Final ICCTF Blueprint

REPUBLIC OF INDONESIA
BLUEPRINT FOR INDONESIA CLIMATE

CHANGE TRUST FUND (ICCTF)
Edition: September 11, 2009
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ACKNOWLEDGEMENT
This document serves as an ICCTF overall policy guideline for both the “Innovation Fund” and
“Transformation Fund”. It is a dynamic document as the GOI is learning to manage and implement the ICCTF.
Changes to this document would be done through consultation among ICCTF stakeholders.
High appreciation goes to Minister of National Development Planning/Chairman of Bappenas and Minister of
Finance/Acting Coordinating Minister for Economic Affairs for the support and ecouragment. Also, Deputy
Minister for Natural Resources and Environment, Ministry of National Development Planning/Bappenas, who
initiated the development of the Indonesia Climate Change Trust Fund.
To all development partners, Fiscal Policy Unit, and Directorate General of Debt Management of Ministry of
Finance, who gave valuable comments and inputs in development of the Blueprint of ICCTF, and to all
participants of ICCTF parallel event in Bonn, Germany, and all institutions which have provided the necessary
inputs and contributed towards the finalization of this report, their contributions are highly appreciated and
acknowledged.
Grateful thanks to all staff of the Deputy Minister for Natural Resources and Environment, staff of Deputy
Minister for Development Funding, Ministry of National Development Planning/Bappenas, who was always
ready to assist the team in technical facilitation as well as in administrative matters for the finalization
process of this report.
The design phase of the Indonesia Climate Change Trust Fund was funded by the Deutsche Gesellschaft fuer
Technische Zusammenarbeit (GTZ) through its Study and Expert Fund for Advisory Services in Climate
Protection and KfW Development Bank and its support is gratefully acknowledged.
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FOREWORD BY MINISTER OF NATIONAL DEVELOPMENT PLANNING/ CHAIRMAN

OF NATIONAL DEVELOPMENT PLANNING AGENCY:
Climate change is increasingly threatening national sustainable development paths, and

presenting itself in many ways: extreme weather patterns, forest fires, floods, rising sea
level, and prolonged drought. All of them are linked to grave social, economic, political
and security effects. At the same time, Indonesia’s major economic sectors emit
significant amounts of greenhouse gases, which pose us the challenge to design
nationally appropriate mitigation actions (NAMAs).
This is why it is of utmost importance to reach an agreement on how to combat climate

change not only on the level of the UNFCCC, but also in terms of domestic policies and programs for
mitigation and adaptation. As a response to the severe impacts of climate change, BAPPENAS formulates a 20-
Year Indonesia Climate Change Sectoral Roadmap (20-ICCSR) and plans to prioritize climate change issues in
the next National Medium-term Development Plan for 2010-2014 and beyond.
The Indonesia Climate Change Trust Fund (ICCTF) is meant to be the financing mechanism for our national
policies and programs. It is designed to bridge the international architecture for climate change and our
national level in an efficient, transparent and accountable manner.
ICCTF aims at achieving these very objectives and tasks, by combining domestic and international sources of
financing in order to invest them into those of our sectors that are most vulnerable to the negative impacts of
climate change, and to reduce emissions of greenhouse gases to the benefit not only of Indonesia but for the
entire global community.
I am very pleased to see that the launch of ICCTF marks an important step towards reaching the objectives of
the Jakarta Commitments, which has been jointly by GOI and our development partners. Significant progress
has been made herewith in terms of strengthening country ownership on development as well as on the
creation of a new instrument for international cooperation. We expect that we will also include new partners
by expanding the dialogue for combating climate change.
I am looking forward to working together with our development partners to address our challenges in the
areas of climate change mitigation and adaptation and to see the result of ICCTF is in line with our national
priority programs, private sector engagement and civil society organizations.
Jakarta, September 14, 2009

Minister of State for National Development Planning/
Chairman of National Development Planning Agency (Bappenas)
H. Paskah Suzetta
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FOREWORD BY MINISTER OF FINANCE/ ACTING COORDINATING MINISTER FOR

ECONOMIC AFFAIRS:
Climate change is increasingly threatening national sustainable development paths,

and presenting itself in many ways: extreme weather patterns, forest fires, floods,
rising sea level rise, and prolonged drought. All of them are linked to grave social,
economic, political and security effects. Scientists tell us that we face a small window of
opportunity to prevent global warming on a scale that would bring massive disaster
and suffering to future generations – but we have to act now.
