Presentation by Dian Lestari, BFK, Ministry of Finance - OECD Focus Group Discussion: Developing a green finance facility to catalyse private investment, 27 October 2020

1. 1
Green Finance Facility to Support
Clean Energy Projects in Indonesia
27 Oktober 2020,
FGD Developinga Green Finance Facility to CatalysePrivate Investment
Dian Lestari,
Center for Climate Finance and MultilateralPolicy
Fiscal Policy Agency

2. 2
CLIMATE FINANCE
CLIMATE FINANCING NEEDS TO ACHIEVE NDC TARGET
Source:Second BUR (2018), BillionUSD
Energy&
Transportation,
236.2
FOLU, 5.6
Industrial Processes &
Product Use,2.9
Waste,
2.17
Agriculture,
0.38
In billion USD
Based on the 2018 Second BiennialUpdate Report (BUR), Indonesia submitted
an estimated financing needs to achieve the emission reduction targetin 2030
reaching USD247,2 billion or around Rp3.461 trillion (Rp266,2 trillion/year).
SECTORS ACTION PLAN
PROJECTED
EMISSION
REDUCTION
ForestryandLand
Use
• Forestconservationandprotectionprogram
• Forestfire prevention
655 million-
tonCO2e
Energyand
Transportation
• Developmentof renewable energypowerplants
• Cleantechnologyinvestment
398 million-
tonCO2e
Industrial
Processesand
ProductUse (IPPU)
Majorityfor CementandIronIndustry(80%private
investment)
3,25 million-
tonCO2e
Waste
Treatmentof LiquidandSolidWaste atIndustrial and
Household
26 million-ton
CO2e
Agriculture
• Low emissionvarieties
• Irrigationefficiency
• Biogasutilization
• Increasingthe qualityof livestocksupplements
4 million-ton
CO2e
STATE BUDGET
SUB-NATIONAL
GOVERNMENT BUDGET
BPDLH
GREEN SUKUK
(GLOBAL & RETAIL)
Domestic
SOEs
(PT. SMI)
Public
Green Climate Fund
Regional and
Bilateral Agency
Global Environment
Facility
Adaptation Fund
International
Multilateral
Development Banks
Private
SUSTAINABLE
FINANCE(BANK
& OTHER
FINANCIAL
INSTITUTIONS)
PHILANTHROPY DOMESTIC PRIVATE
INVESTMENT
FOREIGNDIRECT
INVESTMENT
PRIVATEGREEN
BONDS
Monitored by OJK

3. Green
Finance
For Clean
Energy
Green Finance
State Budget
(APBN)
• Central GovernmentBudget
on Climate Change
• Green Sukuk
• Tax Incentives for
Renewable Energy
Development
Non-State Budget
• EnvironmentFund
Management Agency
(BPDLH)
• SDG Indonesia One
• Green Climate Fund
Source of Energy
Financing
2016 2017 2018 2019
Central Government
Spending on Climate
Change (Based on
Climate Budget
Tagging)
Rp1,4 trillion Rp632,1 billion Rp1,5 trillion Rp864,2 billion
Green Sukuk Rp175,7 million Rp243, 9 million

4. “We need to maintain and develop a strategy so that Indonesia is
able to grow higher but the commitment to reduce the emission
remain achieveable. MOF is ready to support BPDLH with good
governance and optimal efficiency. Because man without nature is
impossible.”
-Sri Mulyani,Ministryof Finance RI-
Environment
Fund
Management
Agency /
BPDLH
BPDLH aims to support
environmentalconservation and
management, biodiversity
management, and overcoming the
impact of climate change
Business Process
*Source: BPDLH
Source of Funds:
• State Budget
• Sub-national Budget
• Grants and donation
• Other source of funds
Investment instruments:
• Banking instrument
• Capital market instrument
• Other instruments
Fund Channels:
• Carbon Trade
• Loan and Grant
• Incentives
• Other Mechanisms

5. *Source: PT. SMI
SDG INDONESIA ONE HIGHLIGHT
Per June 2020
SDG
Indonesia
One
(PT. SMI)

6. 6
GREEN
CLIMATE
FUND
Whatis
GCF?
UNFCCC’s
Financial
Mechanism
Executing Agency
Established at
the UNFCCC
COP in 2010
The Biggest
Climate Change
Fund in the World
It Began
Operations in
2015 in Songdo
Balanced
Mitigation-
Adaptation
Financing
Diversification of
Financial
Instrument
Committed
Mobilized
USD Billion
10.3
9,84,95,4
Potential Fund
Replenishment
Fund
Proposal
RequestofNo-
Objection
Letter (NOL)
No-Objection
Letter
Funding
No-Objection
Letter
• AccreditedEntitiesandNDA are the
maincomponentsinaccessingGCF
funding
• The GCF worksthroughAEto channel
fundingintoprojectsorprograms
• Developingcountriesneedtohave an
NDA / focal pointinorderto access
GCF funding
• The Fiscal PolicyAgencyrepresenting
the Ministerof Finance was
designatedasthe IndonesianNDA-GCF
basedonthe Decree of the Ministerof
Finance Number756 / KMK.10 / 2017
Funding Mechanism
Funding Area
Access and Energy Power Grid
Transportation
FOLU
Building, City, Industry and
Equipment
Mitigation Adaptation
Health, Foods, and Water
Society and Community
Livelihoods
Infrastructure and Environment
Ecosystem and Environment
Services

