The drying up of international bank liquidity as a result of the global financial crisis will make it more difficult for local energy and mining firms to seek funding resources from the international financial market, forcing them to turn to domestic and multilateral agency resources.
Director for multilateral financing at the National Development Planning Board (Bapenas) Dewo Broto Joko Putranto said recently that Indonesia would face tougher competition to get funding from international money markets.
"As the liquidity dries up, the local firms have to compete with banks and other firms in developed countries to secure capital from the international money market."
"Moreover, the high interest rate will make the funding more costly for us. That is why we should focus on other sources, such as local banks and international agencies," said Dewo.
Energy and mining companies prefer to seek loans overseas because their revenue and spending are regularly dollar-denominated, as their product prices tail the movements in the international market.
Local energy projects actually have the potential to be financed by domestic banks, according to Wimboh Santoso, head of the central bank's monetary system stability bureau.
He believes that the domestic banks are in good condition despite the global crisis as they are not as exposed to the troubled equity markets, compared to those in other countries.
Wimboh was upbeat that the energy sector would be an interesting sector for domestic banks because it was deemed less risky.
Data from Bank Indonesia (BI) showed that as of August 2008, the average ratio of bad loans, technically known as non-performing loans (NPL) were only 0.84 percent for oil, gas, and the coal sector and only 0.03 percent for electricity projects.
"This shows the default probability in these sectors is small. If the channeling of loans to the energy sector remains low, I think this is simply because of lack of communication between the banks and the sector," Wimbo said.
As of August 2008, outstanding loans for the sector were only Rp 41.6 trillion (US$ 4.2 billion) or about 3.5 percent of the total credit disbursed from domestic banks, Wimbo said.
Tony Prasetiantono, chief economist of Bank Negara Indonesia, said while the NPL for the sector remained small at 0.11 percent in June 2008 and that loan channeling was also limited at Rp. 3.5 trillion during the month, still the sector was considered risky.
He said the perceived high risk stemmed from the exploration stage, and the longer period of time needed to gain returns on investment.
"Our banks are less exposed to investment in this kind of sector. Our funding structures do not prefer long-standing periods like this," he said.
For oil and gas, Tony said, operators were usually foreign companies which did not need loans from domestic banks as they already had financial support from the international financial market.
In anticipation of rejections from local banks, Dewo said the development of energy projects would remain on the government's top priority list.
The government, he said, would carry out several measures to support the sector, including the issuance of Islamic bonds to help attract Middle East investors, who were overflowing with funds following previously higher oil prices.
The government would also seek funding from international donor agencies, including the World Bank which recently agreed to reserve up to US$2 billion as a standby loan for Indonesia next year, Dewo added.
Dewo said the government was looking at another potential fund from the World Bank, which recently had secured $6.1 billion for a climate investment fund.
"Clean energy projects are among the priorities for this fund. The government will definitely try to tap it," he said.
Dewo added Indonesia must also work harder to utilize potential funds from the clean development mechanism (CDM), stipulated in the Kyoto Protocol, which would expire in 2012.
Under the protocol, developing nations can host projects to slash carbon output through clean development mechanisms (CDM) and forestry projects. In return, developed nations will provide money based on the amount of emissions reduced in developing countries.
Dewo said Indonesia was still lagging behind in taking advantage of the CDM mechanism, with only 17 projects concluded, far lower than China and India which had implemented 271 and 358 projects respectively.
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