This is why it is outmost importance to reach an agreement on how to combat climate

change not ony on an international level, but also in terms of domestic policies and programs for mitigation
and adaptation. As a response to the severe impacts of climate change, the GOI is developing a 20 Years
Indonesia Climate Change Sectoral Roadmap (20-ICCSR) and plans to prioritize climate change issues in the
text National Medium-term Development Plan for 2010-2014 and beyond.
The Indonesia Climate Change Trust Fund (ICCTF) is meant to be the financing mechanism for our national
policies and programs. It is designed to bridge the international funding architecture for climate change and
funding under the Convention with our national level in an efficient, transparent and accountable manner.
If we act now, the amount of investment and financial flows to address climate change can be kept within
limits, as estimated by the UNFCCC (2007) and Sir Nicholas Stern (2006): it will not exceed 0.5 – 1 percent of
global GDP. However, compared to current financial flows for climate change mitigation and adaptation, this
mean a steep increase and demands innovative and efficient financing mechanisms to channel the investment
in areas where it is most needed.
The Indonesia Climate Change Trust Fund aims at achieving these very objectives and tasks, by combining
domestic and international sources of financing in order to invest them into those sectors that are most
vulnerable to the negative impacts of climate change, and to reduce emissions of greenhouse gases to the
benefit not only of Indonesia but for the entire global community
I am very pleased to see that the launch of the ICCTF marks an important step towards reaching the
objectives of the Jakarta Commitments, which were signed jointly by GOI and our development partners.
Significant progress has been made in terms of strengthening country ownership on development as well as
on the creation of a new aid instrument. We expect that we will also include new partners by expanding the
dialogue for combating climate change.
I look forward to seeing the ICCTF deliver results in our efforts to address climate change in line with our
national goals for sustainable development.
Jakarta, September 14, 2009
Minister of Finance of the Republic of Indonesia
Sri Mulyani Indrawati
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TABLE OF CONTENTS
Acknowledgement........................................................................................................ii
Foreword by Minister of National Development Planning/ Chairman of National

Development Planning Agency:.................................................................................iii
Foreword by Minister of finance/ Acting Coordinating Minister for Economic

Affairs:..........................................................................................................................iv
Table of Contents.........................................................................................................v
Glossary......................................................................................................................vii
List of Figures..............................................................................................................ix
List of tables.................................................................................................................ix
Executive Summary......................................................................................................x
1.Introduction................................................................................................................1
2. Options In Climate Change Financing....................................................................4
2.1 Existing Climate Change Financing MechanismS.................................................4
2.2 Review of Multi Donor Trust Funds in Indonesia...................................................5
2.3 International Experience with Multi-Donor Trust Funds.........................................6
2.4 Summary of Lessons Learned...............................................................................8
The Indonesia Climate Change Trust Fund (ICCTF)................................................10
3.1 Objectives and Strategy of the ICCTF.................................................................10
3.2 Principles of ICCTF..............................................................................................11
3.3 Proposed Priority Areas for ICCTF .....................................................................12
3.4 Mechanism of the ICCTF: “Innovation and Transformation funds”.....................14
3.5 The ICCTF Trustee chosen for Innovation Fund and Transformation Fund.........16
4. Institutional and Management Arrangement of the ICCTF..................................19
4.1 Institutional Arrangement.....................................................................................19
4.1.1 Steering Committee (SC) .................................................................................20
4.1.2 Technical Committee (TC)................................................................................21
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4.1.3 Secretariat........................................................................................................21
4.1.4 Technical service providers..............................................................................21
4.1.5 Financial service providers (Trustee)................................................................22
4.1.6 Development Partners......................................................................................22
4.1.7 Recipient...........................................................................................................22
4.1.8 Contractor ........................................................................................................22
4.2 The Project Cycle ...............................................................................................22
4.3 Monitoring, Evaluation and Auditing ...................................................................25
4.3.1 Legal Basis.......................................................................................................25
4.3.2 Monitoring and Evaluation (M&E) Mechanism..................................................26
4.3.3 Auditing Mechanism.........................................................................................26
5. NEXT STEPS ..........................................................................................................27
6. References..............................................................................................................28
ANNEX 1: Definition of Trust fund............................................................................29
ANNEX 2: Overview Characteristics of Multi Donor Funds...................................30
ANNEX 3: Assesment of Three ICCTF Trustee options...........................................33
ANNEX 4: Regulatory Framework.............................................................................39
ANNEX 5: Proposed Members of Advisory Committee, Steering Committee,

Technical Committee and Secretariat.......................................................................41
ANNEX 6: Priority windows.......................................................................................44
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GLOSSARY
ADB Asian Development Bank

AFB Adaptation Fund Board
APBN Anggaran Pendapatan dan Belanja Negara (State Budget)
BAPPENAS Badan Perencanaan dan Pembangunan Nasional (National Development
Planning Agency)
BLU Badan Layanan Umum (Public Service Agency)
BPK Badan Pemeriksa Keuangan (Indonesian Supreme Audit Board)
BUMN Badan Usaha Milik Negara (State-Owned Enterprise)
CCPL Climate Change Program Loan
COP Conference of the Parties
CSR Corporate Social Responsibility
DFID Department for International Development
ENSO El Niño-Southern Oscillation
FDA French Development Agencies
GHG Greenhouse Gas
GOI Government Of Indonesia
G to G Government to Government
GTZ Gesellschaft für Technische Zusammenarbeit (German Technical Cooperation)
ICCTF Indonesia Climate Change Trust Fund
IEPC Industrial Efficiency and Pollution Control
IPCC Intergovernmental Panel on Climate Change
Jakarta In 2008, the GOI and its development partners agreed to leverage their
Commitments cooperation by intensifying the principles contained in the Paris Declaration on
Aid Effectiveness, which is intended to ensure strengthening country
ownership over development, strengthening existing aid instruments as well as
developing new ones, the expansion of dialogue to include new partners, and
focusing on delivering and accounting of development results.
