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Indonesia should focus on grants, not loans, for financing energy transition
As the recipient country, Indonesia should actively participate in grant design and implementation rather than leave the details to donors and implementing agencies.
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Look who’s talking: Finance Minister Sri Mulyani Indrawati (second left) and Asian Development Bank (ADB) president Masatsugu Asakawa (second right) hold a joint press conference after launching the Energy Transition Mechanism Country Platform in Jimbaran, Bali, ahead of the Group of 20 Summit on Nov. 14. (Antara/Genta Tenri Mawangi)
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ollowing the Group of 20 Summit in Bali last month, Indonesia will receive billions of dollars in pledges to accelerate its energy transition. For example, the donors led by the United States and Japan intend to mobilize an initial US$20 billion in public and private financing over a three- to five-year period through the Just Energy Transition Partnership (JETP), using a combination of grants, concessional loans, market-rate loans, guarantees and private investments.
Many have kept an eye on the loan schemes and warned the Indonesian government to exercise caution when negotiating loan terms and conditions in order to avoid future financial burdens. However, grant design and content are rarely given enough attention.
In comparison to the massive amounts of pledged loans and investments, grant amounts are typically much smaller. For example, the grant amount received by South Africa's Just Energy Transition Investment Plan (JET IP) in a JETP-like scheme is less than 3 percent of a total funding commitment amount of $8.5 billion. As a result, recipient countries such as Indonesia quite often overlook grant design, content and implementation.
So, how can grants, despite their small size, play an important role alongside loan and investment programs?
Donors fund grants to recipient countries, mostly in the form of technical assistance. They range in value from thousands to millions of dollars. Some grants are part of loan or investment programs, such as the JETP or the Energy Transition Mechanism (ETM), while others are solely grants.
Implementing agencies, which can be multilateral organizations (like the World Bank, the Asian Development Bank (ADB) and United Nations agencies), donor-owned agencies, like the United States Agency for International Development (USAID) and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), nongovernmental organizations or consulting firms, provide technical assistance on behalf of donors.
Even when it comes to the same topic, such as energy transition, and the same recipient country, donors typically channel their funds through different mechanisms and agencies for a number of reasons, such as "aiming for a greater impact through collaborations with other donors" and "not putting all of their eggs in one basket".
