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Opinion 06 January 2025
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Driving Sustainable Growth Through Infrastructure Financing

By: Reynaldi Hermansjah, President Director of PT Sarana Multi Infrastruktur (Persero)

Indonesia, with its various geographical and socio-economic challenges, requires a strategic and innovative approach to continue accelerating infrastructure development, which is one of the main drivers of national economic growth. Indonesia has made significant progress in infrastructure financing to provide innovative and sustainable funding sources.

However, major challenges still loom in terms of meeting national infrastructure needs in the future. Based on Bappenas data, the total investment requirement from 2025 to 2029 is around IDR 47,587.3 trillion or an average of IDR 9,517 trillion per year, sourced from government, BUMN, private and community investments.

As the largest archipelagic country in the world with a population of more than 270 million people, the need for infrastructure is not only about building roads or bridges, but also creating connections between people and opening up wider economic opportunities. Equal distribution of infrastructure development throughout Indonesia will have a direct impact on equity and economic growth.

In this context, PT Sarana Multi Infrastruktur (Persero) (PT SMI) plays a central role, as a Special Mission Vehicle (SMV) under the Ministry of Finance. PT SMI is able to provide alternative solutions for financing infrastructure development through innovative loan products. PT SMI was established in 2009, to be a catalyst for infrastructure development in Indonesia while addressing the Market Mismatch of Financing and Project Readiness in the infrastructure sector.

PT SMI has a mandate as a catalyst for infrastructure development in Indonesia. With 3 (three) main pillars of PT SMI's business in the form of Commercial Financing, Public Financing, and Advisory & Project Development, PT SMI actively develops innovative financing products to answer the challenges of infrastructure financing in Indonesia.

 

Central Role as DFI in Provision of Public Facilities

The Company has become a strategic partner of the Regional Government in accelerating the provision of public facilities whose benefits can be felt directly by the community. This is in accordance with the transformation plan to become a Development Finance Institution (DFI), one of the focuses of which is strengthening Public Financing. DFI can finance the construction of projects that have high risks and cannot be financed by other financing institutions.

There are several benefits that the Regional Government can get by utilizing regional loan products from PT SMI. First, regional loans can increase regional fiscal capacity, so that there is certainty of allocation for infrastructure funding. Second, loan funds can be ensured when the Regional Government is considered to have met the requirements for providing loan facilities. This second point is related to the third point, where public services will be available more quickly, without waiting for the availability of the budget. Fourth, there is a multiplier effect where the community feels an increase in welfare and economy. Not only for the community, the Regional Government itself also benefits from the increase in Regional Original Income (PAD).

Some examples of projects that received regional loan support from PT SMI include road construction in Tabalong Regency, Konaweha Bridge in Kolaka Regency, Bersehati Market in Manado City, RSUD in Solok Regency, NTB Provincial Hospital, Menara Teratai in Banyumas Regency, and RSUD in Bangli Regency.

As of October 2024, PT SMI's total regional financing commitment is IDR 38.53 trillion, with an outstanding of IDR 22.62 trillion. The regional financing consists of financing for the Regional Government's National Economic Recovery (PEN) program and Regular Regional Financing.

 

Connecting Infrastructure with Everyday Life: Building Impactful Connections

Not only measurable impacts, PT SMI's financing also emphasizes measuring the social, economic and environmental impacts achieved. With this approach, every rupiah invested not only produces physical infrastructure but also drives real change for the community.

Infrastructure development is not just about building roads, but ensuring the impact of the development on the community. In its support for domestic projects, PT SMI has recorded a number of achievements in financing in various sectors, including the transportation sector and the new and renewable energy sector. Of the 3 largest sectors financed by PT SMI, it has had an impact on economic output of IDR 1,696.5 trillion.

Until 2024, several examples of PT SMI's support include support for Transjakarta, to support for the procurement of electric train trains to PT INKA. In the Health sector, PT SMI also provides financing facilities for the National Brain Center Hospital (PON Hospital), and several project preparation supports for sustainability-based financing through the Government Cooperation with Business Entities (KPBU) scheme such as the RSPTN Unpad KPBU project, the Inche Abdoel Moeis Hospital KPBU in Samarinda City, and the Manggar TPAS KPBU in Balikpapan City. With the spirit of innovation, these projects were born with various alternative financing schemes to be able to answer the needs of the community inclusively and effectively.

Infrastructure, SDGs and Zero Carbon Emission Targets

PT SMI also has a strategic role in supporting the achievement of Sustainable Development Goals (SDGs) and achieving net zero carbon. Good infrastructure is the backbone of almost all SDGs targets, starting from ensuring access to clean energy (SDG 7), which can ultimately have an impact on achieving zero carbon nationally. By focusing on research-based soft loans and aligning activities with the principles of People, Planet, Profit, and Prosperity, PT SMI aims to maximize the impact on sustainable development.

Through the blended finance scheme, PT SMI is able to combine public funds with private investment to accelerate strategic projects more effectively. This alternative financing strategy can be a strategic solution, which provides flexibility without having to rely entirely on the limited APBN.