Japan International Cooperation Agency
KfW Kreditanstalt fuer Wiederaufbau
KPPN Kantor Pelayanan dan Perbendaharaan Negara (State Office of Services and
Treasury)
K/L Kementerian/Lembaga (Ministry/Institution)
LSM Lembaga Swadaya Masyarakat (Non Governmental Organization)
MDTF Multi Donor Trust Fund
MIC Middle-Income Country
MOF Ministry Of Finance
MSF Multi-Stakeholder Forestry Programme
NCCC National Council for Climate Change
ODA Official Development Assistance
PNPM Program Nasional Pemberdayaan Masyarakat (National Program for
Community Empowerment)
PMK Peraturan Menteri Keuangan (Minister of Finance’ Regulation)
PP Peraturan Pemerintah (Government Regulation)
RKP Rencana Kerja Pemerintah (Annual Government Plan)
RPJM Rencana Program Jangka Menengah (Medium-Term Development Program)
ROI Return On Investment
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ROR Rate Of Return
Renstra Rencana Strategis (Strategic Plan)
REDD Reducing Emission from Deforestation and Forest Degradation
TF Trust Fund
UNCED United Nations Conference on Environment and Development
UNFCCC United Nations Framework Climate Change Conference
UNDG United Nation Development Group
UNDP United Nation Development Programme
UNEP United Nation of Environment Programme
UN REDD United Nation – Reduction Emission from Deforestation and Forest
Degradation
UU Undang-undang (Legislation)
WASAP Water and Sanitation Programme
WB World Bank
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LIST OF FIGURES
Figure 1: ICCTF Design..............................................................................................14
Figure 2: Concept of ICCTF development................................................................15
Figure 3: Coordination Mechanism of ICCTF...........................................................19
Figure 4: Simplified ICCTF project cycle..................................................................25
LIST OF TABLES
Table 1: Review of Indonesia experience on Multi Donor Trust Fund.....................6
Table 2: Priority areas identified in the Yellow Book (Bappenas 2008).................12
Table 3: ICCTF Financing Phases.............................................................................16
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EXECUTIVE SUMMARY
Climate change in recent years has become a key environmental issue, which directly threatens national
development goals. As a response to the severe impacts of climate change, the GOI is developing a 20 Years
Climate Change Sectoral Roadmap (20-CCSR) and plans to prioritize climate change issues in the next National
Medium-term Development Plan for 2010-2014 and beyond. Furthermore, the GOI has established an
Indonesian climate change funding mechanism, known as Indonesia Climate Change Trust Fund (ICCTF), to
address the emerging and immediate needs of CCSR program investments. Through activities funded by
ICCTF, the GOI aims to achieve a low carbon economy, and to take immediate steps to improve its resilience
to the impacts of climate change. Moreover, the GOI also plans to use the ICCTF in innovative ways to link
international climate change financial sources with national investment strategies. In addition it will become
a showcase of alternative financing for climate change mitigation and adaptation owned by government, in a
transparent and accountable manner.
Currently the ICCTF is designed to finance several priority areas, both in the mitigation and the adaptation
sectors. The GOI has decided that the energy sector and the sustainable management of forestry and peat
lands will be the main mitigation priority area in the ICCTF. Meanwhile, in terms of adaptation, it has been
decided that increasing the resilience of particularly vulnerable sectors such as agriculture, water and health,
will become the third priority area in the ICCTF. Further additional information, such as economic analysis
and detailed investment strategies for those sectors, are currently prepared by the GOI.
