Pertamina's Blue Sky Project Heralds Return of Innovative Project Financing in Indonesia

Abstract

The $280 million Blue Sky project is the first major structured finance deal in Indonesia in nearly four years. Sponsored by Pertamina, the project involves the upgrade of oil refineries to enable the production of larger quantities of unleaded gasoline for the domestic market. With the goal of ending Indonesia's reliance on leaded gasoline, the Blue Sky project is expected to reduce air pollution significantly in Jakarta and other urban areas by advancing the development of environmentally friendly energy resources. For structured and project finance professionals, the deal is notable also because it applies a trustee borrowing structure in which an offshore trustee acts as the borrower and is paid directly by the offtaker, and because the source of repayment of the project debt is not connected to the work that is being financed by that debt. Moreover, World Bank lending stipulations that prohibit state companies from providing security for new borrowings will ensure that trustee borrowings similar to those implemented in the Blue Sky project will continue to be utilized in Indonesia.