ADB $200 Million Loans to Support Trade, Energy Financing in Indonesia

News Release | 25 March 2011

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending $200 million in loans to assist Indonesia expand access to trade finance and to embark on major energy efficiency improvements in export industries.

The ADB Board of Directors today approved the funding for Indonesia Eximbank - a quasi-sovereign institution, and the country's official export credit agency which provides financing, insurance and guarantees, and advisory services to exporters. It includes a direct A-loan of $100 million, and a B-loan of $100-million from commercial banks with ADB acting as lender of record. Technical assistance grants of $1.45 million, administered by ADB, are also being extended to support the project.

"These investments are expected to mitigate the foreign currency financing gap currently constraining Indonesian exporters, and they will also fund a pioneering financing mechanism for energy efficiency improvements," said Kunio Senga, Director General of ADB's South East Asia Regional Department.

Availability of long term, affordable US dollar-denominated loans, vital for exporters to expand and create jobs, has been sharply curtailed by the global financial crisis. Producers looking to upgrade plants and purchase equipment to make energy cost savings and meet new international energy management standards are unable to source funds. ADB estimates show that energy efficiency improvements by exporters could cut peak electricity demand by around 2,500 megawatts - equivalent to the current power shortfall faced by Indonesia's state electricity company.

The loans will allow Eximbank to extend US dollar term trade finance and working capital to clients and allow the agency to refinance some high interest, short term loans provided during the global financial crisis. A $30 million tranche of the A-loan is earmarked to support energy efficiency plant retrofits and equipment upgrades by exporters.

"This pilot investment in energy efficiency will demonstrate to local commercial banks the viability of investing in projects with paybacks within five years, and will help pave the way for future replication," said Madeleine Varkay, Project Team Leader.

The A-loan, from ordinary capital resources will have a tenor of five years, at an interest rate of six months LIBOR + 1.70%. The B-loan, with a tenor of three years, will be financed by international banks with terms and conditions to be mutually agreed by the participating banks, Eximbank and ADB. The technical assistance, which will support trade finance product development, staff training, and capacity building for risk sharing with commercial banks, includes a grant of $1.1 million from the Asian Clean Energy Fund under the Clean Energy Financing Partnership Facility, and $350,000 from the Financial Sector Development Partnership Fund.