The GOI has decided to use two funding mechanisms under of the ICCTF. The first is the “Innovation Fund”
which will work on the basis of grant funding from development partners and other contributors. It will be
used for activities, which will provide indirect economic and social benefits and will not provide any direct
financial return to the recipient of the grant. It is planned that at a later stage, the ICCTF may advance to the
“Transformation Fund”, where funding sources such as domestic funds, loans, all the international funds
under the UNFCCC, and the world capital market would generate direct financial revenues and support
stakeholders including both the government and private sectors, in mobilizing investment in a low-carbon
economic development path. A financial institution is expected to manage the “Innovation Fund” as the
trustee, while further assessment will be carried out by the GOI to establish the “Transformation Fund”
management rules and procedures.
This document serves as an ICCTF overall policy guideline for both the “Innovation Fund” and
“Transformation Fund”. However, it is a dynamic document as the GOI is learning to manage and implement
the ICCTF. Changes to this document would be done through consultation among ICCTF stakeholders.
Detailed technical arrangements would be described in Standard, Operating and Procedure (SOP) documents
for each fund.
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1. INTRODUCTION
Climate change is the biggest challenge facing mankind at the present time. Records show that temperature
changes, precipitation changes, sea level rise, and extreme weather events such as storms, floods and
droughts are already impacting countries around the world. Numerous attempts have been made for one side
to mitigate climate change such as binding greenhouse gas emission targets for developed countries (Kyoto
Protocol, 1997) including several mechanisms to reduce or avoid GHG emissions. To minimize the negative
impacts of climate change and to adapt accordingly, assessments of the vulnerability of countries to the
adverse effects of climate change and approaches to formulate adaptation plans and programs had been
made. However, much greater efforts and more ambitious targets have to be formulated in order to prevent
catastrophic climate change by staying below 2 0 C warming during the course of the 21st century
The GOI has repeatedly expressed its serious concern about the negative impacts of climate change to the
international community. Following Indonesia’s ratification of the UNFCCC in 1994 and the Kyoto Protocol in
2004, the GOI has stated its strong commitment to support global efforts to combat climate change. Further,
in 2007, the GOI hosted the thirteenth Conference of the parties to the UNFCCC (COP-13), which resulted in
the ‘Bali Action Plan’ towards a future climate change regime after the expiry of the Kyoto protocol in 2012
and other decisions serving as a basic foundation for all countries to develop further actions on climate
change mitigation and adaptation
As the GOI has been actively involved in the UNFCCC international negotiations, it has also prepared its own
internal response on climate change through mainstreaming climate change issues with other national
development priorities such as economic development, poverty alleviation programs, and education, among
others. In 2007, the GOI issued the Climate Change National Action Plan (Rencana Aksi Nasional Perubahan
Iklim or RAN PI). This document was the first to be produced by the GOI in order to comprehensively identify
appropriate action to reduce Indonesian greenhouse gas emissions and adaptation activities in Indonesia. The
second important national policy document, National Development Planning: Indonesia Responses to Climate
Change (also known as “the Yellow Book”)1, of which the latest version was issued by the National
Development Planning Agency2 in July 2008, served as a bridging document for the existing Climate Change
National Action Plan towards future national development planning documents. In July 2008, the President of
Indonesia established a National Council on Climate Change (NCCC)3, which serves as an advisory body to the
government on climate change policies, plans and programs. As many government institutions have
considered climate change to be one of the key salient issues, the climate change was also highlighted in the
latest Annual Government Plan (Rencana Kerja Pemerintah or RKP) document in 2009. It will become one of
the main priorities for Indonesia’s next national medium-term development plan (Rencana Pembangunan
Jangka Menengah Nasional or RPJMN) for 2010-2014. In order to improve the policy document on
Development Planning: Indonesia’s Response to climate change and provide analysis prior to the RPJMN 2010-
2014 formulation process, the GOI is currently developing a Sectoral Roadmap. It aims to comprehensively
deliver several sectoral policies and strategies over a 20-year period. This sectoral road map is also expected
to clarify the integration of financial needs and the national budgeting system, as well as cross cutting issues,
policy, programs and planning (see Box 1.1 for more explanation).
1 The Yellow book and RAN PI are “living documents” and together serve as a policy umbrella. They can be improved and
updated from time to time.
