The European Investment Bank is providing a Euro 70 million loan to the Republic of Indonesia for the expansion of the gas transmission system of Sumatra and the construction of a gas export line to Singapore. The funds will go to PT Perusahaan Gas Negara, a state-owned corporation responsible for the transmission and distribution of natural gas.
Environmental benefits, essentially the reduction in sulphurous emissions, will arise from the substitution of crude oil by natural gas both in Sumatra and Singapore. The project fosters regional integration by stimulating trade between two member states of ASEAN. Gas sales to Singapore will provide additional export revenues for Indonesia, and will help it to recover from the severe economic crisis. Singapore will further diversify its imported energy supplies and will benefit from the cost and efficiency gains associated with the use of natural gas in industry and to generate electricity.
The project is an extension of the first phase of the gas transmission and distribution for which the EIB provided a Euro 46 million loan. The first phase consisted of a 536 km gas transmission pipeline from South to Central Sumatra and a branch line to Batam Island. The latter component has been redefined to include the gas export scheme to Singapore.
The loan is provided in the context of the EU co-operation policy with third countries. In Asia and Latin America (ALA), the EIB may lend up to EUR 2.48 billion during 2000-2006 to support capital investment projects implemented by subsidiaries of EU companies or joint-ventures between EU and ALA firms, or investment that results in environmental improvements or fosters regional integration.
The EIB was set up in 1958 to finance investment furthering EU integration. It lends for regional development, infrastructure, energy, industry and environment. Outside the EU, the Bank contributes to the European development co-operation policy in some 130 countries in Central and Eastern Europe, the Mediterranean region, Africa, the Caribbean and the Pacific, Asia and Latin America.
In 1999, the EIB provided loans totalling some EUR 32 billion, of which EUR 4 billion for projects outside the EU. The Bank borrows on the capital markets the funds for its lending. Its bonds have regularly been rated "AAA" by the leading rating agencies. The EIB works on a non-profit basis and can pass on to project promoters the excellent conditions it obtains on the markets. The EIB may finance up to 50 percent of project cost. On average it provides one third of the funding and co-finances investments with other institutions.