Traffic is a huge contributor to Jakarta’s pollution woes.Credit: Bloomberg
Jakarta’s traffic makes the peak-hour crawl in Sydney or Melbourne seem like a hypersonic pleasure trip. The sun is often blotted out by smog. The city’s pollution, caused not just by cars and bikes but by coal-fired power plants, consistently ranks as the worst in the world on real-time charts.
Indonesian businesses see opportunity in this situation and in the millions of drivers for delivery and taxi companies that contribute to the clogged streets and the murky air in Indonesia’s biggest city (population 36 million).
So does Australia. It has made a $5 million concessional loan to Indonesian electric motorbikes rental company Electrum, which is pitching to these drivers to switch from fossil fuels to electric vehicles, and is backed by some heavy-hitting Indonesian corporates.
The Electrum loan is part of a new dawn in solar-powered diplomacy that is rising as Australia’s foreign aid programs switch tack to boost green business growth in Indonesia, our most important regional ally.
Jakarta has serious smog problems.Credit: Bloomberg
The revamped aid approach is designed to tackle some of the low-income nation’s most pressing problems and address an uncomfortable question for Australia: Why should countries such as Indonesia cut emissions and miss the economic benefits of polluting industries that enriched wealthy nations?
Made wealthy by coal and gas exports, Australia is seeking to burnish its climate-action credentials by funding prospective green businesses that will help Indonesia’s government juggle the goals of economic growth and pollution reduction.
It is pumping hundreds of millions of dollars into KINETIK, that’s the Indonesian acronym for the Australia Indonesia Climate, Renewable Energy and Infrastructure Partnership program. The Electrum loan is part of KINETIK’s portfolio.
Electrum’s chief executive Jack Yang said the company’s growth was fuelled by the Indonesian government’s recognition that transport was a key tool for climate action. “There’s a clear direction there, and there’s a wide range of initiatives in place and urban mobility is one of them.”
Electrum chief executive Jack Yang at the company’s Jakarta depot. Credit: Jefri Tarigan.
Electric motorbikes could deliver about 20 per cent in savings compared with petrol-powered bikes, including the costs of Electrum’s swap-and-go battery system, Yang said. Designed to make charging convenient for busy riders, vending machines installed across the city enable busy riders to lift spent batteries out of their bike and swap them for fully charged replacements.
Electrum has rented out about 5000 bikes in Jakarta and Yang said the growth potential was massive given there was a total of 17 million motorbikes on the road across the city. The environmental benefits are high too; transport generates about one-quarter of all Indonesia’s pollution, 95 per cent of which comes from road vehicles.
Electrum is backed by Indonesia’s giant state-owned energy company PLN (Perusahaan Listrik Negara) in partnership with Jakarta’s dominant ride-hailing and delivery company, Gojek.
Yang said investors in Indonesian businesses were prepared to pay a premium to put their money into cleaner technologies. “If you diversify into clean energy technology, then you actually have a much higher premium. That means the shareholders are speaking that they want energy companies to consider new sustainable cleaner source of energy.”
Harnessing that investment return is one reason for the creation of KINETIK. The other, as Prime Minister Anthony Albanese says, is that Australia views Indonesia as “critical to navigating this time of global uncertainty”.
“I am here in Indonesia because no relationship is more important to Australia than this one,” Albanese said in Jakarta in May, on his first foreign visit since his election win.
Prabowo and Albanese exchange soccer jerseys during the prime minister’s visit in May.Credit: Alex Ellinghausen
KINETIK is not bankrolling initiatives such as a traditional aid program, but is investing in businesses and entrepreneurs. Its goal is to invest its initial $200 million endowment in businesses that generate returns that can be pumped back into the other green ventures.
“We know that grants from government are never going to be sufficient to fully address the climate challenge, so it is critical to be able to stand up financing mechanisms to support solutions addressing the climate crisis,” said Kylie Charlton, a committee member of Australia Development Investments, a government investment vehicle that provides funding for KINETIK. Charlton is also managing director of Australian Impact Investments.
Indonesia has committed under the Paris Agreement on climate change to cut emissions 32 per cent below business-as-usual by 2030 and to reach net zero emissions by 2060.
Switching to cleaner energy is a challenge for Indonesia given the nation has imposed local content laws designed to tackle poverty by boosting local manufacturing to increase jobs and boost the economy. This will increase reliance on electricity, which is almost entirely supplied by coal-fired power.
