Fiscal Support for the Efficient and Sustainable Management of Natural Resources in Indonesia: Renewable Energy and Forestry Resources

Transcription

1 Fiscal Support for the Efficient and Sustainable Management of Natural Resources in Indonesia: Renewable Energy and Forestry Resources Irfa Ampri, PhD Vice Chairman of Fiscal Policy Agency for Climate Change Financing and Multilateral Policy Ministry of Finance, Indonesia MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA Paris, 23 November 2012

2 Why We Need Sustainable Management? COUNTRY BACKGROUND Conflict of interests between the need of economic growth and environmental protection has been recognized globally Over exploitation on natural resources may boost the economic growth now. It can, however, jeopardize the national target towards sustainable development Natural resources scarcity and environmental damage may burden the next generation There is a need of a shift of development paradigm on economic development strategies, especially in the pattern of producing and consuming goods and services Under pricing of natural resources causes over exploitation of natural resources Under pricing of goods and services, due to subsidies, causes inefficiency in production and consumption of goods and services Lack of efforts in waste management when producing goods and services generates negative externalities to the environment

3 Fiscal Policy Supporting Pro-4 Agenda The Government Mission for the Medium Term : Acceleration and Expansion of the Qualified Economic Growth, Inclusive and Fairness to Improve People s Welfare 4 Pillars of Development Pro Growth Pro Job Pro Poor Pro Environment Fiscal Policy Direction for the fiscal year of 2012 Support the economy (by providing fiscal stimulus) while maintaining economic stability and fiscal sustainability Starting in FY 2013 onwards, more green economic aspects will be included within our fiscal policy direction

4 Role of the Ministry of Finance in Green Economy Int l Institutions & Mechanisms IFI Policies, Global Funds, Carbon Markets, Debt swaps Ministry of Finance Policy Tools Available For Influencing Green Economy Development Indirect Influences Technology Policy, Strategic Industries Tech. Transfer R&D, Trade, etc By managing Investment climate Pricing (fiscal) policies Direct spending Risk and financial markets Sectoral rules & law Can influence: Incentives Investments Industry Int l $ flows Pro Poor Approaches Financial/Investment Policies Investment Climate (attract capital) Banking Sector Non Bank Finance Inst s Municipal Finance Rules Taxes / Subsidies Tax/Fees/Charges Royalties/Rent Capture Subsidies/Tax breaks Expenditure Policies Strategic Budget Priorities Direct Investment Public Service Obligation Green Procurement Education Awareness Direct Regulation Enforcement / Incentives Zoning and Land Use AMDAL/ Env Audit Building / Design Standards Vehicle Emission Standards

5 Investing for Future Green Fiscal Policy Strategy Apply Principles of Medium Term Expenditure Framework and Performance Based Budgeting in the Medium Term Development Plan The target of implementing Green Budgeting in 2014 Improve policy framework for promoting geothermal development and identify financing needs to mitigate upstream risk of geothermal projects. Develop incentives for renewable energy (RE) development and acceleration of power plant development using (RE) achieve 25% of energy use in 2020 Increase budget allocation to support GHG emission reductions Improve the management and productivity of forest products and strengthen the governance of forest concessions and their implementation Reducing Distortions Rationalize subsidy policy of electricity (households) and limit subsidized fuel consumption (initially government and state owned companies cars) Better pricing and valuation of natural resources to protect and deliver environmental services

6 Some Government Policies in Natural Resources Act No. 30/2007 on Energy, specifically Chapter 3 which promotes the energy conservation efforts through government incentives or disincentives policy. Presidential Regulation No. 5/2006 on National Energy Policy which aims to increase the use of renewable energy. Presidential Instruction No. 2/2008 on Energy and Water Conservation to all government and state owned companies office buildings. Presidential degree No 61 year 2011 on the National Action Plan for Reducing GHG emission (NAP) 5 priority area with the forestry contributes 87% of target Presidential Instruction No. 10 of 2011 regarding the Suspension of Granting of New Permits and Improved Management of Primary Natural Forests and Peat Lands within 2 years with the purpose of balancing and harmonizing economic, social, cultural and environmental developments and reducing greenhouse emissions by reducing deforestation and forest degradation Mineral Export Tax (20% of sale price) in order to prevent overexploitation of the country's natural resources and excessive environmental hazards before 2014

