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State-owned Bank Rakyat Indonesia (BRI) says it is ready to
extend up to Rp 4 trillion (US$439 million) in loans to the
agricultural sector, including for the development of biofuel
plantations across the country.
There are already 24 potential borrowers in the pipeline, managing some
120,000 hectares of oil-palm and sugarcane plantations, BRI president
Sofyan Basyir said.
"The total amount of loans will be around Rp 3 trillion to 4 trillion.
BRI plans to participate in the government's plan to revitalize the
agricultural sector," he told reporters Monday on the sidelines of a
workshop on loans for rural alternative energy development, organized
jointly with the Asia-Pacific Rural Agricultural Credit Association
(APRACA), Bank Indonesia and Bukopin.
Sofyan did not elaborate on what percentage of the loans would actually
be used for financing the development of biofuel plantations.
The agricultural credit scheme will, however, contribute to BRI's Rp 16
trillion loan growth estimate for this year, and another 20 percent
expansion in 2007. BRI, Indonesia's fourth largest lender by assets,
reported outstanding loans of Rp 86.7 trillion as of September.
As of mid-2006, BRI had also provided some Rp 319 million in
microcredit for solar home systems to some 3.4 million rural customers
across the country.
Given recent oil-price volatility, Indonesia has resolved to develop
alternative energy sources in the form of biofuels, counting on its
huge potential for oil palm and jatropha cultivation, oil from both of
which plants can be used to produce biodiesel. Meanwhile, ethanol
extracted from sugarcane and cassava can be mixed with gasoline.
The government plans to allocate up to 6.5 million hectares of idle
land for biofuel plantation development in an effort to produce enough
biofuel to replace 10 percent of the country's total oil-based fuel
consumption -- which reached 70 million kiloliters last year-- by 2010.
For this purpose, it also plans to set aside Rp 13 trillion in
budgetary funding to improve agricultural infrastructure, and subsidize
the cost of procuring seedlings and paying interest on loans.
Financial support for the country's venture into biofuels is also
expected to come from the banking sector, with lenders ready to extend
up to Rp 20 trillion in biofuel-related loans.
However, BI Governor Burhanuddin Abdullah cautioned against providing
subsidized loans as part of the effort to encourage a massive expansion
of the alternative energy sector.
"Such a temptation could become even greater when rural development and
poverty reduction schemes are included in the equation," he said.
"But cross-country experience has shown that subsidized credit schemes
are actually the worst strategy for developing pro-poor enterprises.
Such schemes create disincentives, hamper market development and tend
to breed collusive rent-seeking activities."
Burhanuddin, therefore, said it would be better to develop alternative
market-based credit schemes to ensure financing for rural small and
medium-sized enterprises (SMEs) that were actually venturing into
biofuel production.
Separately, Bayu Krisnamurti, a deputy to the coordinating minister for
the economy, said the export potential of biofuels to Europe could
reach 1.5 million tons by 2010. Investments in the biofuel sector had
reached some Rp 12.4 trillion this year alone, the Investment
Coordinating Board had earlier said.
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