The Indonesia Investment Authority’s (INA) push for a green energy transition has won the backing of the Danish government’s Investment Fund for Developing Countries (IFU) with the signing of an Investment Framework Agreement (IFA) for up to US$500 million in co-investments in renewable energy, water, waste management, and other circular opportunities.

IFU and INA have the ambition to provide risk capital to green and sustainable projects in the range of US$100 million, respectively, with co-investors making up the remainder.

Ridha Wirakusumah, CEO of INA, said, “The deal marks another positive step to support Indonesia’s commitment in meeting its 2060 carbon neutrality pledge and we remain optimistic that not only will the agreement bring optimal returns for the parties involved, but also support and stimulate inclusive growth for Indonesia in the long run.”

The deal marks yet another vote of confidence in Indonesia’s strategic sovereign wealth fund, which has also won the support of Abu Dhabi’s ADIA, Canadian public pension fund CDPQ and Dutch pension fund APG, as well as the US International Development Finance Corporation and the Japan Bank for International Cooperation.

INA is pushing forward with other investments aiming at low carbon energy transition and has launched a US$2 billion green fund initiative, which is part of a broader government strategy to position Indonesia as a major player in the electric vehicle (EV) market. Initially, it will focus on battery development and nickel mining to create the basis for a sustainable EV industry. The fund will include investment by Contemporary Amperex Technology Company Ltd (CATL) and CMB International (CMBI) to create a US$2 billion investment fund, focusing on the full value chain. CATL is a leading EV battery supplier to global auto majors.

Meanwhile, Japan’s Toyota has announced US$1.8 billion of investment in EV manufacturing in Indonesia, while Taiwan’s Foxconn group is looking to establish a joint venture for battery and EV manufacturing.

Indonesia holds 22% of the world’s nickel reserves and is set to become a heavyweight in global nickel production, supplying around 50% of the world’s refined nickel by 2030, according to INA. The deal comes on the back of CATL’s announcement in April that it planned US$6 billion in joint investments with state-owned Indonesian nickel miner Aneka Tambang and IBC. In September, QMB New Energy Materials - a joint venture between CATL, the Chinese stainless steel manufacturer Tsingshan Holding and Chinese battery recycler GEM – opened a battery material plant at a world-scale nickel processing complex controlled by Tsingshan in Central Sulawesi Province.

INA is also the driving force behind the project to build Nusantara, a “carbon neutral and inclusive city” which is supposed to replace Jakarta as the administrative center of the world’s fourth most populous country. The first phase targeted for the first quarter of 2024, coinciding with the completion of President Joko Widodo’s second term, and final completion in 2045. It is in a race against time as Jakarta is threatened by subsidence and the potential for most of North Jakarta to be submerged by 2050 as sea levels rise.

However, state funds are only expected to cover 20% of the cost, with reliance placed on institutional investors and foreign sovereign wealth funds – and so far, these have not yielded results. Previously, Softbank had expressed its intention to fund the new capital city project and it was due to inject up to US$100 billion into the new capital city, according to the Indonesian government, but the Japanese investor bailed. The Asian Development Bank (ADB) remains engaged in the plans, assisting with planning and fund-raising.

Other issues include the environmental impact on Borneo, where extractive industries and land rights issues are proliferating and causing persistent conflict. The government is still attempting to boost the oil palm and mining industries in Borneo, which contradicts the sustainability credentials of the new capital. Yet, Nusantara represents a move away from a Java-centric economy – 65% of the national economy is concentrated in Jakarta, indicating highly uneven economic development.

Related funds INA