Financing for Sustainability: Best Practice Example from Indonesia

Transcription

1 A LEADING CATALYST IN FACILITATING INDONESIA S INFRASTRUCTURE DEVELOPMENT Financing for Sustainability: Best Practice Example from Indonesia Global Sustainable Finance Conference Emma Sri Martini President Director of PT Sarana Multi Infrastruktur (Persero) July

2 Agenda 01 PT SMI as an Infrastructure Finance Company 02 The Role of PT SMI in Sustainable Financing 2

3 PT SMI as a Catalyst in Accelerating Infrastructure Development Status PT Sarana Multi Infrastruktur (Persero) ( PT SMI ) was established in 2009 as a State-Owned Enterprise under the Minister of Finance Regulation No. 100/PMK.010/2009 on Infrastructure Financing Companies Structure of PT SMI Duties Ownership Vision PT SMI carries the duty of supporting the Government s infrastructure development agenda for Indonesia through partnerships with private and/or multilateral financial institutions in Public-Private Partnership (PPP) projects. As such, PT SMI can serve as a catalyst in accelerating infrastructure development in Indonesia. 100% owned by the Government of Indonesia To serve as catalyst in accelerating national infrastructure development Government Indonesia Shareholders Ministry of Finance of Republic of Indonesia 100% Mission 1. To become a strategic partner that delivers value added contributions to Indonesia s infrastructure development 2. To develop flexible financing products 3. To offer service excellence backed with good corporate governance 3

4 Our Business Model PT SMI Business Pillars Source of Funds Pillar #1 Pillar #2 Pillar #3 FINANCING & ADVISORY PROJECT INVESTMENT SERVICES DEVELOPMENT Sectoral Focus Conventional Capital Injection from GOI Capital Market (Bonds, Notes, Securitization) Infrastructure Financing Senior loan (Working Capital, Investment ) Junior Mezzanine Equity investment Arranger & Underwriter Standby Lender PPP Sustainable Financing Financial Advisory Investment Advisory PPP Project Development Fund Management for Geothermal Infrastructre Development Electricity Transportation Train Rolling Stock Efficiency Energy Water Supply Telecommunication Oil and Gas Road and Bridge Sharia s and Grants Sharia Capital Market BPJS / Sharia Insurance Hajj & Syirkah Funds Sovereign Wealth Fund Municipal Financing (PIP/RIDF Sharia Financing IMBT/ Lease with Option to Own Murabahah / Installment Sale with Deferred Payment MMQ/Diminishing Partnership Musyarakah/Joint Partnership IMFZ* / Indent Lease with Option to Own MMOB* Financing Arranger Investment Advisory & Financial Advisory (Sharia) Renewable Energy Project Development & Energy Efficiency Project Preparation for Municipal Financing Capacity Building and Technical Assistance Hospital Irrigation Regional Infrastructure Correctional Infrastructure Market Waste Water & Waste Management Social Infrastructure Education Infrastructure Tourism Infrastructure IMBT= Ijarah Muntahia Bittamlik IMFZ= Ijarah Maushufah Fi al-zimmah MMOB= Mudharabah Muqayyadah on Balance Sheet MMQ= Musyarakah Mutanaqisah *) Under Development 4

5 PT SMI Has a Mandate to Become a Catalyst to Support Infrastructure Development Mandate Diverse & Flexible Financing Products To close the gap; e.g. senior loan, mezzanine, shareholder s loan and equity investment Enabler to accelerate infrastructure development Providing advisory services, project development, capacity building Financing facility for regional government to accelerate infrastructure development Regional Government Infrastructure Development Fund Raising Fund Raising Optimization (leveraging) from capital market, conventional & sharia banking, bilateral and multilateral organization Optimization of Strategic Partnership and Technical Assistance from bilateral/multilateral organizations To Support Sustainable Development Goals (SDGs) and Climate Change programs Setting up a special division, Green Climate Fund (GCF) accreditation, ESMF guidelines, renewable energy promotion 5

