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The guarantee fund for Indonesia’s green infrastructure
As the nation confronts mounting environmental challenges, investing in sustainable development becomes imperative to ensure a resilient and prosperous future.
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Clean energy: A motorcyclist drives near a geothermal power station operated by PT Geo Dipa Energi in the Dieng mountains in Banjarnegara, Central Java, on Nov. 15, 2020. Businesses across the world have been championing renewable energy in response to climate change. (Reuters/Willy Kurniawan)
As Indonesia grapples with the formidable challenges posed by rapid urbanization, environmental degradation and climate change, the imperative for green infrastructure has become increasingly urgent.
Green infrastructure encompasses strategically planned networks of natural and semi-natural areas to deliver ecological, economic and social benefits. From renewable energy projects to sustainable transportation systems, investment in green infrastructure is essential for nurturing environmental sustainability, bolstering resilience to climate change, and fostering inclusive economic growth.
In response to those formidable challenges, the Indonesian government has recognized the urgent need to prioritize green infrastructure initiatives. By incorporating nature-oriented solutions into urban planning and infrastructure development, Indonesia can mitigate the adverse effects of climate change, enhance ecosystem services and improve the quality of life for its citizens.
At the forefront of this effort is the Indonesia Infrastructure Guarantee Fund/PT Penjaminan Infrastruktur Indonesia (IIGF), established as a special mission vehicle under the Finance Ministry.
One noteworthy aspect of IIGF's initiatives is its commitment to supporting green infrastructure projects through the provision of guarantees. Initially, IIGF is mandated to provide government guarantees exclusively for infrastructure projects under the public-private partnerships (PPP) scheme. Examples of PPP projects that support green initiatives and receive IIGF guarantee are the Street Lighting Equipment PPP projects in Madiun, East Java, and in West Lombok Regency, West Nusa Tenggara.
In these projects, PT PII provides guarantees to the private sector for the financial obligations of the government contracting agency according to the PPP agreement, thereby serving as a form of assurance for private investors against project risks. By providing government guarantees, IIGF enhances investor confidence and incentivizes private sector participation in infrastructure projects. Private investors are more willing to commit capital to PPP initiatives knowing that their investments are backed by the government's financial support and commitment to project success.