7. Readiness
Facilities
FundingProposals
GCF Readiness Program
to strengthen NDA and
AE institutional capacity
PhaseI and PhaseII
1 ProjectPreparation
Facility of Semarang’s
Bus Rapid Transit
2
Funding Schemein million USD
GeothermalResource Risk Mitigation
Facility (GREM)
Funding facility program for the development of geothermal energy that
specifically de-risk the development stage. Implementation will be with PT
SMI as executing entity.
GCF Funding : USD 100 million
Co-financing : USD 310 million
3
Grant :
Phase I USD 850.000
Phase II USD 998.000
Grant :
USD 788.000
Climate Investor One (CIO)
GCF Funding : USD 100 million
Co-financing : USD 721,5 million
Blended finance facility with different funding scheme for each stages
(development, construction, and implementation). Implemented in 11 countries,
and Indonesia is expected to access minimum of USD 43,9 million out of the
total project amount.
Funding Schemein million USD
4
GREEN CLIMATE FUND APPROVED PROJECTS IN INDONESIA

8. 8
GREM
Geothermal Resource Risk
Mitigation
Public
Window
SOEs
50%
De-risking
PISP Fund*
50%
Blended Loan
IBRD/GCF/CTF
Private
Window
Private Sectors
50%
Blended Loan
IBRD/GCF/CTF
50%
Financial Instrument
Reimbursable Grant
GCF/CTF
Geothermal Resource Risk Mitigation (“GREM”) was developed by the World Bank and the Government of
Indonesia through PT. Sarana Multi Infrastruktur. GREM is geothermal exploration financing facility for SOEs
and private developers that offers a de-risking scheme for resource risk.
Geothermal
Resource Risk
Mitigation
(GREM)
*Source: PT. SMI

9. 9
Climate
Investor
One
(CIO)
*Source: PT. SMI
USD 850 Million
At Final Close – 21 June 2019
Target Technologies and Geographies
RenewableTechnology
• CIO targets to diversify its portfolio over the following
renewableenergy technologies:
• Solar PV (40%)
• On-ShoreWind (40%)
• Run-of-river Hydro (20%)
• The CFM team has extensive experience in developing
and financing the target technologies
• Apart fromthe main three technologies, CIO will also
consider investing in other renewable technologies such
as geothermal
Developing Countries
• CIO is mandated to investin circa 60 developing
countries across Africa, Latin America and developing
Asia.
• CIO will diversify its portfolio across theseregions.
• Currently CIO’s focusis in Africa and Asia
• CIO is currently developing and constructing projects
in these regions

10. Conclusion
• Energy sector contributes a significant proportion of Indonesia’s total emission and requires huge
amount of financing.
• State budget/APBN is very limited and would instead be used to leverage private finance. The
government also tries to tap green finance from international institutions.
• To attract private investment, the government has, among others:
- provided several tax incentives to enhance private investment in energy sector
- established BPDLH and SDG Indonesia One
• Indonesia has also accessed GCF and obtained approval for clean energy development in Indonesia.
• Yet the big challenge we have been facing in the sector is mainly to find bankable energy project.

11. 11
THANK YOU

12. Tax
Incentives
PMK 103/2015 PMK 35/2018
Subject New Taxpayer New Investment
Percentage of Tax Cut 10-100%
100%
(single rate)
Threshold Rp 1 trillion Rp 500 billion
Period
5-15 tahun
Could be extended up to 20 years by Minister of
Finance Decree
Up to 20 years depending on investment value
Transition Unregulated 50% for 2 years
Industry 8 pioneer industry 18 pioneer industry
IncomeTax
▪ Tax Allowance(PP 78/2019)
▪ Tax Holiday (PMK 150/2018 and PMK 103/2015 stdd PMK 35/2018)
▪ Article 22 Import(PMK 34/2017 stdd PMK 110/2018)
Value Added Tax ▪ Exemption on import and handover machinery & equipment not
including spareparts. (PP 81/2015)
Exemption on Import
Duty
▪ Exemption on import and handover machinery & equipment not
including spareparts (PMK 176/2009 stdd PMK 188/2015)
Property Tax ▪ Reduction of property tax ratein exploration stage for geothermal
energy development.
IncomeTaxBorne by
Government
▪ The income tax is borneby the governmentfor geothermal business activities
(PMK 179/2013)
Tax Holiday for Pioneer Industry (RenewableEnergy Development is one of Pioneer Industry)
*Source: FPA
General Tax Incentives
SpecifiedTax Incentives for Geothermal Development