6 Our Financial Highlight Total Total Asset Asset USD 4.1 Billion One of the Largest Asset for NBFI in Indonesia Total Equity USD 2.5 Billion Strong Support from The Government of Indonesia Commitment Growth 77% CAGR ( ) To Finance 143 Infrastructure Projects Across Indonesia Revenue Growth 69% CAGR ( ) One of the Strongest Revenue Growth for NBFI in Indonesia Net Income Growth 64% CAGR ( ) One of the Strongest Growth for NBFI in Indonesia Local Rating AAA/Stable The Highest Rating for Local Corporate Bond International Rating BBB/Stable Similar to Sovereign Rating of Government of Indonesia Cost to Income (CIR) Ratio 18.93% One of the Lowest CIR Ratio for Banking and Non Banking Sector (High Efficiency) Financial Statements Opinion Unqualified Opinion For the consecutive 9 years since its establishment *Exchange Rate Assumption: 1 USD = Rp 13,600 6

7 Diversification of Financing Activities as of May 2018 COMMITMENT & OUTSTANDING Outstanding FINANCED PROJECT COST in USD million Commitment in USD million May-18 *Including loan to Local Government, IIF Subordination, and Equity Investment up to May-18 Total Project Cost COMMITMENT BY PRODUCT Working Capital 19.61% Investment 56.43% Subordinated 8.71% Bridge 6.11% Equity Investment 5.14% Promotor Financing 2.58% Sharia Financing 1.43% Investment Working Capital Subordinated Bridge Equity Investment Promotor Financing Sharia Financing IDR39.6 Tr IDR13.8 Tr IDR6.1 Tr IDR4.3 Tr IDR3.6 Tr IDR1.8 Tr IDR1.0 Tr OUTSTANDING BY PRODUCT Subordinated 8.96% Investment 68.71% Bridge 5.76% Equity Investment 6.58% Working Capital 3.68% Promotor Financing 3.55% Sharia Financing 2.74% Investment Subordinated Bridge Equity Investment Working Capital Promotor Financing Sharia Financing IDR25.0 Tr IDR3.3 Tr IDR2.1 Tr IDR2.4 Tr IDR1.3 Tr IDR1.3 Tr IDR1.0 Tr 7

8 Social Economic Benefit of Financed Projects as of May 2018 Better access Provide electricity to 2.6 million homes or 10 millions people Clean water contribution to 2 million homes or 8.1 million people Natural gas supply to 21,000 homes Climate Change Mitigation Support CO 2 emissions reduction equivalent to 920 tons/year Increase Productivity Additional 2,391 MW of electric power capacity Clean water production with capacity of 14,140 l/s Additional fuel production of 31,000 bpd Gas stock capacity increased to 10,000 MT Jobs Creation Employed 1.8 million workers during construction period Infrastructure & Rolling Stock Improvement 2,118 km toll roads (including public roads) 80 additional electric trains and revitalization of 438 train carriages 52,000 tower telecommunication projects 2,700 km of fiber optic network in the centre of Indonesia Public Service Improvement Serving 76 million users of telecommunication service across Indonesia Health facility for 720 new patients/year Additional facility of 1,031 new hospital beds Passenger capacity increased to 7.3 million/year Additional capacity of 37.5 million airport passengers per year Flow of port goods capacity increased to 2.26 million TEUs per year Irrigation to 185 thousand hectares paddy fields Assumptions: a) 1 household consumes 900 Watt for lighting b) 1 household inhabited by 4 people c) Basic water requirement in Metropolitan Area (per person) = 150 Litre/day d) 1 Km = 862 construction workers 8

9 Agenda 01 PT SMI as an Infrastructure Finance Company 02 The Role of PT SMI in Sustainable Financing 9

10 Indonesia s Commitment in Addressing Climate Change Issues Indonesia is committed to reduce Green House Gasses )GHG) emission through National Action Plan on GHG Reduction ( RAN GRK ) Emission Gap Projection in Complying Paris Agreement Source: The Climate Action Tracker Paris Agreement 2015 Maintaining the increase in global average temperature to below 2 C above pre-industrial level and aim to limit the increase to 1.5 C Indonesia s Commitment The Law of the Republic of Indonesia Number 16/Year 2016 concerning Ratification of Paris Agreement to the United Nations Framework Convention on Climate Change Nationally Determined Contributions (NDC) which require a huge amount of fund and investment POJK 60 (2017) which regulates procedure in Green Bond Issuance The importance of private participation and investment Emission reduction of around GtCO 2 e is required to meet the target as specified in Paris Agreement

