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Indonesia Update W4 November 2024

  • Skylight Strategic Indonesia
  • 30 November, 2024

Overview

The United Nations Conference of the Parties (COP) 29 just recently held in Baku, Azerbaijan. The COP meets every year, unless the Parties decide otherwise. The first COP meeting was held in Berlin, Germany in March, 1995. Since 1995, COP talks have been a key driver of global action on climate change. This forum will continue to be important until the transition to clean energy is complete and burning fossil fuels is no longer our routine. Two important agreements that have resulted from the yearly COPs are the Kyoto Protocol in 1997 resulting scientific consensus that global warming is caused by emissions of carbon dioxide in the Earth’s atmosphere, asking industrialized countries and economies in transition to reduce greenhouse gas emissions; and the Paris Agreement in 2015, superseding the Kyoto Protocol and unleashing severe climate change impacts, including more frequent and severe droughts, heatwaves and rainfall, that has resulted on a five-year cycle of increasingly ambitious climate action carried out by countries. Since 2020, countries have been submitting their national climate action plans, known as Nationally Determined Contributions (NDCs). Each successive NDC is meant to reflect an increasingly higher degree of ambition compared to the previous version.

Climate change has only one solution: investment. Every day, companies and governments invest money. They can choose to invest in old technologies that worsen carbon pollution, or switch to cleaner alternatives. Climate conferences have played a role in changing the direction of investment. An example is the huge investment in green energy, grid renewal, and energy efficiency. It is more than twice as much as the investment in new fossil fuels. Last year at COP 28 in Dubai, COP countries finally included text on the need to transition away from fossil fuels. It was a hard-fought victory. This year, diplomats from Saudi Arabia and its allies managed to erase all mention of the issue as Azerbaijan as the host country, which is one of the largest oil and gas producing countries in the world, and its president Ilham Aliyev stating that ‘oil is a gift from God’.

The 2023 COP28 reportedly reached 97,000 people. In COP 29, the number of delegates attending was 55,000, produced 2 key takeaways:

COP29 Established Standards for Global Carbon Market

A major breakthrough was the adoption of a comprehensive framework for international carbon credit trading under Article 6 of the Paris Agreement, enables nations and entities to offset emissions and attract funding for climate projects. For urban areas, carbon credits represent a new financial pathway to support sustainability efforts. These markets can help fund initiatives such as energy-efficient building retrofits, low-carbon public transport systems, and urban green infrastructure. While this framework is a positive step, detailed guidelines for registries and reporting are still under development, determining whether carbon markets will generate the scale of funding needed. Nevertheless, proponents believe these markets could draw billions of dollars into urban sustainability projects, providing cities with the resources they need to innovate and adapt.

US$ 300 Billion Climate Financing By 2035

Discussions focused on how richer countries could help poorer, developing nations tackle climate change through grants and loans. A broad target of $1.3 trillion in annual funds by 2035 was adopted, yet only $300 billion annually was designed for grants and low-interest loans from developed nations to aid the developing world in the green transition and climate adaptation. The deal has tripled finance to developing countries up from the previous goal of $100 billion annually.

Side-Information:

After months of negotiations, Indonesia and Japan signed a Mutual Recognition Agreement for bilateral carbon trading (MRA) on 18 October 2024. The MRA, which came into effect on 28 October 2024, is expected to support Indonesia and Japan to meet their climate change mitigation efforts, and also to draw investors into the carbon sector for both countries. Through its press release, the Indonesian Ministry of Environment and Forestry highlighted that the MRA represents one of the first bilateral cooperation schemes between nations within the framework of Article 6.2 of the Paris Agreement (which provides that any nations pursuing voluntary cooperation with other nations must apply robust accounting to ensure the avoidance of double counting). Under the MRA, Indonesian carbon credits will be recognized as equivalent to Japanese carbon credits. Mitigation action projects carried out in Indonesia and funded from Japan are required to comply with the Indonesian national environmental regulations and to apply the Indonesian carbon certification system. The carbon credits generated by approved projects will then be allocated to each country based on agreement between Indonesia and Japan. The mutual recognition scheme will make it easier to develop carbon projects and trade carbon credits between Indonesia and Japan.

