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Indonesia’s sovereign wealth fund eyes green energy transition in $1bn investment plan

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Indonesia’s sovereign wealth fund is aiming to invest up to $1bn this year with green energy as one of its priorities, as the south-east Asian country aims to become a hub for energy transition on the back of its vast nickel reserves. 

The Indonesia Investment Authority (INA) is in talks over potential investment in the electric vehicle ecosystem and geothermal energy, and is providing financing for early retirement of coal-fired power plants, chief financial officer Eddy Porwanto told the Financial Times. 

The fund planned to spend between $500mn and $1bn this year across all sectors after having invested $2.1bn since its founding in 2021, he said.

“Indonesia has the potential to be a regional and even global champion in the future green economy,” said Porwanto. Other than supplying raw materials such as nickel — Indonesia has the world’s largest reserves of the metal used in batteries — the country could also be a centre for EV production and carbon monetisation, he said.

“We have been working with a number of strategic battery and EV players to look into investment opportunities not only in Indonesia but also across south-east Asia, as we believe there needs to be a solid ecosystem across the region.” 

INA is in talks with foreign companies for joint investments in nickel mining, smelting and battery manufacturing, Porwanto added. He declined to identify potential partners, but said they included companies outside China, which has been the largest investor so far in the nickel industry.

INA was set up by President Joko Widodo in 2021 to invest in economically significant industries and draw foreign investors to Indonesia — unlike traditional sovereign wealth funds that invest surplus state reserves abroad. INA received an initial state injection of $5bn and has also brought in $1.1bn in investments from foreign entities. The fund’s assets under management totalled $9.5bn at the end of last year, up by a third from 2022.

Indonesia is one of the top choices for new investments by state funds, along with China, India and Brazil, according to the 2024 annual report published by Global SWF, a data platform that tracks state-owned investors, including sovereign wealth funds, pension funds and central banks. 

Under Widodo, Indonesia has leveraged its nickel reserves to attract billions of dollars in investments from smelters, battery makers and auto manufacturers. Chinese companies dominate Indonesia’s nickel industry, with producer Tsingshan Holdings and battery giant CATL among prominent investors. 

Incoming President Prabowo Subianto, set to take over from Widodo in October, has also promised to pursue policies that would further develop the downstream sector. 

In the green energy sector, INA is also “actively helping Indonesia with its energy transition” and is looking to fund the early retirement of coal-fired power plants, Porwanto said.   

INA’s focus comes as experts warned of a massive investment gap in south-east Asian countries meeting their net-zero goals. A recent report by Bain & Company, GenZero, Standard Chartered and Temasek said the region had seen $45bn in investments in green projects since 2021 but required an estimated $1.5tn by the end of the decade.

Indonesia is one of the world’s biggest emitters of greenhouse gases. Its nickel industry and the broader industrial sector have come under increasing pressure for using coal-fired power plants, even as Jakarta tries to position itself as an energy transition hub.

Earlier this month, Hyundai Motor terminated an aluminium supply agreement with Indonesia’s Adaro Minerals following a campaign by a climate group backed by K-pop fans that called on the Korean automaker to stop sourcing supplies made from coal power. 

Other than green energy, INA had a strong pipeline in each of its other focus sectors — transportation and logistics, healthcare and the digital economy, Porwanto said. 

This month, INA and Global Infrastructure Partners, which is set to be taken over by BlackRock in a $12.5bn deal, launched a joint effort to invest in infrastructure in Indonesia. They will focus on developing infrastructure for ports, power generation and transmission, telecom towers, fibre optics and data centres. 

In a sign that INA might be gearing up to raise capital, the fund obtained a credit rating earlier this year from Fitch. It was rated ‘BBB’, in line with the government of Indonesia.

INA’s Porwanto said the rating opened up the possibility of obtaining financing from the offshore market, although there was no imminent fundraising plan. 

“We hope our rating will build more confidence for potential investors to co-invest with INA in Indonesia and to obtain trust from our potential financiers as we are an investment-grade organisation,” he said. 

Fitch analyst Paul Norris said INA’s co-investing model could allay some of the fears of foreign investors unfamiliar with Indonesia. “Their model is set up well to attract investments. They are not just acting as a broker of sorts, but they are also investing alongside,” he said.

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