2 Known as Badan Perencanaan Pembangunan Nasional or BAPPENAS.
3 Known as Dewan Nasional Perubahan Iklim (DNPI).
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As mentioned above the GOI has already indicated a demand for investment to reduce emissions and adapt to
the impact of climate change. In the Yellow Book (July 2008 edition), the GOI indicates an investment
requirement in the order of 0.13% to 1% of GDP, most of which is for infrastructure development. This would
amount to an annual investment ranging from
US$ 0.5 to 4.5 billion. The Yellow Book also Box 1.1: CLIMATE CHANGE SECTORAL ROADMAP
contains a list of 55 projects related to climate
change, most of which were proposed by line The impacts of climate change have already affected social and
ministries. The total cost of these projects is economic development in Indonesia. In combating climate change
estimated at US$ 728 million for the next 5- impact, the GOI must ensure that its own efforts are in line with their
own current development policy and strategy. With the aim of
year period4. Considering this huge investment
mainstreaming climate change into the current national development
in climate change programs, the GOI will planning process, Indonesia National Planning Agency (Bappenas),
require collective efforts by all stakeholders to supported by several line agencies and GTZ, is undertaking sectoral
harmonize the different comparative technical policy assessment through the development of a Sectoral Roadmap.
strengths and development priorities of
contributing parties and governmental The initial draft of the roadmap (June - December 2008) focused on the
institutions. The GOI also expects additional priority areas for adaptation (Agriculture and Coastal zones) and
financial support from development partners5 mitigation (Energy and Forestry). Since January 2009, the scope of the
and other contributors to develop and roadmap has been extended corresponding to the priority sectors of
the Yellow Book to include Industry, Health, Water, Waste and
implement climate change adaptation and
Transport.
mitigation programs. The expected amount of
funds to be received from the development The first roadmap document for climate change was established and
partners will be derived from the roadmap. introduced to the public in June 2009. This roadmap will be further
developed and refined in the period June – December 2009 resulting in
To facilitate financial support for these climate a) a specific sectoral roadmap for the selected priority sectors and b)
change programs, the GOI has developed a detailed terms of reference for a pilot project, originating from the
national trust fund mechanism, known as the roadmap priority programs which correspond to the launching of the
Indonesian Climate Change Trust Fund ICCTF.
(ICCTF). The national trust fund mechanism
has been chosen because it is viewed as the most suitable instrument to reduce transaction costs by reducing
the number of free-standing projects and programs, and by harmonizing the financing into “basket funds”
(see the definition of trust fund and its mechanism in annex 1). As it is owned and managed by the
government, the creation of this fund mechanism corresponds with government efforts to strengthen the
effectiveness of national ownership over development as outlined under the Jakarta Commitment (2008).
The purpose of this paper is to provide an overview of the objectives, concepts and management
arrangements of the ICCTF. This includes two principal phases of the ICCTF development, namely the models
proposed for the “Innovation fund” and the “Transformation fund” mechanisms. The structure of the paper is
as follows:
Chapter 1: provides a general background of this initiative, and specifies the general aims and scope of the
paper.
Chapter 2: identifies the existing options in climate change financing mechanisms, including a few examples
of on-going trust fund mechanisms, and respective lessons learned from current experience.
Chapter 3: outlines the design for the Indonesian Climate Change Trust Fund (ICCTF) including the principles
4 The detailed study of the economic impact such as how much GOI needs in terms of the total budget for mitigating climate
change impacts, the possible allocation by the GOI budget and the size of the gap which may be filled by the ICCTF currently in
process and is to be elaborated on in the forthcoming study of the climate change Roadmap.
5 Previously known as donor agencies.
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and modalities, proposed priority areas, proposed trustee for “Transformation fund” and
“Innovation fund” as well as corresponding administrative arrangements.
Chapter 4: describes possible institutional arrangements and proposes a project cycle for the ICCTF.
Chapter 5: addresses the undertaken and future steps of ICCTF.
Some annexes are attached to provide more information on options in trustee selection process, existing
related Indonesia regulatory framework, and some definitions related to trust fund mechanisms.
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2. OPTIONS IN CLIMATE CHANGE FINANCING
This chapter serves as a background assessment of several existing potential climate change financing
methods and provides lessons learned based on existing multi-donor trust funds in Indonesia and
international experience. The factors and design criteria analysed in this chapter, have been considered in the
process to establish the ICCTF.
2.1 EXISTING CLIMATE CHANGE FINANCING MECHANISMS
The GOI, through the Climate Change National Action Plan and the Yellow Book, has assessed and listed a large
number of measures to adapt to the adverse impacts of climate change and mitigate GHG emissions. Many of
these activities have not been implemented due to a lack in the availability of funding. However, some of them
are currently being financed by several existing financial mechanisms, using Indonesian current regulation
and international financial mechanism/ regulation. Types of existing climate change financing mechanisms,
which are currently being applied by the GOI, and its development partners are as follows:
1. Public financing from GOI state budget. In 2009, the GOI allocated about IDR 1.7 trillion (or about US$
160m) to central government ministries to finance 32 climate change related activities. Investments in
climate change by regional governments are currently negligible. In recent years, MoF has stated that it
intends to further develop the special allocation grant channel (Dana Alokasi Khusus or DAK) to finance
public investments of a specific nature, which may include climate change. Contribution of GOI state
budget may increase in the future if results from the Sectoral Roadmap Assessment could provide strong
justification for decision makers to allocate more funds for climate change related activities.
