JETP in Indonesia: funding solution or energy transition debt trap?

Even as the availability of concessional lending to Indonesia is appreciated, the country needs to keep an eye on its debt burden and try to renegotiate the terms of funding under the Just Energy Transition Partnership scheme.

Coal mining_South Kalimantan_Indonesia
Coal excavators in a mine in South Kalimantan, Indonesia. Image: Dominik Vanyi / Unsplash

The pressure to immediately wean countries off the use of fossil fuels is getting stronger. Indonesia, which is still very dependent on dirty fuels, especially needs to shift to renewables. 

Hence, the conclusion of the Just Energy Transition Partnership for Indonesia on the sidelines of the G20 Summit which it hosted last year should be good news for the nation. Driven by the United States and Japan, the funding scheme will ensure that Indonesia receive an initial US$20 billion over the next three to five years to help phase out coal energy and invest in renewable energy infrastructure. 

However, there are also questions surrounding the intentions of the US and Japan – advanced industrial countries and members of the G7 – in opting to help finance the energy transition in developing countries like Indonesia. Experts warn that instead of being a funding solution, the JETP could end up being a debt trap, with developed nations taking most of the political and economic benefits. 

What is worrying is that a recent statement given to the media last month by Indonesia’s energy and mineral resources ministry (ESDM) seems to confirm that the government has been struggling to secure the promised energy transition funding through direct grants. Director-general of renewable energy and energy conservation at the ministry Dadan Kusdiana informed that half of the promised US$20 billion in funds will come from commercial loans provided by seven international financial institutions that are part of the Glasgow Financial Alliance for Net Zero (GFANZ). Grants and technical assistance allocated from the JETP scheme only amounted to approximately US$160 million so far. 

This dominance of a possibility of debt is a reflection that the JETP scheme is lacking in its considerations of justice. Developed countries, especially those historically responsible for polluting emissions, need to take action to solve the climate crisis, not try to profit through lending to developing countries. This deviates from what has been publicly announced as the goals of the JETP – to ensure a just energy transition in developing nations. 

There is also a need to watch for whether financing under the JETP scheme will tend towards financing large-scale renewable energy projects, where there might be a higher risk of having a negative impact on local communities, both socially and ecologically. What the JETP scheme should focus on, I believe, are community-based projects, which pose lesser risk, though most are now still seen as economically profitable or feasible. 

A foreign debt trap strengthens the cycle of natural destruction in developing countries, as to pay off the debt, countries are pressured to open their doors to investment, and some would argue, relax the approval of environmental permits to allow for development. Debt repayment is also often carried out at the expense of basic human rights, such as labour rights. 

In short, even as the availability of concessional lending to Indonesia is appreciated, the country needs to keep an eye on its existing debt burden and in fact, try to renegotiate the terms and composition of funding under JETP. JETP should not become an instrument for new colonialism with a green label aimed at profit accumulation by rich countries. 

Firdaus Cahyadi is a communications consultant on the Indonesia team for climate campaign group


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