Signing of Japanese ODA Loan Agreement with Indonesia: Supporting climate change mitigation through construction of geothermal power plant and providing fiscal assistance to improve investment and trade environment

On March 30, the Japan International Cooperation Agency (JICA) signed a loan agreement with the Government of the Republic of Indonesia in the capital city Jakarta, to provide Japanese ODA loan for the following “Hululais Geothermal Power Plant Project”, and “Competitiveness, Industrial Modernization and Trade Acceleration Program, Subprogram 3”. The signatures were exchanged between Director General Suminto of Budget Financing and Risk Management, Ministry of Finance of Indonesia and Chief Representative Takeda Sachiko of JICA Indonesia.

Japan has long supported Indonesia’s sustainable growth and socio-economic stability through its Official Development Assistance (ODA). Indonesia plays an important role in the development and stability of the ASEAN region and is a trusted partner for Japan as it works to address global challenges.

The Hululais Geothermal Power Plant Project will contribute to increasing electricity supply in Indonesia and mitigating climate change as well as Asia Zero Emission Community (AZEC) (*1) and Just Energy Transition Partnership (*2).

The Competitiveness, Industrial Modernization and Trade Acceleration Program, Subprogram 3 will contribute to revitalizing Indonesia's business climate through the improvement of the investment and trade environment across the country. The number of Japanese companies operating in Indonesia has surpassed 1,600, representing the third-largest presence following Vietnam and Thailand in the ASEAN region.

(*1) AZEC is a framework proposed by Japan in 2023 with the vision of achieving decarbonization in Asia. It aims to promote cooperation among member countries to advance the energy transition. In addition, it contributes to decarbonization in Asian region and the global community.

(*2) JETP is an international framework in which G7 members and major donors, including the Asian Development Bank, jointly provide financial and technical support to facilitate the transition from fossil fuels to renewable energy. In Indonesia, the government and partner countries such as Japan and the United States issued a Joint Statement in 2022 to officially launch the JETP. Japan and Germany currently serve as co-lead partners, supporting Indonesia’s transition process through measures such as expanding renewable energy deployment, strengthening power grid infrastructure, and promoting the phased reduction of coal-fired power generation.

The project outlines are explained below.

Terms and Amount of Loans

- Country (Target Areas)
The Republic of Indonesia (Bengkulu Province)

- Project Objective
The objectives of the project are to improve the power supply capacity in the Sumatra system to contribute to the betterment of the living standards and economic growth of the region by improving the investment climate. The project will also contribute to the mitigation measures against climate change through the development of a renewable energy source and reduction of greenhouse gas emissions and air pollution, compared to continuous operation and development of a fossil fuel power plant of the similar capacity.

- Project Component
A) Construction of two geothermal power plants
B) Construction of power transmission, substation, and distribution facilities
C) Consulting services (detailed design, tender assistance, construction supervision, support for environmental and social considerations, etc.)

- Maximum Loan Amount
29,156 million Japanese Yen

- Annual Interest Rate
Project: 0.3%, Consulting Services: 0.01%

- Repayment Period
30 Years

- Grace Period
10 Years

- Procurement
Untied

- Executing Agency
PT. Perusahaan Listrik Negara (Persero)

- Contribution to SDGs
Goal 7 (Affordable and clean energy)
Goal 13 (Climate action)

- Planned Implementation Schedule
Completion of the Project: 2030

- Country (Target Areas)
Republic of Indonesia

- Project Objective
By providing financial assistance to Indonesia for improving its business and investment environment, this Program aims to promote private-sector investment, thereby contributing to the stability of the country’s economy and society as well as encouraging its development efforts.

- Project Component
Through financial assistance, specific policy actions in the three major areas agreed upon among relevant Indonesian government agencies for the promotion of investment and trade.
A) Creation of a Conducive Business Environment
B) Reduction of Trade Barriers
C) Corporate Growth and Business Expansion

- Maximum Loan Amount
50,000million Japanese Yen

- Annual Interest Rate
2.20%

- Repayment Period
15 Years

- Grace Period
5 Years

- Procurement
Untied

- Executing Agency
Coordinating Ministry for Economic Affairs

- Contribution to SDGs
Goal 1 (No poverty)
Goal 5 (Gender equality)
Goal 8 (Decent work and economic growth)
Goal 10 (Reduced inequalities)
Goal 13 (Climate action)

- Planned Implementation Schedule
Completion of the Project: May 2026, when the disbursement is completed.

JICA is co-financing this program with the Asian Development Bank (ADB) ($500 million) and Kreditanstalt für Wiederaufbau (KfW) (€400 million).