Waking up a sleeping giant, greening Indonesia’s infrastructure

Waking up a sleeping giant, greening Indonesia’s infrastructure

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Date: 19th January 2015
Type: Feature
Country: Asia
Tags: green growth

Mochamad Indrawan, CDKN’s Country Engagement Leader in Indonesia, reflects on the opportunities of green infrastructure in the fast growing economy.

A critical component of climate compatible development is ‘greening’ infrastructure such as electricity generation, roads and buildings. This refers to adopting low-carbon and climate resilient technologies and practices when making decisions on where and how to invest in new infrastructure.

For example, in Jakarta, green infrastructure could include protecting the open spaces and natural habitats, building homes and roads which are flood resilient, and reducing the pollution levels from nearby factories.

The role of the private sector in this regards is crucial. In Indonesia, the economy is growing rapidly and there is a huge need for new infrastructure in the transport, water, building, waste, energy and other sectors.

At the same time the Government has stated its commitment to a green economy, including a plan to cut greenhouse gases by 26% by 2020 while growing the economy by 7% annually.

There is therefore a huge opportunity to ensure the investment expected and planned in new infrastructure also contributes to this green vision for the country. To ensure this happens it is critical that the private sector is engaged and making best use of the latest climate compatible technologies and practices.

Looking back at 2014, there were some important steps taken to get the private sector on board. An Indonesia Green Infrastructure Summit (IGIS) held in Jakarta in April 2014 was a unique occasion for the private sector and the Government to put forward a joint message on green infrastructure. These and other initiatives have led to some new points of learning for Indonesia:

Transformations are carried out on the back of policies and institutions

Before greening can be considered, the plans and funds for new infrastructure need to be in place. Currently, the Government’s budget is not sufficient to meet even the most basic infrastructure needs. For this reason, private sector participation is indispensable, and new innovative ways of financing infrastructure need to be explored.

Once funding is in place, then how infrastructure is built depends on the institutions and policies that set the criteria and guidelines. Strong institutions and human capital to approve and monitor infrastructure development is crucial. This was highlighted by H.E. Prof. Dr. Boediono, Vice President of the Republic of Indonesia, in the IGIS opening remarks, who emphasised that political processes determine policies and regulations, and thereby even politics cannot be ignored.

The private sector’s increasing focus on green transformation is unprecedented, spurred by catastrophic events such as natural disasters, and the increasing crises in food and energy.   Remarks by Suryo Bambang Sulisto from the Indonesian Chamber of Commerce and Industry (KADIN) stressed that though the private sector has the power to make changes, support from the government and local communities is needed, especially with regards to regulatory and compliance issues.

For example, there is a new political drive towards renewable energy such as geothermal. The Ministry of Finance provides fiscal incentives, and fiscal support, while dedicated institutions such as PIP (a sovereign wealth fundwith investments in variousgroups of assets) PT SMI (a Government of Indonesia non-bank institution which focuses on infrastructure financing), and IIGF (Indonesia Infrastructure Guarantee Fund) are being developed.

There are some policy gaps and issues which need to be resolved. Despite its energy potential (Indonesia has 40 percent of the world’s geothermal resources), Indonesian electricity receives half of the country’s fuel subsidies. Furthermore, in the context of decentralization and Indonesia’s diversity, a ‘one price fits all’ stratagem will be problematic as not all regions will be happy with single feed in tariffs. Some may require a ceiling price.

It is possible to green spatial planning?

With the rapid urbanisation in East Asian and Pacific countries, special measures are required to ensure that urban development choices support energy efficiency. As the World Bank has stated, denser cities yield lower emissions, thereby emphasizing the importance of spatial planning.

Indonesia has put in place a strong policy framework for greening spatial planning. There is a requirement for urban areas to include 30% of green open spaces. In its drive for establishing sustainable infrastructure policies, the Ministry of Public Works has aimed for benchmarks in land use management, efficient road networks in urban areas, a green roads rating system, and using recycling technologies. The Ministry of Industry has also moved to develop eco-industrial parks which focus on environmental sustainability.

Factoring in technology, price mechanisms, and land access

The private sector face a number of challenges to investing in green infrastructure. Renewable energy supplies in Indonesia, and the corresponding technological solutions are available in wide array. Geothermal is one of the most promising sources of energy, however government support is necessary, including secured land access as many of the geothermal resources are in forestry areas. Another hurdle is the unattractive price offered by PT PLN (State Electricity Company), which is often a single buyer. In addition, as geothermal technology has yet to allow export, the demand is highly local. Consequently, price structure will be the most important attraction, or deterrent, for investments in geothermal.

Indonesia also has a lot of potential in green information and communications technology (ICT), and transportation. For example, Air Asia as a low cost carrier have managed to be resource efficient by using only simple functional and ICT advanced airports, resulting in a smaller ecological footprint, although driven primarily by financial savings.

From an academic perspective Dorodjatun Koentjoro-Jakti has stated that infrastructure development needs to be projected in a holistic manner, from the past, present and future, if Indonesia is to escape from the middle-income trap where it has been stuck for the last 20 years. Central to this are public private partnerships and getting to grips with many of the difficult land use issues in the country.

Integrating green infrastructure into the development system

There is strong political will and growing private sector engagement in green infrastructure. However, a transformative change from the current approach will require new and updated policies, innovative financial mechanisms and proper implementation and accountability.

Over the course of 2014 we have seen that Indonesia has the need for green infrastructure and the means to deliver it. However, strong working partnerships between the public and private sector, with civil society supporting the process, needs to further mature. Ultimately this will depend on strong leadership. The new President of the Republic of Indonesia, H.E. Mr. Joko Widodo came into office in October 2014 and has already demonstrated his commitment. All the ingredients are therefore in place, and this year should see some results.

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