Indonesia secures US$150m sustainability-linked loan from ADB

Indonesia has an annual infrastructure financing gap of around US$51b.

The Asian Development Bank (ADB) has approved a US$150m first phase loan in collaboration with PT Sarana Multi Infrastruktur (PT SMI) to formulate and design the Sustainable Development Goals Indonesia One–Green Finance Facility (SIO-GFF).

“SIO-GFF provides funds for sub-projects that meet green aspects, financial bankability, and target enhancement with the aim of catalyzing funds from private, institutional, and commercial sources,” Jiro Tominaga, ADB Country Director for Indonesia told Asian Banking and Finance.

These sub-projects cover water supply, renewable energy, waste management, sustainable urban transportation, amongst others. 

Tominaga said the main challenge for green recovery in Indonesia is the scale of financing required. "There is still an annual infrastructure financing gap of around US$51b with Indonesia's average annual infrastructure financing need reaching US$74b over the 2016-2020 period.”

Tominaga added that the required technology and capital inflows from commercial sources are unlikely to be available, as the risk perception of the underlying projects has deteriorated on his earnings projections due to the impact of the pandemic. 

In addition, the lack of bankable green infrastructure projects, i.e. green projects with cash flows that meet the minimum debt service coverage ratio, and the limited capacity of project sponsors and lenders in Indonesia to develop innovative financial solutions for better project risk mitigation.

To help address the challenges above, the SIO-GFF project will focus on catalysing finance to support Indonesia's post-COVID-19 economic recovery with a focus on sustainable infrastructure, crowding in capital, and job creation.

SIO-GFF will finance the sub-projects using pre-determined sub-project and sub-borrower eligibility criteria, through two specific windows: (i) Green Window, and (ii) SDGs for the Urgent COVID-19 Recovery Window. The Green Window will support green subprojects using at least 70% of ADB loan proceeds to finance subprojects, and the SDGs for the Urgent COVID-19 Recovery Window will use a maximum of 30% of ADB loan proceeds to finance subprojects impacting on the SDGs.