 

Latest Update

  • Milestone Development for ICA-CEPA
    • President Prabowo Subianto had a bilateral meeting with Canadian Prime Minister Justin Trudeau on the sidelines of the APEC Summit taking place at the Lima Convention Center, Peru, on November 15, 2024.
    • The meeting discussed various potentials to increase cooperation between Indonesia and Canada, especially on the significant progress of the Indonesia-Canada Comprehensive Economic Partnership Agreement (ICA-CEPA) negotiations, which has been substantially completed.
    • As planned, the signing of the Joint Ministerial Statement, which marks the end of the ICA CEPA negotiations, is scheduled to take place on December 2, 2024 during the visit of Canadian Trade Minister Ms. Mary Ng to Jakarta. However, there are still several chapters that still need to be finalized by the two countries. Upon completion this will be Indonesia’s first CEPA in the North America continent.
    • On the occasion of the bilateral meeting, Indonesia encouraged increased partnership with Canada, especially in 4 sectors:
      • First, critical minerals to optimize investment in the downstream nickel industry for electric vehicles in Indonesia.
      • Second, Food Security and Self-Sufficiency to ensure nutritious food and reduce stunting in The President offered Canada to cooperate in the
      • agriculture and aquaculture sectors through the integration of agricultural technology and innovation.
      • Third, in the Energy Security sector, Indonesia offers cooperation in the field of research and development to increase innovation capacity for a cleaner and more resilient energy future.
      • Fourth, Defense where in the midst of increasing regional tensions, Indonesia hopes that defense and security cooperation with Canada can be enhanced for counter-terrorism, logistical support, and the development of the defense industry of both countries.
      • Justin also announced plans to lead Canada’s largest trade mission to Indonesia in the near future.
  • Indonesia’s Desire to Join the Organization for Economic Co-operation and Development (OECD)
    • The OECD is an intergovernmental organization that works to promote sustainable economic growth and world trade. It currently has 38 members across the globe, and was developed back in 1948 post World War II to help rebuild Europe after the
    • After joining BRICS as a partner country, Indonesia’s next target is to become a member of OECD. Indonesia is the first accession candidate country from Southeast Asia in February 2024, and has been an OECD Key Partner since 2007, participated in 11 OECD bodies, 15 OECD legal instruments, as well as opening OECD office in Jakarta in 2015. To join, a country needs to have the unanimous vote from all member countries.
    • As some parties are concerned regarding the conflict of interest in Indonesia’s desire to become a member of BRICS, while simultaneously applying to become a member of OECD, Secretary General Mathias Cormann of OECD ensures that Indonesia’s accession process to the OECD will not be affected by its plan to join BRICS.
    • Cormann fully understands Indonesia’s foreign policy posture as an independent country that does not favor any bloc. He also added that the practice of a country joining the OECD and BRICS is not only done by Indonesia. , but also Brazil. Cormann currently is also taking care of the accession of Brazil, which is one of the initiators of
    • The OECD will review Indonesia’s performance across the spectrum of economic, social and environmental policies and its commitment to aligning regulations with global policy best practices and in accordance with OECD standards.
    • To help with the accession process to OECD, Indonesia released a report called ‘OECD Economic Survey of Indonesia 2024’ on November 26, 2024, to increase Indonesia’s transparency to the investors and OECD, and as a regularly featured report from the OECD for policymakers in developed to developing countries.
  • Indonesia and Brazil Sign an MoU Potential of US$ 2.8 Billion
    • Several agreements and cooperation were successfully made by Indonesian and Brazilian entrepreneurs with a value of no less than US$ 2.8 billion. The signing of the agreement took place on the sidelines of the Indonesia-Brazil Business Forum, atthe Copacabana Palace, Rio de Janeiro, November 16, 2024. The scope of the agreement includes the financial sector, digital technology, mining, energy, livestock, maritime, and the aerospace industry.
    • In the maritime aspect, Indonesia is a country with the third largest position in the world for world fish reserves, but lacks 40 large capacity fishing vessels, therefore opening more potential collaboration with Brazillian companies.
    • From the aerospace sector, Indonesia through PT Dirgantara Indonesia is encouraged to explore cooperation with its partner, Embraer, Brazil, the third largest civil aircraft company in the world after Boeing and Airbus.