11 PT SMI s Concrete Steps to Resolve Climate Change Issues 02 Bilateral / Multilateral Partnerships 01 Sustainable Financing Establishment of Sustainable Finance Division to finance RE-projects related 07 Environmental and Safety Management Frameworks (ESMF) The development and implementation of Guidelines of Environmental and Safety Management Frameworks (ESMF) 03 Agence Française de Développement (AFD) Partnership in green financing for renewable energy projects 04 Green Bond Issuance PT SMI issued the first corporate green bond in Indonesia (June 2018), awarded as Medium Green, to provide green financing 06 Geothermal Fund Management & Innovative Products Grant Agreement with Geothermal fund World Bank (CTF and management with GEF Fund) amounted amount of IDR 3,1 to USD 55,25 million Trillion from Indonesia for geothermal Investment Agency (PIP) exploration activities 05 Green Climate Fund (GCF) PT SMI as the first accredited entity in South-East Asia Innovative Projects to address SDGs with high social economic benefits 11

12 01 PT SMI s Initiative in Sustainable Financing New Business Unit Focus New & Renewable Energy Energy Conservation Waste Management Product Grant Quasi Equity Facility Technical Assistance Strategy Create strategic relationship with potential clients Create strategic cooperation with multilateral institutions Coordination with government institutions Economical Environmental Sustainable Financing Sustainable Development & Green Growth Social Landscape of Climate Change Funding Multilateral Funds Green Climate Fund Clean Technology Fund Global Environment Facility Nationally Appropriate Mitigation Action Facility Adaptation Fund Contributor Countries Bilateral Funds International Climate Fund (UK) Global Climate Change Initiative (USA) KfW Development and Climate Finance International Climate Initiative (Germany) Implementing Agencies and Institutions The World Bank Asian Development Bank KfW Development Bank AFD French Development Agency GIZ German Development Agency Recipient Countries Private Funds DEG - Deutsche Investitions- und Entwicklungsges ellschaft GmbH Climate Public Private Partnership Climate Insurance Fund Acumen 12

13 01 Financing Business Model Source of Funds Donor / Partner Government Financial Institution Capital Market (Bonds, Debt Securities) Grant State Capital Injection Facility Facility Intermediary Financing Partnership with Donors Grant Products Features of Facility: Competitive interest rate Type of partnership: Co-financing Project De-risking Soft loan facility Long-term tenor Intermediary Interest subsidy Innovative financing products Fund management Project Development: Flexible financing scheme Capacity building Project development fund Technical assistance 13

14 02 Strategic Partnership with Bilateral / Multilateral Institutions Technical Assistance Financing Geothermal Support Climate Policy Initiative (CPI) Grant USD 200,000 for project assessment & capacity building on climate change and clean energy project UNDP Technical Assistance Wind Power - USD 300,000 AFD Soft USD 100 million, Grant USD 5 million, & TA EUR 400,000 for RE & EE GCF As Accredited Entity Implementing Agency Clean Technology Fund (CTF) Grant USD 49 million GIZ Consultation RE & Policy Advice CC (PAKLIM) GGGI Collaboration for Green Projects Promotion AIIB & World Bank Group RIDF AIIB (USD 100 million) World Bank (USD 100 million) ADB & World Bank Group Subordinated to IIF ADB (USD 100 million) World Bank (USD 200 million) Global Environment Facility (GEF) Grant USD 6.25 million New Zealand Foreign Affairs & Trade Technical Assistance NZD 2.13 million * Development stage 14

15 03 Partnership between PT SMI and AFD PT SMI is committed to provide financing for renewable energy, energy efficiency and climate change projects. This commitment is shown through the utilization of loan facilities from Agence Française de Développement (AFD). PLTU: Steam Electric Power Plant PLTS: Solarpower Electric Power Plant PLTGU: Gas and steam powered electric Power Plant PLTBG: BioGas Electric Power Plant PLTA: Hydro Electric Power Plant PLTM: Micro Hydro Electric Power Plant WTP: Water Treatment Plan 15

