Indonesia: EU, AFD and KfW Development Bank promote sustainable infrastructure

Indonesia's economy has been growing steadily for decades. But the expansion of the infrastructure cannot keep up. Increasing traffic and severe air pollution are a burden on the 270 million inhabitants. Only with better public services and a clean energy supply can the country exploit its potential. The government is therefore working on an investment programme that will cost billions. A key player in this is the financial institution PT SMI (Sarana Multi Infrastructure), which is to be expanded into Indonesia's national development bank.

The European Union and KfW Development Bank are supporting this path within the framework of the "Support for Infrastructure Investments in Indonesia" (S4I) programme. The EU is providing PT SMI with a grant of more than EUR 16 million via KfW - on 2 December Edwin Syahruzad (President Director PT SMI) and Angela Tormin (Director KfW Office Jakarta) signed the agreement. KfW will provide advisory support to PT SMI also contributing its own decades of experience as a promotional bank. Other international financiers are also cooperating with PT SMI, especially the French AFD, with which KfW is closely coordinating its activities.

The mission of PT SMI as a public infrastructure financing company is to support municipalities, public enterprises, private small and medium-sized enterprises and public-private partnerships. A key component of KfW's commitment is the establishment of a project development facility for municipal development and renewable energies. The focus is on waste management, water supply and sanitation, social infrastructure such as schools or hospitals, and public transport, among other things. The use of geothermal energy also has great potential in Indonesia. The EU funds provided via KfW enable PT SMI to support local governments and private investors in project preparation and in aspects of environmental and social protection. The aim is to ensure that project proposals are financially, technically and environmentally sustainable. PT SMI itself will establish structures and processes to identify risks in the projects. This includes, not least, environmental and social compatibility, for which assessments will be carried out and countermeasures will be devised in accordance with internationally recognised standards.

President Director Edwin Syahruzad looked forward to the joint work at the signing ceremony: "The aim of this agreement is to enable PT SMI to promote more investment in municipal projects and renewable energy. It will accelerate the transition to a low-carbon economy and also contribute to economic stabilisation after the pandemic". Christian Krämer, Director East and Southeast Asia at KfW Development Bank, expressed his appreciation for the partnership between PT.SMI, EU and AFD: “We are grateful for this excellent cooperation with PT SMI, EU and AFD. With our joint efforts we will contribute to climate protection and sustainable growth in Indonesia. In particular, S4I is a cornerstone to promote SDG Indonesia One and the transition towards a green economy and thus will make a difference for many Indonesian communities. The EU funds amounting to EUR 16 million will support investments in renewable energies and municipal infrastructure and will therefore lay the foundation for future financing from KfW for urban development and renewable energies in form of credit lines.”

The conditions are thus in place for KfW Development Bank to help this densely populated country tap its great potential in the near future by financing specific infrastructure projects.