Economy and Business

Coal Gasification Project Aborted

According to Jakarta Post reporting United States-based chemical industry company Air Products and Chemicals decided to pull out from all coal downstream projects in Indonesia, which include converting coal to dimethyl ether (DME) and coal-to-ethanol gasification projects, Energy and Mineral Resources (ESDM) Ministry said on Thursday. The DME project was initially done in tandem with state-owned miner PT Bukit Asam (PTBA) and state-run oil and gas giant Pertamina, and the ethanol project was done with PT Kaltim Prima Coal (KPC) and PT Arutmin Indonesia, both of which are subsidiaries of PT Bumi Resources, jointly controlled by the Bakrie Group and Salim. “Yes, [Air Products] is pulling out from all projects,” Idris F Sihite, the ministry’s acting director general on mineral and coal said, as quoted from Kontan. The government intends to look for new partners but a January 2023 analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) concluded that the construction of the projects cannot be justified with savings from reducing LPG imports except for a limited period of time. “The economic case for substitution is tenuous at best,” said the report’s author and energy finance analyst, Ghee Peh. Air Products did not reply to a request for comment.

February Inflation Up

Headline inflation for February has come in higher than some analysts had forecast, while heavy rainfall and the upcoming Ramadan season will put upward pressure on consumer prices. Despite the increase, however, annual inflation remains in the range of Bank Indonesia’s (BI) projection, and on a monthly basis, inflation actually eased slightly. Statistics Indonesia (BPS) announced on Wednesday that the consumer price index (CPI) increased by 5.47 percent year-on-year (yoy) last month, faster than the 5.28 percent recorded in January. (Jakarta Post)

Investment Incentives for New Capital City “Nusantara”

Sluggish progress for the city’s construction in East Kalimantan has led Indonesia announcing a new policy that would allow a 100% corporate tax holiday for companies investing at least $650,745. Companies involved in developing Nusantara’s infrastructure and public services will have these incentives last between 10 to 30 years, depending on which sector. Additionally, financial firms and foreign companies moving their headquarters to Nusanatara will receive tax cuts while import taxes on capital goods will also be removed. The Indonesian government reassures that Nusantara will be built with sustainability in mind with renewable energy being its primary power source.

Fertilizer Shortage

In response to the global fertilizer shortage due to the Western-led sanctions imposed on Russia, Indonesia looks to take advantage of the increased price and supply the increasing demand. President Jokowi stated that the majority of raw materials for fertilizer come from Russia, however, the recent sanctions against Russia have disrupted bank transactions and exports with the country, ultimately hindering the commodity’s supply chain to global markets.

Where Are the Renewable Energy Loans

Indonesian State-owned banks are under fire as Jakarta-based energy think tank Association of People’s Emancipation and Ecological Action (AEER) revealed that banks have been too slow in providing financing for sustainable energy projects. Data from AEER showed that lending to renewable energy by BRI, Mandiri, and BNI was only Rp. 1.5 trillion, Rp. 1.86 trillion, and Rp. 1.34 trillion respectively – significantly less than its Malaysian bank’s counterparts like Maybank Malaysia and CIMB Malaysia, who loaned out an extra Rp. 3.22 trillion and Rp. 9.53 respectively in 2021. Indonesia is estimated to require a massive Rp. 1.9 quadrillion worth of investment/financing to achieve its renewable energy targets by 2030, however, AEER coordinator Pius Ginting stated that SOE lenders are still focusing on the coal sector and have yet to fully switch their investment toward the sustainable energy sector. The slow progress on the financing from SOEs is partly due to the government’s failure to provide supportive regulations that would help convince banks and investors to fund renewable energy projects, he added.

Set Our Own Palm Oil Price

The world’s biggest palm oil exporter, Indonesia plans to establish the country’s own crude palm oil (CPO) benchmark price by the end of this year, aiming to increase transparency in the commodity, the Futures Exchange Supervisory Board (Bappebti) said on Thursday. Bappebti will first require CPO exports to go through futures exchange effective starting from June this year, said Didid Noordiatmoko, head of Bappebti. He hopes the process can allow regulators to conduct a price discovery after one or two months. “Why are we still relying on pricing data from Rotterdam and Malaysia? Our country supposedly can get more value in CPO trading,” he told industry groups during a discussion in Jakarta on Thursday. “We need to make our own spot and futures market.”