16 03 Partnership PT SMI & AFD: De-Risking Mechanism 1 Cost Overrun Mechanism (COM) 2 First Loss Mechanism (FLM) Case: The Use of FLM as a De-Risking Tool Purpose Eligibility 3 4 Purpose Eligibility Serve as a partial guarantee to the additional loan or equity provided by SMI to its client. The COM would help cover the additional funds to be provided to the Eligible Investment should there be any significant cost overrun in the construction of an project, without jeopardizing the reimbursement of the Senior debt provided by PT-SMI. The COM amount will represent no more than 20% of the amount of the long term debts already extended by PT-SMI to its client and will not represent more than USD2,000,000. Interest Subsidized (ISL) The QEF will be used to subsidize the IFI provided by PT-SMI to its client. An incentive for a sponsor to engage in innovative RE projects, used at the closing of the financing structure of the project. The IFI Subsidy will be calculated as the value of interests not to be received by PT SMI. The amount of the IFI will represent no more than 20% of the amount of the total debt provided by PT SMI or no more than USD 1 Million. Purpose Eligibility Purpose Eligibility To derisk part of the Eligible provided by PT-SMI to a SMI s Client for an Eligible Investment. PT-SMI would have the right to use a portion of the Grant to cover its first losses, up to the loss incurred by PT-SMI with a maximum of 15% of SMI s or a maximum amount of USD 2 Million in case any eligible investment failure happens before the Commercial Operation Date. Innovative Equity Mechanism (IEM) Serve as a partial guarantee to the Equity provided by PT-SMI to cover potential loss by PT-SMI An incentive for a sponsor to engage in innovative RE projects which contribute to the closing of the equity structure alongside the equity brought in by the sponsor who might be hesitant to invest in project. IEM Amount will represent no more than 5% of the total capital expenditure of the project, no more than 20% of the equity brought in by the sponsor and no more than USD1,000,000 Project Location Project Cost Project Description Air Putih Mini-Hydro Power Plant Ladang Palembang, Lebong Utara, Bengkulu US$ Million Power generation under a run-off river scheme with annual energy electricity of x 10 6 kwh. The project will supply electricity to the regional power network and contribute to reliability of the power system. improving the stability and 16

17 04 Optimization of Sustainable Funding: PT SMI as the First Issuer of Corporate Green Bond in Indonesia Compliance of Standard Regulatory Standard Second Opinion 100% Global Green Bond Principles (GBP) Second Opinion Provider: Eligible Green Projects Eligible Sectors Regional Local ASEAN Green Bond Standards (GBP) OJK Regulation (POJK Number 60/2017) Second Opinion Result: Similar to Sovereign Green Sukuk Government of Indonesia 1. Renewable energy 2. Energy efficiency 3. Sustainable pollution management and prevention 4. Sustainable natural resource and land use management 5. Clean transportation 6. Sustainable water and sewage management Unique Features Environmental and Social Safeguard (ESS) Annual Impact Reporting Management of Funds (Dedicated Account) Total Issuance IDR 500 Billion Programme Bond with Total Amount of IDR 3 Trillion 17

18 05 Optimization of Sustainable Funding: PT SMI as Green Climate Fund s Accredited Entity MITIGATION Financial Instruments: Grant facility Guarantee Equity Sectors: Renewable energy Energy efficiency Climate change Energy Generation and Access Forest and Land Use Transport Building, Cities, Industries, and Appliances ADAPTATION Health, Food, and Water Security Livelihoods of People and Communities Ecosystems and Ecosystem Services Infrastructure and Built Category GCF Board Decision Maximum size of an individual project or activity within a programme Small (Including Micro) Total project cost USD 50 million Fiduciary Function Maximum environmental and social risk category Basic fiduciary standards; Project management Grant award and/or funding allocation mechanism; On-lending and/or blending (for loans) Medium Risk (Category B/ Intermediation 2 (I-2)) Mild adverse environmental and/or social risk, generally site specific, largely reversible, readily addressed through mitigation measures Project Pipeline Ministry of Finance of Republic of Indoenesia PT Sarana Multi Infrastruktur (PT SMI) Fiscal Policy Agency (BKF) National Designated Authority (NDA) for GCF PT SMI as the first accredited entity in South-East Asia BRT Semarang Project Preparation Facility Toba Lake Project Preparation Facility 18