2. Public financing from bilateral cooperation sources on grants basis. To date, development partners
have invested substantially in studies on climate change mitigation and adaptation in Indonesia, as well
as in the preparation of projects related thereto. Many development partners are awaiting the creation of
an appropriate channel to “mainstream” the allocation of grants for financing responses to climate
change. Starting from June 2008, the Government of Germany, through GTZ and KfW, is channeling its
contribution in terms of technical expertise and advisory services in an attempt to help the GOI in
facilitating the development of a roadmap for climate change as well as the ICCTF. DFID has committed
to contribute GBP 10 million in grant funding to support GOI’s response to climate change during the
period 1 December 2008 - 31 March 2011, of which GBP 1 million was designated in support of the start
up phase of the ICCTF. Furthermore, AusAid has pledged AUD$ 2 million for the first year of the ICCTF
period. Besides mainstreaming activities, the Governments of Germany and Australia are also supporting
the GOI to prepare and implement a pilot activities related to Reducing Emissions from Deforestation and
forest Degradation (REDD). Other development partners, such as JICA, USAID, AFD, are currently in
discussion to join ICCTF.
3. Public financing from bilateral cooperation on loan basis. The GOI has recently signed the Climate
Change Program Loan (CCPL) with Japanese (JICA) and French Development Agencies (AFD) with the
total amount of USD 500 million in 2008. The fund is used to support Indonesian-driven policy reform for
dealing with climate change issues based on the action plans (RAN-PI) committed to by the GOI.
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4. Multilateral financing on grants basis. This climate change financing mechanism could be classified
into two categories. The first one is a financial mechanism under UNFCCC rules and regulation, operated
by the Global Environment Facility (GEF), including three special funds: the Special Climate Change Fund
(SCCF) and Least Developed Countries Fund (LDCF), under the Convention; and the Adaptation Fund
(AF), under the Kyoto Protocol. The second one is the financial mechanism undertaken by international
multilateral agencies such as a multilateral bank (the World Bank), and other UN agencies (UNDP, UNEP).
Both categories aim to assist developing countries in combating climate change. Given the enormous
financing demand from developing countries and insufficient funding supply from developed countries to
the multilateral channels, currently existing funding options still cover only a small percentage of existing
financing needs (OECD, 2008). Considering the complexity in accessing multilateral financing sources, to
date Indonesia has not used this type of financing very often except for activities, which are mandated by
UNFCCC, such as National Communications. However, currently Indonesia has indicated its interest to
join with a few multilateral climate change initiatives especially The World Bank’s initiative called
Climate Investment Funds (CIF) and UN-REDD initiatives (UNDP, UNEP and FAO).
5. Private financing. As well as accessing external financing options, the private sector is anticipated to
invest in mitigation. The Indonesian National Committee of the Clean Development Mechanism estimated
that more than USD 700 million worth of projects had been recorded during 2004-2009, involving a wide
variety of private sector CDM activities relating to wastewater, geothermal, hydroelectric, biomass power
plant projects and others.
2.2 REVIEW OF MULTI DONOR TRUST FUNDS IN INDONESIA
In recent years, some donor-financed trust funds have been established in Indonesia. A few of these trust
funds can be classified as single-donor and sector-specific trust funds, such as the DFID-sponsored Multi-
Stakeholder Forestry Programme (MSF) and the Water and Sanitation Programme (WASAP) financed by the
Embassy of the Netherlands. Moreover, three large-scale multi-donor trust funds have been established since
2000, of which two were established in response to a national disaster. These funds are:
1. Multi-Donor Trust Fund Aceh and Nias. Fifteen donors established US$ 650 million fund as part of the
Government’s effort to reconstruct Aceh and Nias in the aftermath of the tsunami in 2004.
2. Multi-Donor Fund for supporting Elections 2009. US$ 15 million fund was collected to support the
development of Indonesian electoral management, increased democratic awareness and voter
participation in elections in 2009.
3. PNPM Support Facility. This facility, which is grant-financed by a core group of six donors which have
thus far pledged over US$ 30 million, finances sectoral and regional-based community empowerment
programs and is especially designed to support poverty reduction. Included in this PNPM Support Facility
is the so-called Green PNPM, which is a decentralized management of natural resources and renewable
energy. Implementations of these programs refer to the policy framework of the National Community
Empowerment Program (PNPM Mandiri). Although the MoU for the establishment of the facility was
signed in 2007, it has only recently become operational.