7 Green Fiscal: From Fossil Fuel Subsidy to Clean and Renewable Energy Path Phasing out of the inefficient fossil fuel subsidies: Government assets should use the non-subsidy fuel Being done gradually to control inflation and other unwanted impacts. Approval from the parliament to increase fuel price in the budget 2013 will no longer be needed by the government. Simultaneously introducing benefits protection for poor (cash transfers) Promote clean and renewable energy Provide the incentives for using and investing in non fossil fuel energies (geothermal, micro hydro, and solar panel) Newly built electricity plants should only use renewable sources

8 Fiscal and Financial Incentives for Geothermal Development 8 8

9 Geothermal at Glance Being in the Pacific Ring of Fire, Indonesia has 40% of the world's potential geothermal resources, estimated at 28,000 megawatts Currently Indonesia is the world's third largest geothermal electricity producer after the United States and the Philippines. Installed production capacity (2011) is almost 1,200 MW from six geothermal fields in Java, North Sumatra and North Sulawesi. In 2007, geothermal energy represented 1.9% of the country's total energy supply and 3.7% of its electric power. At the 2010 World Geothermal Congress in Bali, President Susilo Bambang Yudhoyono announced a plan to build 44 new geothermal plants by By 2025, Indonesia aims to produce more than 9,000 MW of geothermal power, becoming the world's leading geothermal energy producer. This would account for 5% of Indonesia's total energy needs.

10 Potential Investment in Renewable Energy The development of 4,925 MW electricity from Geothermal in 10,000 MW Crash Program Stage II up to the year 2014 requires more than US$ 14,000 millions for the investment. For the development plan of 12,000 MW Geothermal Power Plant up to the year 2025, international supports are needed. Foreign ownership in Geothermal Business is allowed up to 95 %; Other business opportunities in geothermal sector: Geothermal direct use; Low temperature geothermal potential; Small scale power plant; CER under CDM Scheme; Services company to support the core business of geothermal.

11 Fiscal Incentives. (1)

12 Fiscal Incentives.(2)

13 Financial Incentives Geothermal Fund Facility Users: The local governments to increase the data sufficiency of geothermal working areas before being tendered; Geothermal developers to explore the geothermal area. Total amount: IDR 2 billion or eq. USD 217 million (cumulative in 2012), and will be increased in the upcoming budget years. Government Guarantee Risk Coverage FTP II PLN payment default according to PPA PPP Scheme Political risk events which affect private investment Guarantor Government IIGF (and Government, for some cases) Form of Guarantee Business Viability Guarantee Letter (BVGL) to developer Guarantee Agreement, sent to developer

14 Geothermal Fund Facility (GFF) Mechanism Absorb a portion of the risk associated with the confirmation of geothermal reservoirs in the initial stages (GFF for Local Government), Sharing cost with industry for the reservoir assessment and confirmation of hydrothermal resources, Do detailed surface exploration; Drill exploratory wells.

15 Incentives, Supports and Guarantees for Renewable Energy Projects Exploration Construction Operation 1 Import Duty Facility 2 Income Tax Facility 3 VAT Facility 4 Exploration Financing through the Geothermal Fund Government Guarantee Fast-Track Program II (FTP II) Off-take Guarantee (PLN Business Viability Guarantee) Public-Private Partnership (PPP) Projects Government Guarantee (through IIGF) Viability Gap Fund -- --

16 The MoF Roles in Ensuring a Cost-efficient of Geothermal Development Establish risk reduction program, Enhance the project bankability, Create sound fiscal and financial incentives to reduce the project cost.

17 Concrete Policy to Ensure Geothermal Development for PPP Recourse Agreement Contracting Agencies Guarantee Agreement Local Government PT PLN (Persero) Viability Gap Fund (VGF) Geothermal License (IUP) Geothermal Project Company PPA Electricity Business License (IUPTL) Minister of Energy and Mineral Resources Exploration Fund Equity Debt EPC PPP Facilities: Exploration Fund to help mitigate exploration risks Investor Lender Contractor Viability Gap Fund to ensure project viability Government Guarantee to ensure project bankability

