BRI sets aside Rp 4 trilion for agricultural sector, biofuel lending

Urip Hudiono, The Jakarta Post, Jakarta

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.(06)
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