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The three multi-donor trust funds share the following characteristics as shown in table 1.
Table 1: Review of Indonesia experience on Multi Donor Trust Fund
For a successful and effective implementation, it is clearly understood that a proper coordination will be
required between the existing financing mechanism and ICCTF.
Annex 2 provides a list of main design criteria in the form of a matrix of relevance for Multi Donor Funds
based on a close analysis from existing Multi Donor Trust Funds in Indonesia (as above) and international
multi donor funds (Congo Basin Forest Fund, the Amazon Fund, and the Trust Fund for Forests (Vietnam)).
The matrix lists sources of learning experience.
In general, GOI has enjoyed favorable experiences with multi-donor trust funds. However, as most of the
current trust funds are managed by development partners, the GOI does not have a great deal of institutional
knowledge in the management of multi-donor trust funds, including the trustee arrangements and a great
deal of administration management. Consequently, the GOI designed the ICCTF by incorporating (a) the
lessons learned from similar multi-donor trust funds, and by using the (b) ‘learning by doing’ process.
2.3 INTERNATIONAL EXPERIENCE WITH MULTI-DONOR TRUST FUNDS
In the international context, a number of MDTFs have been set up to address various issues, including climate
change. The Congo Basin Forest Fund, the Sudan Multi-Donor Trust Fund, the Amazon Fund, and the Trust
Fund for Forests (Vietnam) are examples of such initiatives. The rationale for establishing MDTFs is based on
the Paris Declaration on the Aid Effectiveness to reduce transaction costs by reducing the number of
freestanding projects and programs, and instead harmonizing aid into “basket funds”. The basket fund is to be
aligned with partner strategies under a clearly defined policy framework. Basket funds are expected to bridge
the gap towards increased government ownership at a time when country systems are not yet seen to suffice
in guaranteeing transparency and efficiency, and contributors requiring additional safeguarding measures.
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Thus, the starting point for defining the focus of a basket fund is the discussion and alignment under a policy
framework. In many cases, an MDTF policy presents the strategic framework under which the Fund will
allocate resources. It might be derived from a national development strategy or plan. A clear policy,
developed and agreed from the very beginning by all the decision makers related to the Fund will firstly guide
the allocation process and instill coordination among the different stakeholders, and the development
partners. Secondly, it will set or clarify expectations among eligible recipients and the public at large. This
policy should be reviewed on a regular basis to ensure conformity with national needs and changes on the
ground. In the case of a UNDG MDTF, the MDTF policy is usually embedded in the UN’s overall strategy for the
specific country which itself derives from the country’s own national strategy.
In summary, a development partner, often a multilateral development organization has operated most
MDTFs. Many of the funds have been established relatively recently, hence limiting their suitability for
providing learning experiences, in particular regarding the gradual hand-over of responsibility.
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Box 2.1: Amazon Fund: Learning Experience
Brazil has launched a trust fund to finance forest conservation and sustainable forest management in the Amazon. This
“Amazon fund” will support forest conservation, spatial land use planning, land tenure regulation, rehabilitation of
degraded and deforested areas, and sustainable forest management. The Brazilian government expects $21 billion by
2021 to fund “Amazon fund” activities. In September 2008, the Norwegian Government made the first donation – US$ 1
Billion. Brazil National Development Bank (BNDES) is the party responsible for managing the fund. BNDES coordinates
donations and will issue a non-tradable diploma recognizing the contribution of donators such as development partner
organizations and the private sector (companies and individuals). ‘Non-tradable’ means they cannot be accounted against
emissions reduction targets of any sort. The activities under the fund must consider the governmental “Amazon
Deforesting Prevention and Control Plan”. 20% of the fund may be used to develop monitoring and control schemes that
can be applied in other Brazilian biomes and other tropical countries. The diplomas are issued on the basis of the amount
of carbon constituting the difference between the historically calculated deforestation rate and the deforestation rate
occurring in real-time. The BNDES charges a 3 % overhead for its operations.
The Amazon Fund’s Steering Committee consists of entities of the federal government, the state governments in
Amazônia Legal (Legal Amazon), which present state plans for the prevention and fighting of illegal deforestation as well
as representatives of the civil society, appointed by the President of BNDES. Its main contribution will be the approval of
the guidelines ruling the application of funds, the internal regulations of the Fund’s Steering Committee, and its annual
report.
2.4 SUMMARY OF LESSONS LEARNED 6
Reflecting on previous experience in MDTFs, there are several factors that need to be considered, as follows:
1. In any MDTF, it is essential to have a policy framework, which provides guidance for the Fund’s
operation.
