ADB pushes results-based lending scheme
By Marissa Mae M. Ramos
Researcher
WEST NUSA TENGGARA, INDONESIA — “After 70 years of the freedom of Indonesia, we can finally understand its meaning… free from darkness,” said Wahidin, a village chief in the fishing community of Kwangko, which is among the beneficiaries of the Asian Development Bank’s (ADB) results-based lending (RBL) scheme that links disbursements of funds to achievement of target outputs in covered government programs.
With scarcity of concrete-paved roads, the fishing village in Eastern Indonesia had been connected to an electricity grid only in 2017 following five failed proposals to the Perusahaan Listrik Negara (PLN), Indonesia’s state electricity firm.
Almost two years after its electrification, Kwangko’s per capita income rose as much as 35% or 70,000 Indonesian rupiahs per day, roughly equivalent to five US dollars or about P260 daily.
Kwangko’s connection to electricity meant that the villagers can make ice through a refrigerator, which in turn, is used to keep their fish catch fresh, thereby helping to increase household earnings.
Prior to this, residents in the remote village used to pay 50% more than their 24-hour electricity expense today to operate a diesel generator for a few hours of electricity.
Kwangko is just one among thousands of villages that benefited from the “Sustainable Energy Access in Eastern Indonesia-Electricity Grid Development Program” of the ADB and the PLN, under which the regional lender agreed to provide $600 million for electrification expansion in Nusa Tenggara and Sulawesi islands.
It is intended to spur economic activity through sustainable use of electricity and is the second project in the energy sector lent through the RBL scheme, first introduced by the ADB in March 2013 with a six-year pilot period.
The project loan is a part of Indonesia’s broader program under PLN’s Electricity Power Supply Business Plan or Rencana Usaha Penyediaan Tenaga Listrik 2017-2026, which aims to deliver modern energy services as well as raise nationwide electrification ratio to 100% by 2024 from 89% in 2016.
Florian Kitt, ADB energy specialist for South East Asia, said increasing the electrification ratio in that region can be costly for the Indonesian government due to high infrastructure costs. Hence, the PLN needs partners like the ADB to plug the funding gap in the government’s investment plans.
RBL is a performance-based form of financing of the ADB wherein disbursements are linked to time-bound indicators agreed upon by the PLN and ADB. This financing method links financing to “pre-agreed” intermediate and final outputs “rather than to upfront expenditures, as is the case with traditional investment lending,” ADB said on its Web site.
“In the Philippines, like Indonesia, we believe that the country systems and financial management systems are robust so we are able to use the results-based lending [system],” said Kelly Bird, ADB Country Director for the Philippines, noting that both countries have procurement systems in place that are necessary for RBL loans to work properly.
A similar scheme was implemented in the Philippines with the first ADB-led RBL program being the Senior High School Support Program in 2014. With a closing date in 2020, the $300-million venture aims to develop the senior high school program for an estimated 5.9 million students as the country added two years to its basic education curriculum.
ADB agreed to provide another $300-million RBL loan for the education sector in May, said Mr. Bird.
Mr. Bird said results of the country’s first RBL program have been “very promising,” encouraging the approval of the second loan under this program.
In a mobile phone message, Socioeconomic Planning Secretary Ernesto M. Pernia, who worked for the ADB for almost two decades, cited the ADB’s and the Philippine government’s “productive and harmonious partnership” wherein the former continues to provide financing and technical assistance for feasibility studies and projects prioritized by the latter.