New Indonesia bank lending rules to boost biofuels

16 January 2007 10:34  [Source: ICIS news]

By Jeanne Lim

SINGAPORE (ICIS news)--The easing of lending rules by Indonesia’s central bank is expected to boost biodiesel projects in the country, analysts said on Tuesday.

The bank said late on Friday that lending rules would be relaxed further as it intensifies efforts to revive the sluggish banking sector by dispensing more loans to businesses and individuals.

The measures, announced by Bank Indonesia’s governor Burhanuddin Abdullah, were to spur the country’s 131 commercial banks to lend more to spur economic growth.

For instance, the maximum lending limit was raised from 20% to 30% of a bank’s capital. This applies to loans for projects ranging from major infrastructure ones to biofuels.

The new rules may have more of an impact on smaller-scale biofuels projects in Indonesia, an analyst said.

Mark Berggren, managing director of consulting firm Methanol Market Services Asia, noted that there was no lack of capital for investment in biofuels at the moment, especially in southeast Asia where the capacity to manufacture biodiesel could soon outstrip local demand.

"Much of the funding for these projects has come from private and institutional investment both within and outside Southeast Asia…this announcement might enable more local participation in small-scale Indonesian biofuels projects," he said.

Offering another view, Indonesia-based A Vasanth, director of Fitch Ratings’ corporate division, said that generally all biodiesel projects are financed by mix of debt and equity, and that the new banking rules "will boost biodiesel projects in Indonesia".

"I’m also aware of [many] Indian companies wanting to invest in biodiesel projects in Indonesia. Not all these projects are funded by private and institutional investors—it could be by a parent which is based outside," he said.

He agreed with Berggren, however, that local investors would benefit the most out of the new rules.

"We were talking to a couple of companies thinking of biodiesel projects and they were thinking of [raising funds] through bond issues. Now they have option of raising funds through the banking route," he said.

The country’s biodiesel output is estimated at 750,000 tonnes this year, up from about 180,000 tonnes last year, according to officials from Indonesia’s national team for biofuel development.

By: Jeanne Lim
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