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Govt plans to require banks, financial firms to fund downstream projects
The energy and mineral resources minister has said the government will not intervene in lowering the cost of financing and that downstream projects could bring a much earlier break-even point and better returns than other projects.
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Nickel smelter chimneys spew a column of emissions on July 7, 2024, into the air above the Indonesia Weda Bay Industrial Park in Lelilef, North Maluku. Despite coal making up 67 percent of Indonesia’s 2023 energy mix, the country is shifting toward cleaner sources, impacting the nickel industry, which is vital for electric vehicle (EV) batteries. (AFP/Azzam Risqullah)
T
he government wants to make it mandatory for local banks and other financial institutions to finance downstream projects, according to Bahlil Lahadalia, who chairs the country’s downstream and national energy resilience task force.
Bahlil, who is also the energy and mineral resources minister, said on Jan. 10 that the government would not intervene in lowering the cost of financing and that downstream projects could bring a much earlier break-even point and better returns than other projects, as reported by state-run news agency Antara.
Separately, in a statement on Jan. 17, he said more financing was needed to boost the country’s downstream industry. This was not exclusively for minerals but also agriculture and forestry products, as well as oil and gas.
Putra Adhiguna, managing director at the Energy Shift Institute, told The Jakarta Post on Jan. 16 that the banking sector was highly regulated and had to follow rigorous risk management protocols to mitigate risks. They also needed to maintain prudent investment practices, he added.
“Thus, while the government may encourage banks to invest in downstream projects, the conditions [of financial prudence] must be maintained, including for state-owned banks,” Putra said.
He went on to say that many banks were seeking to make climate-friendly loans and investments to maintain global relevance amid increasing pressure to decarbonize and shift away from fossil fuels.
“This means downstream projects must keep up and raise their bar higher if they wish to get financial support from banks.”