    • Brazil is one of Indonesia’s strategic economic In 2023, the total trade value between the two countries reached USD6 billion. Some of the commodities that are favored by both countries are vegetable oil, rubber, agricultural products, and meat.
  • Indonesia Secures Investment Commitment of US$ 8.5 Billion from United Kingdom
    • President Prabowo Subianto received investment commitment worth US$ 5 billion from 10 companies after meeting with 19 UK CEOs in the CEO Roundtable Forum on November 21, 2024, including a US$7 billion commitment from BP. The energy giant will fund a gas recovery project in West Papua, potentially unlocking 3 trillion cubic feet of additional gas reserves.
    • Besides BP, participants of the forum were Britcham Indonesia, Babcock International Group, BAE Systems, Thales UK, Standard Chartered, HSBC, AstraZeneca, Jardine Matheson, John Swire & Sons Ltd, Unilever, Mott Macdonald, Arup, Harbour Energy, Airbus, Prudential, King’s College London, and Lancaster
    • Some of the things discussed in the CEO Roundtable Forum 2024 included the government’s priority infrastructure projects, especially those that support the energy security and food security sectors, the energy transition initiative program to reduce carbon emissions in Indonesia, and the expansion of access and quality of affordable health services.
    • This meeting concludes as the 5th country that Prabowo has visited after China, US, Canada, Peru, and his last visit will be the UAE to meet with Mohammed Bin Zayed Al Nahan. Prabowo’s recent world tour has resulted in positive outcomes reflecting the international community’s confidence in Indonesia’s economic prowess.
    • Making sure that the investment commitment of US$ 8.5 Billion comes into fruition, Rosan Perkasa Roeslani, Minister of Investmet and Downstreaming shall follow up the progress. After Prabowo’s visit to UK, Rosan hosted Indonesia Investment Forum 2024 in Raffles, London, with over 150 participants of business actors in UK.
    • Based on the records of the Ministry of Investment and Downstreaming/BKPM, UK investment in Indonesia reached US$2.28 billion in the period 2019-September 2024, dominated by the mining sector (22%); food crops, plantations, and livestock (17%); food industry (11%); other services (9.2%); and property, industrial estates and business activities (8.2%). By location, UK investment was greater outside Java (64%) than Java (36%).
  • PLN Secures 5 Strategic Collaboration in COP29 Azerbajian
    • PT PLN established five strategic partnerships in Indonesia’s energy transition with five international partners at the COP 29 in Baku, Azerbaijan. This cooperation in funding, technology and human resource development is to support the development of clean energy infrastructure in Indonesia to achieve sustainable energy self-sufficiency.
    • The five partners: are United Kingdom Export Finance (UKEF), Kreditanstalt für Wiederaufbau (KfW), Sembcorp Utilities Pte Ltd, Transportasi Gas Indonesia (TGI), and Global Energy Alliance for People and Planet (GEAPP).
    • PLN has established green financing cooperation with several global partners, including UKEF, the UK Government’s export funding agency. Through this collaboration, UKEF and PLN will examine financing opportunities for renewable energy projects in Indonesia, especially in the construction of transmission networks that support the integration of clean energy sources.
    • In addition to UKEF, PLN is also collaborating with KfW, a German development bank, for green financing, securing an amount of EUR 1.2 Billion or US$ 1.25 Billion. This agreement covers the development of clean energy projects, namely Pumped Storage Hydropower Plants (PLTA) and transmission that connects to green plants. On this occasion, PLN and KfW also signed a Grant Agreement for the implementation of an Environmental and Social Impact Assessment (ESIA) study of clean energy generation projects in Indonesia, specifically Pumped Storage Hydropower Plants and transmission network to connect green power plants.
    • PLN through its sub holding PLN Energi Primer Indonesia (PLN EPI) signed a Joint Development Framework Agreement (JDFA) with Transportation Gas Indonesia (TGI) and Singaporean partner Sembcorp Utilities Pte Ltd for the development of a green hydrogen transportation project from Sumatra to Singapore.
    • PLN and GEAPP launched the “Renewable Energy Access for Last Mile” This collaborative program between PLN and GEAPP focuses on improving renewable energy access and promoting de-dieselization for remote islands in Indonesia.
  • 2 Chinese Companies Invest Over IDR 900 Million in KITB
    • KITB has received investment commitment from 2 Chinese companies, marked by the signing of an Industrial Land Utilization Agreement (PPTI) between KITB with PT Sumber Sukses Machinery (SSM) and PT Xian Jian Indonesia (NCH). KITB also signed a Commercial Space Lease Agreement with Bank Tabungan Negara Indonesia (BTN).
