The Asian Development Bank (ADB) will provide $1.1 billion in loan to Indonesia to diversify and strengthen its energy sector.

According to an ADB release, “The Board of Directors today approved two loans totaling up to $1.1 billion to strengthen and diversify Indonesia’s energy sector – considered key to promoting inclusive growth and sustainable development in the country.”

The first loan is a $500 million policy-based loan (including $100 million from the ASEAN Infrastructure Fund) for the Sustainable and Inclusive Energy Program, Subprogram 2.

The second loan is a $600 million results-based loan to the State Electricity Corporation (PLN), guaranteed by the Republic of Indonesia, which will boost access to sustainable and modern energy services in eastern Indonesia. This is part of a series of investment programs to enhance people’s access to sustainable and modern energy services, with a focus on developing the eastern part of the country as a new growth hub.

Indonesia’s energy sector faces far-reaching and interrelated problems throughout the value chain, from the supply of primary energy to the distribution of electricity, leaving some 23 million people lacking access to power. Energy subsidies over many years have led to underinvestment due to which the electricity industry is dependent on coal, which accounted for more than half of energy generation in 2016.

With help from this policy-based support, the Indonesian government will build on various reforms to improve fiscal sustainability, such as further rationalizing tariffs, introduce measures to improve private investment in electricity and gas, and support the scale-up of renewable energy and energy efficiency measures.

“Increased access to affordable and sustainable sources of energy is a pre-requisite for the government to meet its economic growth aspirations,” said Winfried Wicklein, ADB Country Director in Indonesia.

“The two loans approved today will, respectively, improve the enabling policy environment to increase public and private investment in Indonesia’s energy sector, and support and develop the power distribution network in Eastern Indonesia,” added Mr. Wicklein.