In May, KINETIK announced a $15 million investment in Indonesian company Hijau, that installs and rents rooftop solar panels to commercial customers such as shopping malls. Independent committee member of Australia Development Investments Jeremy Cleaver said Hijau was selected for its ability to generate a return, which would fuel further financing deals.
“This is an equity investment for Hijau, so it does not need to be paid back. But at some point, the investment will need to be sold, and hopefully, the fund will make a return, to later be invested in other opportunities,” Cleaver said.
Hijau director Thio Ariyanto and Jonathan Gilbert from the Australian Embassy in Indonesia inspect an array of rooftop solar panelsCredit: Jefri Tarigan.
Hangga Fathana, assistant professor of international relations at Universitas Islam Indonesia, said Australia’s investment strategy could strengthen the relationship with the Indonesian President Prabowo Subianto’s government by offering opportunities that were not available from other regional partners who were seeking strategic alignment with Indonesia.
“China offers capital, Korea and Japan come to Indonesia with technology and loans and Australia is offering trust, collaboration and values,” Fathana said.
However, Australia faces challenges under Prabowo’s goal to boost downstreaming – or investment in a wide range of local value-add industries such as minerals processing, manufacturing and agriculture. “Any green initiative like what has been done by the Australian government, no matter how noble it is, is competing with this strong pull towards short-term economic gains.”
China’s influence on Indonesian policymaking was “quite contentious”, Fathana said, arguing that Australia stick to its strategy. “Australia needs to show what we call consistency and patience,” he said. China may achieve short-term results, but trust building could pay off in the long term.
“That’s subtle but powerful especially for the younger generations of Indonesia who are more aware and more concerned about climate issues.”
KINETIK is also backing Indonesian renewable power company Xurya. It builds green power supply, largely for foreign companies operating in Indonesia.
Australia has invested more than $4 million in Asian fund manager Clime Capital and $8 million in AC Ventures, both of which have funded the company, which began seven years ago by installing solar panels on commercial premises such as factories and shopping malls under a zero-cost upfront leasing arrangement.
Clime Capital’s Indonesia country manager John Colombo (left) and the managing director of Xurya, Eka Himawan.Credit: Jefri Tarigan.
Xurya managing director Eka Himawan said foreign companies were motivated by their commitment to climate action to reduce their reliance on Indonesia’s coal-powered grid by installing solar panels, rather than economic factors. “Usually, there’s another driving factor behind it,” Himawan said.
He said Indonesia’s state-owned electricity supplier PLN was also working with Xurya to wean smaller islands off diesel fuel. While the islands of Borneo and Java are powered by coal, smaller islands such as Sulawesi rely on diesel generators. “[Diesel power] is expensive, and it’s very dirty,” Himawan said. “There’s an economic driver for PLN to start looking at solar for more remote islands.”
AC Ventures managing partner Helen Wong said ructions caused by the Trump administration’s withdrawal of United States funding from international climate initiatives created a major headache for decarbonisation in low-income economies such as Indonesia.
Most notably, the US has pulled its promised US$4 billion ($6.14 billion) contribution to the Indonesia Just Energy Transition Partnership, also known as JET-P, which is a US$20 billion joint fund to cut pollution in Indonesia’s fossil-fuelled economy.
“If you look at South-East Asia as a whole, I think it’s the fourth-largest energy consumer in the world, but right now 80 per cent of the energy is derived from fossil fuel,” Wong said. “But the world needs to understand that Indonesia has the ability to change, to transition, but it can only do so with the help of developed nations.
Electrum’s Jakarta depot. Credit: Jefri Tarigan.
“Notwithstanding the Trump withdrawal from JETP, we are very hopeful that other countries can step up.”
Wong said the Indonesian government was also under public pressure to decarbonise, which also created opportunities for clean energy investments. “Last year when Jakarta ranked as one of the most polluted cities in the world, there was a lot of social media about how most Indonesians are concerned about their health and the effects on children and the elderly.
“It puts pressure on the government to act and to look at what is behind that pollution.”
Rod Brazier, the Australian ambassador to Indonesia, said KINETIK was helping to build a pipeline of commercially viable projects and stronger investment ties between Australia and Indonesia. “The Indonesian government response has been very positive,” Brazier said. “Prime Minister Albanese and President Prabowo reinforced the value of KINETIK when they met in Jakarta in May.”
Mike Foley travelled to Jakarta courtesy of the Australian government’s KINETIK initiative.
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