This blended finance scheme has successfully supported several strategic projects, one of which is the Java-1 Steam Gas Power Plant (PLTGU) project and also support for the Tembesi Solar Power Plant (PLTS), which is the second largest Floating PLTS in Indonesia with a capacity of 46 MWp. In addition to receiving financing from PT SMI, this project received investment grant support from the Global Energy Alliance for People and Planet (GEAPP), a strategic partner of PT SMI, through the first blended finance platform in Indonesia, SDG Indonesia One.

In developing its business, PT SMI collaborates with other financial institutions, such as Bank CIMB Niaga, Bank Syariah Indonesia (BSI), Bank Mandiri, and Maybank in funding facilities for infrastructure projects. Not only that, PT SMI also conducted a Sustainable Public Offering (PUB) of Sustainable Bonds IV and Sustainable Sukuk Mudharabah PUB III with a total fund collected of IDR 3.32 trillion, as another alternative for raising funds to support sustainable projects in Indonesia.

PT SMI also has a role as the Energy Transition Mechanism (ETM) Country Platform Manager which will continue to support the acceleration of the energy transition in Indonesia. Regarding the energy transition, PT SMI has a focus in several areas, including early coal retirement, renewable energy, transmission networks, energy efficiency, and carbon emission reduction. In the renewable energy sector, PT SMI has currently financed around 57 projects consisting of hydroelectric power plants, minihydro, solar, geothermal, biomass, and wind.

As ETM Country Platform Manager, in addition to mobilizing funding in the form of loans, PT SMI is also actively providing support in the form of technical assistance for project preparation, studies, and capacity building activities to accelerate the implementation of the energy transition in Indonesia.

This is in line with the commitment to become a carbon-neutral Company by 2029 by compensating for carbon emissions generated from business and operations. Efforts to compensate for carbon emissions are carried out through several strategies in the Company's Social and Environmental Responsibility activities, as well as encouraging the Company's debtors to make efforts to reduce carbon emissions from financed projects.

 

The Future: Optimism Towards Transformation

The journey to achieve SDGs and zero carbon through infrastructure development is not without challenges. There are still many regions that have not received sufficient attention in terms of infrastructure development. Regional disparities, regulatory uncertainty, and environmental risks are some of the main obstacles. Therefore, the role of the government as a policy maker and PT SMI as a catalyst for infrastructure development must be strengthened.

Currently, PT SMI is in the process of transformation to become a Development Finance Institution (DFI) in Indonesia, which is expected to be a solution to development challenges in Indonesia as a whole. As a DFI, PT SMI will not only focus on financing large-scale infrastructure projects, but also strengthen support for local governments to align economic growth and inclusive development. The establishment of the SMI Institute (SMII) in 2023 is a concrete manifestation of PT SMI's increasing role as a DFI to further support the distribution of Regional Development that faces budget constraints by using credible research as a basis for determining interventions/provision of facilities to regions.

To support its steps, PT SMI has obtained approval for the 2024-2028 Corporate Long-Term Plan (RJPP) from shareholders, which is a new and critical roadmap because it accommodates the main substance of the company's transformation into a DFI with an emphasis on strengthening public financing.

With a corporate rating of Baa2 (stable outlook) from Moody's Rating, equivalent to the Republic of Indonesia's Country Rating, justifying PT SMI's good performance so far. In addition, various awards including The Best Sustainability-linked Loan - Non Bank Financial Institutions from The Assets, ESG Kehati Award 2024, TOP GRC Awards 2024, show the trust of stakeholders as well as PT SMI's success in financing strategic projects with high social impact.

Not only that, PT SMI's activities in international partnerships such as The International Development Finance Club (IDFC) and the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) are also a form of PT SMI's active role as a DFI and in supporting innovative infrastructure financing through international collaboration. In 2024, PT SMI successfully hosted the ADFIAP International CEO Forum XVII with the theme "Building a Sustainable Future: The Crucial Role of DFIs in a Low Carbon Development Agenda".

In running its business and operations, PT SMI has implemented the management of ESG elements - Environmental, Social, Governance as part of the Company's operational and business activities. In the E and S elements, several devices and arrangements have been prepared and implemented including the preparation and implementation of the Corporate ESMS Guidelines, Environmental and Social Safeguards Guidelines and various other initiatives. Specifically for the S element, the Company also carries out several activities such as Corporate Social Responsibility (CSR), the "Desa Bakti untuk Negeri (DBuN)" Community Development Program and human resource management.

Meanwhile, Element G focuses on the implementation of Good Corporate Governance (GCG), compliance with the principles of anti-bribery and gratification, and prevention of anti-money laundering (APU PTT) and the implementation of the Anti-Bribery Management System (SMAP). This supports the increase in the company's value will improve the Company's performance and strengthen integrity in providing added value to shareholders and stakeholders.

With the optimism of the transformation towards DFI, PT SMI is ready to strengthen its role as the main driver of financing in the regions, paving the way for a more connected, inclusive, and competitive Indonesia in 2025. Because in the end, every step forward is a real contribution to the future of the nation.

 

 

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