    • SSM is engaged in steel construction fabrication and manufacturing, producing B2- qualified purlin and zinc using automated technology based on AI, aiming to strengthened Indonesia’s steel supply chain while reducing dependence on imports; NCH produces shoes for Adidas, New Balance, Vans and Converse.
    • SSM invested IDR 200 Billion(USD 12.57 Million), utilizing an area of 7.78 Ha of land and will absorb a total of 790 workers.
    • NCH will continue its expansion at KITB with an additional 8.8 Ha of land, brings the company’s total land ownership to 18 Ha. The company’s total investment now reaches IDR 700 Billion (USD 44 Million), and will absorb 2,000 workers.
  • 17 Local Industries to Support Apple Production in Indonesia
    • The Ministry of Industry expects Apple to utilize more Indonesian local businesses in their global supply chain. According to Ministry of Industry Spokesperson, Febri Hendri, the government has prepared around 17 domestic industries that are ready to become Apple suppliers, such as chargers and LEDs.
    • On mid-November 2024, the Ministry of Industry received Apple’s investment proposal worth US$ 100 Million within a two-year timeline to to build a factory that produces bearing components for AirPods Max headphones.
    • The government of Indonesia is assessing the value of this proposal whether it is fair for Indonesia, comparing Apple’s investments in other countries such as Vietnam and India, as well as other smartphone manufacturers that have built factories in
    • The government is more interested in Apple to build Research & Development related to Industry 4.0 on digitalization to help Indonesia’s manufacturing industry.
    • The Ministry of Industry is reviewing the Domestic Component Level (TKDN) for smartphones, as a consideration that there have been changes in the structure of the domestic industry.
  • Chandra Asri Expands Its Business Portfolio to Shipping Logistics
    • PT Chandra Asri Pacific (TPIA) through its subsidiary, PT Chandra Daya Investasi (CDI), is expanding its business portfolio by acquiring and operating four oil or chemical transportation vessels and also natural gas transportation vessels.
    • These four vessels are the first fleet owned by the company that is targeted to improve operational efficiency and strengthen sustainable supply chains through global sea transportation services.
    • The operation of the fleet will be carried out through CDI’s subsidiaries in Logistics, PT Chandra Shipping International (CSI) and PT Marina Indah Maritim (MIM), that moves in the infrastructure sector that includes energy, water, logistics, and storage.
    • In the long term, Chandra Asri Group through CDI plans to expand its fleet by acquiring additional vessels to improve competitiveness and open new business opportunities with third parties, especially supporting the main group’s activity in as a provider of energy, chemical and infrastructure solutions in Southeast Asia.
  • Metro Pacific Tollway Corp Invests P80B In Jakarta Toll Road
    • METRO PACIFIC Tollways Corp. (MPTC), the largest toll road developer in Phillipines through its unit PT Margautama Nusantara (MUN), is allocating around US$ 1.36 Billion to construct a 21-kilometer elevated toll road in the Jakarta Outer Ring Road (JORR), one of Jakarta’s most congested area.
    • JORR itself is a 65-kilometer toll ring road in Jakarta, that is divided into sections, adding that the full stretch of the ring road reaches 560,000 daily traffic.
    • This new project being developed by MPTC’s unit in Indonesia will be known as the JORR Elevated Toll Road and will extend from Jatiasih in East Jakarta to Ulujami in South Jakarta.
    • The infrastructure project is now at an early stage, with the construction expected to commence on 2025 and will take three to four years to The elevated tollway project is expected to provide relief to the current traffic situation within JORR, which is part of the Trans-Java toll road.
    • In the W2 October Insight Report, MPTC, together with its subsidiaries and Singapore’s GIC Pte. Ltd., a global institutional investor, have finalized their investment cooperation valued at US$1 Billion for the acquisition of a 35% stake in PT Jasamarga Transjawa Tol (JTT), a major toll road operator in Indonesia.
  • Indonesia’s First and Largest Christmas Tree Factory Is Operational in Kendal SEZ
    • PT Polygroup Manufaktur Indonesia inaugurated a new factory in Kendal SEZ on November 13, 2024.
    • Polygroup is a manufacturer that moves in the seasonal decoration industry, particularly artificial Christmas trees, decorative lights and decorations as well as other home decoration products such as inflatable floats and pools, with four production facilities spread across China and Mexico.
