Indonesia is set to release its first green bonds this year as it seeks alternative financing to support a wide range of costly infrastructure projects.

Such bonds will be part of non-state budget investment financing (PINA).

The National Development Planning Board, which is in charge of managing the finances, is trying to secure funds for 34 infrastructure projects worth Rp 348.2 trillion (US$25.79 billion) from sources other than the state budget this year.

The government expects to fund three projects of the overall figure from the issuance of green bonds by state-owned enterprises (SOEs), said PINA CEO Ekoputro Adijayanto.

“We are prioritizing infrastructure projects that cause a lesser amount of pollution, such as seaport, airport and railway projects to be financed through green bonds,” said Eko at a press conference after signing a memorandum of understanding (MoU) with non-profit organization Climate Bonds Initiative (CBI) and financial advisory firm EBA Indonesia.

Both parties will help mobilize the green bonds after their launch in the future.

Eko cited Kertajati Airport, the Jatiluhur hydropower plant in West Java and the new Tanjung Priok Port in Jakarta as projects eligible to secure the funding.

Indonesia has been lagging behind its fellow Asian counterparts, such as China and India, in utilizing the financial market to support infrastructure development in a way that positively impacts the environment.

The plan to issue the green bonds gained traction following a regulation passed by the Financial Services Authority on Dec. 29 last year.

The authority defines green bonds as debt papers to finance environment-oriented business activities that protect, restore or improve the quality and function of the environment. Fresh funds from the financial instruments can be funneled into, among other areas, renewable energy generation, environmentally friendly transportation, nature conservation and resource management.

Eko further said that the green bonds could be offered under a 30-year tenure.

“Not many investors can offer [debt papers] over such a long period, but at the same time, not all companies are able to create environmentally friendly projects,” he said.

EBA president director Yudhi Ismail said an environmental impact analysis would be a requirement for SOEs looking to issue the green bonds.

“Furthermore, since the bonds will be traded for a 30-year period, the company must be prepared to undergo an [environmental] assessment every year during the period,” said Yudhi on the same occasion.

Meanwhile, CBI CEO Sean Kidney said Indonesia might attract investors more easily as the green bonds would be rolled out by government-backed companies.

“However, when making a plan [for an infrastructure project], the challenge is to make them get through quickly,” he told The Jakarta Post on the sidelines of the MoU signing.

Furthermore, SOEs needed to determine whether any of their projects showed value equal to what they disbursed in capital, Kidney added.

Additionally, to determine eligibility, SOEs would be reviewed internationally, with the process taking several weeks to three months, he further said.

“They [SOEs] can also apply to have their proposal reviewed by auditing firms. Once they get the approval, they can choose to issue either rupiah or US dollar-denominated bonds,” Kidney said.

Kidney expressed confidence over the positive outlook of green bonds in Indonesia, particularly those issued by SOEs, referring to significant growth in the green bond market worldwide.

According to CBI data, the global green bond market surged by 78 percent in 2017 to around $155.5 billion.

The United States remains the top issuer of green bonds with more than $80 billion issued last year, followed by China, France, Germany and Spain.

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