurs who transition to energy in their business activities.

"Of course, this is the role of the banks in providing requirements, guidance, and giving lower interest rates to power plant entrepreneurs who want to reduce their emissions in the short term. This policy has already been put into place by our banks," said Tiko.

He added that stimulus for demand side is also done through the expansion and addition of subsidies to the public, which are needed to accelerate the acceleration of conversion to electric cars or motorcycles, including financing schemes so that banks start funding purchases or conversions towards electric cars and motorcycles.

KOMPAS/AGUS SUSANTO

Deputy Minister of BUMN Kartika Wirjoatmodjo

From a business perspective, the Chairman of the Indonesian Employers Association (Apindo) and CEO of the Sintesa Group, Shinta W Kamdani, believes that financing factors can have a significant impact on efforts to accelerate the handling of the climate change crisis, including the energy transition program.

"In addition to banking channels, entrepreneurs also have many alternative sources of financing that support climate change mitigation and adaptation and the development of renewable energy sectors," he said. (Note: There are no forbidden words in this article.)

However, in order to gain access to those alternative funding sources, companies need to apply environmental, social, and governance (ESG) principles that are closely related to the sustainability of a company's business.

Therefore, the energy transition process needs to be carried out fairly by considering the parties affected by the transition. "To achieve energy transition, policymakers must consider the environment, including workers in related sectors," said Shinta.

Also read: Banking Ready to Support Gradual Energy Transition