ASEAN Infrastructure Fund Grants First US$25 Million Loan to Indonesia

Posted by Reading Time: 2 minutes

Dec. 10 – The Asian Development Bank’s new ASEAN Infrastructure Fund (AIF) has granted its inaugural loan to an Indonesian electricity project.

The US$25 million loan will go towards developing power links and expanding transmission networks from Java to Bali. Improvements are needed to solve widespread power outages and blackouts that are negatively impacting Indonesia’s tourism-reliant economy.

The Indonesian government is aiming to achieve a 90% electrification ratio by 2020 from a current electrification ratio of approximately 67%. The growing economy’s need for energy across all sectors has necessitated fast-track generation programs intended to bring Indonesia’s infrastructure up to speed.

According to the Asia Development Bank (ADB), the Java-Bali 500-Kilovolt Power Transmission Crossing Project will help transmit power from Java to Bali using 220 kilometers of extra high voltage lines with the capacity to transmit 1,500 megawatts of power and extend, construct and upgrade substations along its path.

In addition to the US$25 million loan from the AIF, the US$410 million project will receive US$224 million from ADB loans and US$161 million from the government.

Apart from this US$25 million loan, Indonesia expects to receive AIF financing for other infrastructure projects in the middle of 2014, according to Deputy Finance Minister Brodjonegoro.

“The commencement of lending by the AIF signals a new era in ASEAN-led investments, allowing ASEAN nations the means to direct and leverage resources for their own development needs,” said Ramesh Subramaniam, Deputy Director General of ADB’s Southeast Asia Department and AIF Board member. “This is only the first project for the AIF – we look forward to expanding the project pipeline into 2014.”

Over the next decade, infrastructure requirements in ASEAN nations will require approximately US$60 billion per year.  On a per capita basis, availability of roads and railways, as well as electricity and clean water coverage in ASEAN nations is far lower than that of other OECD nations.

With a total lending commitment of US$4 billion through 2020, the AIF expects to finance a number of infrastructure projects each year worth up to US$ 300 million. The fund aims to encourage private sector growth by helping to mitigate operational risks. Projects will be selected based on their projected impact on reducing poverty and economic viability.

The AIF is the largest ASEAN-led initiative in the association’s history. With a total initial equity contribution of US$485 million, Malaysia is the largest ASEAN contributor to the fund with a US$150 million equity investment, followed by Indonesia with US$120 million. Additional shareholders include Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, the Philippines, Singapore, Thailand, Viet Nam, and ADB.

You can stay up to date with the latest business and investment trends across Asia by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.