19 Indicative Project Structure 06 Geothermal Fund Management: Scheme for Geothermal Energy Upstream Development Projects (GEUDP) Indicative Capital Structure Project Description Exploration project in geothermal energy to increase the electrification ratio of East Nusa Tenggara Province Grant & TA Geothermal Area Province Wae Sano East Nusa Tenggara CTF US$ 49 million Private Equity 30% Potential Estimated Project Cost 30 MW USD 27.5 million Social & Economic Benefits 1. Illuminate approximately 33,000 houses in the surrounding area. 2. Increase the electrification ratio of East Nusa Tenggara Province. Currently the ratio is only at 59%. 3. Improve the regional economy with the potential of increased tourism development and create jobs opportunity. 1. CTF US$ 49 million 2. GEF US$ 6.25 million SDG Equity Fund Co-financing US$ 49 million Geothermal Exploration Drilling Grant TA NZD 2.13 million SDG & Grant Fund PT SMI Co-financing US$ 49 million TA GEF US$ 6.25 million TA NZ Aid NZD 2.13 million Debt (Private) Debt 70% Time Frame and Project Status 2018 Valuation 2019 Exploration drilling 2020 Market Sounding Exploration & Delineation SDG & Grant Fund Exploitation SDG Equity Fund 19

20 Current Conditions 06 Project Highlight: Sustainable Urban Transport to Make Cities More Sustainable and Competitive Cities with Urban Transport Projects (Mitigation) Outcomes Greater Jakarta Public transport consumes 1/15 of the Road Space of Cars Project Light Rail Transit (LRT) Jabodebek Project Mass Rapid Transit (MRT) Jakarta USD 2.9 billon/year CO 2 78 Millions tons/year Social Cost from Urban Transport GHG Emissions Indonesia is the 6 th Largest GHG Emitter in the World Location Project Cost Length Jakarta Greater Rp 29,9 trillion (~US$ 2.24 Billion) 42,34 Km Palembang City Location Project Cost Length Jakarta Rp 22,6 trillion (~US$ 1.7 Billion) 23,3 Km Medan City Economic benefits of USD 4.06 billion obtained by LRT users over the past 50 years on efficiency: travel time, USD 210 million/ year Health Impact in Jakarta due to Air Pollution related to Transport vehicle operating costs, and emission reduction costs USD 964 million 2 X Longer Yearly loss in terms of time value, fuel consumption Average commuting time in Jakarta compared to Tokyo Project Location Project Cost Length Light Rail Transit (LRT) Palembang Palembang Rp 10,9 trillion (~US$ 0.82 Billion) 24,5 Km Project Location Project Cost Length Light Rail Transit (LRT) Medan Medan Rp 6,03 trillion (~US$ 0.45 Billion) 22,74 Km Opens 52,145 new workforce opportunities for 50 years Source: World Bank, LRT Jabodebek Feasibility Study 20

21 Off-Grid Solar PV Financing (East Sumba, NTT) 06 Project Highlight: The Utilization of Grant to finance Off-Grid Solar PV in East Sumba Project Location Off-Grid Solar PV East Sumba, NTT Project Cost US$ 5,945,153 PT SMI s Portion US$ 2,200,000 Source of Repayment Grant from International Donor Project Description One of renewable energy projects that is financed under the grant from Millenium Challenge Corporation (MCC) and the Government of Indonesia. Increase electricity capacity of 492 kwp in East Sumba Experience Good track record in longterm EPC projects, especially in renewable energy power plant (+10 years) 2 Mega Watt of electricity deficit or around 33% from the total of electricity power in East Sumba 21

22 06 The Uniqueness of PT SMI s Financing and Investment Products Case Study: Promoter Financing for PLTMH Lau Gunung Project Project Profile Project Structure PLN PPA Senior Project Lau Gunung Mini-Hydro Power Plant Assets Location Dairi, North Sumatera Project Cost IDR 288 billion Promotor Financing PT SMI s Portion IDR 50 billion Equity Project Sponsor Project Description Promoter Financing as a capital injection and/or loan to PLN s subsidiary for Mini Hydro Power Plant development and operational with 2x7.5 MW capacity in Dairi, North Sumatera Maturity Notes 1 Year SMI provides promoter financing facility as a creditor for the project sponsors 22