    • The 18 Ha factory will be the first and largest Christmas tree factory in Indonesia, and their first factory in the Southeast Asia region with an investment of IDR 1.7 trillion (USD 106.8 Million), targeting to open employment for 2,000 people at the start of operations and will increase to 6,000 by 2025 or once fully operational.
    • The opening of this new factory is part of the company’s strategy to strengthen its production capacity and expand its distribution network globally. Polygroup supplies the global market through the trademark of Evergreen Classic, Lumations and Funsicle brands. These products have been distributed to various countries, including the United States, Europe and Asia.
  • IMIP Demonstrate More Initiatives Towards Cleaner Production
    • PT Indonesia Morowali Industrial Park (IMIP) is planning to develop an LNG FSRU at its industrial park with the same name in Central Sulawesi. The LNG FSRU plan was part of IMIP’s plans to expand LNG-based power generation capacity as the industrial park is leaning towards utilization of cleaner energy. IMIP planned to involve state oil & gas company Pertamina in developing the FSRU.
    • According to the 2023 ESG IMIP report, IMIP already houses advanced combined cycle power plants with a total capacity of 350 MW operated by PT Dexin Steel Indonesia. These facilities currently optimize the use of surplus gas and waste heat from industrial processes, contributing to significant energy efficiency.
    • A construction of a 200 MW solar power facility on a 224.73-hectare site in ongoing within IMIP, designed to enhance sustainable energy support for the park’s operations.
    • Additionally, IMIP has introduced electric dump trucks as part of its green initiatives. Currently, 28 units are operational, with a plan to expand to 400 units, each capable of traveling 300 kilometers on a full charge.
  • PT JIEP and MRT Collaborates to Develop TOD Area in Pulogadung Industrial Park
    • PT Jakarta Industrial Estate Pulogadung (JIEP) as the developer of Pulogadung Industrial Estate plans to develop a Transit Oriented Development (TOD) area with PT MRT TOD is defined as an urban development concept with maximum use of public transportation equipped with road network facilities for pedestrians or bicycles, as well as public vehicle stops and parking facilities.
    • JIEP and MRT Jakarta are exploring potentials for an MRT station development around the MRT line in Pulogadung Industrial Estate. The construction of Phase 3 of the Jakarta MRT east-west corridor is planned to stretch along 84.1 kilometers from Cikarang, West Java, to Balaraja, Banten, and will pass through DKI Jakarta along 33.7 kilometers.
    • JIEP is the developer of a 433 Ha of land called Pulogadung Industrial Estate which was established in June 1973, with 50% share ownership by Danareksa as a representative of the Ministry of State-Owned Enterprises and another 50% share ownership by the Government of Jakarta.
  • Chinese Mining Equipment in Indonesia
    • A recent survey conducted by Petromindo, a company that specializes in the Indonesian oil and gas, renewables, carbon market, mining, metals, and power sectors, highlights varying perceptions of Chinese mining equipment among Indonesian stakeholders. The study, carried out between October 22 and November 10, 2024, gathered insights from 144 respondents, including professionals from the mining sector and related industries. Key findings are highlighted below:
    • Quality Perception: Half of the respondents believe Chinese mining equipment is on par with products from other countries, while 42.4% rate it as inferior. Only 7.6% consider it superior. The mining sector specifically echoed similar sentiments, with 52.8% rating the quality lower than international competitors.
    • Top Brands: Sany, XCMG, and Liugong emerged as the most recognized Chinese brands in Indonesia. Sany leads significantly, with 66.7% identifying it as the most widely used.
    • Positive Impacts: Despite quality concerns, 5% of participants acknowledged the positive impact of Chinese equipment, citing its affordability as a critical factor in reducing operational costs.
    • Challenges: Common issues included low durability, faster wear and tear, and unstable performance. Satisfaction levels averaged 3.31 out of 5, indicating “somewhat satisfied” sentiments among users.
    • Future Considerations: While 66% of respondents saw no need to reduce dependence on Chinese equipment, 34%—predominantly from the mining sector—advocated for diversifying import sources. Japan, Europe, and the USA were preferred alternatives.
    • Recommendations for Improvement: The report suggests that Chinese manufacturers focus on enhancing product quality by investing in better raw materials, innovative designs, and robust production processes. Addressing these concerns could solidify their position in Indonesia’s competitive mining sector.

-end-

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