18 Feed in Tariff The Objective of the Promotion of Feed-in Tariff (FiT) for the Renewable Energy To expand renewable energy development in all parts of Indonesia, To increase the investment of renewable energy, To increase the growth of renewable energy industry and jobs, To increase the ratio of electrified villages. Location Tariff (US$ cents/kwh * High Voltage Medium Voltage Sumatera Java, Madura, Bali South Sulawesi, West Sulawesi, and South East Sulawesi North Sulawesi, Middle Sulawesi, Gorontalo West Nusa Tenggara, East Nusa Tenggara Maluku, Papua * FiT for Geothermal based on MEMR Regulation No 22/2012

19 Challenges To increase the resource capacity at the regional government levels (i.e. provincial, district authorities) and for key proponents of geothermal energy development (e.g. Developers) in managing geothermal resources, particularly for the energy planning and tendering process. To reduce subsidies for fossil fuels and provide sufficient capital to support sustainable geothermal energy development. To improve overall economic incentive system, which includes further reforming energy prices so that they reflect true market prices. Geothermal energy prices should be bankable to improve its access to fund and consider project risk, which will be different in each location. To reduce the risks of exploration and other early stage development by improving the completeness and reliability of exploration data and implementing risk-mitigation measures. To stimulate commercial financial institutions for supporting the development of renewable energy including geothermal. To expand the grid due to without overhauling the grid system, geothermal energy development is likely to be sub-optimal.

20 Sustainable Management in Forestry Changing the Role from Net Emitter to Net Sinker

21 Significant Forestry Role for Green Growth On 25 September 2009 in the G-20 Summit in Pittsburg, United States, President Susilo Bambang Yudhoyono (SBY) stated the commitment of Government of Indonesia to the world as follows: Reducing the carbon emission by 26%/41% from Business as Usual (BAU) by % from forestry Reducing 1 billion tones of CO2 from BAU by 2050 Changing the role of forest from net emitter to net sinker by 2030

22 Key Forestry Medium Term Policies Establish and operate 120 KPH to better manage forest area Additional plantation forests of 2.65 million ha Managing 2.5 million ha Logged over area (LOA) or secondary forests by private sector (HPA-HA or HPH-RE) Certify 50% of wood-based products Rehabilitate 2.5 million hectare critical forest areas Development of 2 million hectare forests for the community

23 Balancing Two Policy objectives Improving quality and sustainability of environment: Securing forest areas Conservation of forests Watershed management Supporting economic growth: Improving production and productivity of forest to support food and raw material for domestic industries Improving added value of forest products Improving community capacity in managing forests Contributing to government revenues

24 Key Forestry Programs National movement on rehabilitation of forest and land The development of SILIN (intensified silvi culture) technology to boost the productivity of forest products and preserve the rain forest Certification of wood-based products Improvement of timber production and government revenue (PNBP) reporting

25 Ministry of Finance on SILIN program SILIN is a technology for improving productivity of natural forest in production forest (HPT and HP). Per December 2011, Indonesia has 59 million Ha of HPT and HP. In 30 years, SILIN will produce 280 m3 natural timber in a hectare. It only needs 3 million Ha HPT and HP to produce 28 million m3 timber annually continuously. Indonesia is developing the third generation of SILIN that can produce 280 m3 in 17 years. Ministry of Finance supporting UGM and Ministry of Forestry to develop an inter-governmental task force to support SILIN program Ministry of Finance supporting study on cost-benefit analysis and business model for HPH with SILIN technology

26 Ministry of Finance s Role in Supporting Sustainable Management in Forestry Designing better governance for government revenues from forestry Improving fiscal transfer mechanism for forest funds transferred to district governments Improving coordination with Ministry of Forestry for planning, budgeting/financing, and monitoring and evaluation of the program (currently on SILIN) Improving coordination among government agencies for forestry program through understanding cost for implementing RAN GRK

27 Key Challenges Transparency, accountability, and integrity of the programs, especially at the district level Weak design and implementation of the programs Lack of coordination among key government agencies and key experts Budget allocation and optimalization Unclear supports and benefits from the international sources (REDD+)

28 Opportunities Leader s commitment is strong, yet domestic agenda also important -- democratization and decentralization. Public awareness and stakeholders involvement: positive signal shown by sucessful LPG conversion program. Indonesia Modalities in Fiscal Policy Development support more climate investment on green economy such as renewable energy, energy efficiency, green building, etc Capacity building on initiative domestic flexible mechanisme (ICCTF,IGIF) on financing instrument on Green Economy is underway.

29 Thank You Merci