23 07 Implementation of Environmental and Social Safeguard in PT SMI s Project Financing PT SMI ESS Architecture Policy Compliance and Assessment of the Environmental and Social Rules and Regulations Employment & Work Environment, Gender Policy Pollution Prevention and Reduction Safety and Health Land Acquisition and Resettlement Biodiversity and Natural Resources Management Indigenous People and Cultural Heritage Cultural Heritage Energy Conservation and Use of Environmentally Friendly Energy Consultation and Grievance Handling Mechanism Procedures Evaluating E&S Risk Transaction Screening Risk Identification E&S Due Diligence Conditions of Financing Monitoring E&S Risk Reviewing Client/ E&S Performance Managing non-compliance Continuous capacity and capabilities improvement Monitoring and Reporting ESS: Environmental & Social Safeguards 23

24 SDG Indonesia One Concept Note Fund Name Use of Proceeds Priority Sector Role of the Fund Project Location Product Type Structure Value Proposition SDG Indonesia One 14 Sustainable Development Goals Today PT SMI obtain the mandate to focus only on infrastructure sector; therefore, it is permitted only to get involved in the 14 out of 17 SDGs Renewable energy and urban infrastructure (transportation, water and waste management) Involved in project development, construction period, operational period Indonesia Grant, loan and equity, Technical Assistance, Capacity Building, Research Pooled in PT SMI as the financial intermediary, fund manager, sponsor investor and implementing agency PT SMI is 100% owned by the Government of Indonesia and having experience and good track record in managing funds to be channeled through projects located in Indonesia. PT SMI has been the first financial institution accredited in Southeast Asia by the Green Climate Fund (GCF). For Indonesia Benefit of SDG Indonesia One Mobilizing private investments / donors / philanthropists through blended finance to tackle poverty, climate change issues and Sustainable Development Goals (SDG) Widening the access of financial resources to finance development of the nation For Investors / Donors / Philanthropists 1 2 Reducing the fiscal burden in financing infrastructure projects Gain access to rapidly growing markets in Indonesia Taking advantage of the risk mitigation offered by blended finance Source of Capital Green investors, sustainable investing fund, SDG investors, sovereign wealth funds, international agencies, philanthropists. Concessional funds and commercial loans will be channeled through PT SMI. Special purpose vehicle will be set up for equity investments 3 Gain advantage in understanding local market by engaging PT SMI as a local strategic partner 24

25 SDG Indonesia One (SIO) is Designed to Pool Fund with Various Interests SDG Indonesia One Tranches Donor Capital (Philanthropist) Impact Funds and Development Banks Commercial Banks and Institutional Investors Institutional Investor and Private Equity Input Development Fund De-Risking Fund Financing Fund Contribution for project development from climate funds and development agencies Contribution for risk mitigation and concessional loan from climate funds and development agencies Contribution for leveraging from commercial bank and institutional investors Investment Fund Contribution for additional equity participation from institutional investors and private equity Output Grants, Technical Assistance, Capacity Building, First Loss, Project Preparation Facility Concessional Infrastructure Debt Fund Guarantees, First- Loss Facility, Subdebt, Mezzanine Commercial Equity Investment Projects Structure % of Grants (Grants, First Loss, Project Preparation Facility) % of Debt Fund (First Loss, Concessional, Mezzanine) % of Commercial (Senior ) % of Equity Investment PT SMI to Become a Local Strategic Partner on the Ground 25

26 A LEADING CATALYST IN FACILITATING INDONESIA S INFRASTRUCTURE DEVELOPMENT Thank You PT Sarana Multi Infrastruktur (Persero) Sahid Sudirman Center, Lantai Jl. Jenderal Sudirman No. 86 Jakarta 10220, Indonesia Tel: (62-21) (hunting) Fax: (62-21) Website : ptsmi_id PT Sarana Multi Infrastruktur (Persero) #BaktiuntukNegeri Indonesia Infrastructure Library infralib.ptsmi.co.id 26