JAKARTA: The 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 decarbonise 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.”
Ahmad Zuhdi Dwi Kusuma, a mining industry analyst at state-owned lender Bank Mandiri, said on Jan 16 that banks and other financial institutions were not new to downstreaming, noting that some had given loans to such projects.
Bank Indonesia in recent years has also enacted policies to incentivise banks to lend money to support downstream projects.
However, he warned that financial institutions would make decisions based on stringent assessments, including risk mitigation and their liquidity situation.
“It will be difficult to carry out the mandate if it is not doable from the business perspective.” — The Jakarta Post/ANN