2. Policy framework requires communication and dialogue among stakeholders in order to ensure
achievement of policy objectives. A corresponding dialogue forum, which involves all relevant
stakeholders, is recommended as many cases show that a sign-up mechanism often occurs to ensure
continued participation.
3. Operational capacities for fund management need to be in place, taking into account that the full
programming requirements have to be covered by the fund manager, such as planning,
programming, contract management, monitoring, quality assurance, and reporting. At the same time,
there are increased requirements for documentation in order to use the experience for structured
hand-over and design of future funds. Close coordination with line ministries and access to technical
expertise needs to be ensured.
6 It might be also useful to look at Annex 3 as it provides modalities, strengths and weaknesses of the multilateral agencies,
private sector and government as Trustee.
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4. An MDTF is designed as an intermittent instrument, facilitating handover of responsibilities to
government agencies. In the case that the government takes over the management of an MDTF, it is
envisaged that the handover should take place through a phased approach with implementation
capacity (regarding fund management, planning, programming, contract management, monitoring,
and reporting) initially being supported by a Technical Assistance Team within a strictly defined time
frame. Indicators for gradual handover are required for a smooth transfer of responsibilities.
5. Finally, in order to facilitate a smooth flow of funds, a limited number of simple concepts should be
chosen in the initial phase to allow the establishment of high quality implementation standards
.
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THE INDONESIA CLIMATE CHANGE TRUST FUND (ICCTF)
This chapter provides information on objectives, principles, priority areas and features of the ICCTF. They
have been written based on consultation with various stakeholders including development partners. All
proposed activities to be financed under the ICCTF must meet the ICCTF general objectives, and principles,
including the objectives of the ICCTF priority areas. Features of the ICCTF provide options for the trust fund
mechanism, which could be used under the ICCTF.
3.1 OBJECTIVES AND STRATEGY OF THE ICCTF
The Indonesia Climate Change Trust Fund (ICCTF) serves as one of the funding mechanisms in the climate
change arena. It has two main general objectives:
1. to achieve Indonesia’s goals of a low carbon economy7 with greater resilience in the face of the
impacts of climate change.
2. to establish innovative ways to link international financial sources with national investment
strategies, and simultaneously, to become a showcase of alternative financing for climate change
mitigation and adaptation programs managed by government, in a transparent and accountable
manner.
At this stage, the ICCTF has specific objectives:
1. to facilitate and accelerate investment in renewable energy and efficiency, and simultaneously
reduce Indonesia’s greenhouse gas emissions from the energy sector.
2. to reduce emissions from deforestation and forest degradation and stabilizing carbon stocks through
sustainable forest and peat land management.
3. to reduce vulnerability in coastal zones, agriculture and water sectors.
4. to bridge the financial gap necessary to address climate change mitigation and adaptation.
5. to increase the effectiveness and impact of external support finance for climate change in Indonesia.
However, as climate change is a dynamic issue and in anticipation of on-going International negotiations
under UNFCCC, the specific objectives outlined are not set as rigid objectives. They could be changed by a
consensus of ICCTF stakeholders considering the latest development of climate change negotiation results.
The ICCTF Strategy is designed:
1. to support the policy framework for climate change.

2. to ensure that the ICCTF financing mechanism will be:
7 Low carbon economy is a concept that refers to an economy which produces a minimal output of greenhouse gas (GHG)
emissions into the biosphere, but specifically refers to the greenhouse gas carbon dioxide. Recently, most scientific and public
opinion has come to the conclusion there is such an accumulation of GHGs (especially CO2) in the atmosphere due to
anthropogenic causes. The over-concentrations of these gases is producing global warming that affects long-term climate,
with negative impacts on humanity in the foreseeable future. Globally implemented low carbon economies therefore, are
proposed as a means to avoid catastrophic climate change, and as a precursor to an ideal, zero carbon society and renewable
energy economy (source: Wikipedia.org and Stern review 2006)
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a. strategically targeted to support Indonesia’s aims.
b. appropriately coordinated, coherent and sequenced.
c. fully complementary to public and private expenditure, policy and planning in Indonesia.
d. transparent and accountable.
3. to share and receive information on policy, programs, planning and finance for climate change
objectives.
4. to identify opportunities to draw in additional finance or policy support from bilateral, regional or
global actors.
The ICCTF has the role of:
1. a catalyst as it will help bring greater engagement and effectiveness, and increase the diversity of
resources;
2. a capacity builder of both institutions and actors to increase the impact on climate change;
3. channeling all financial investment flows from bilateral, multilateral (including current and future
financial mechanism of UNFCCC, which are subject to Measurement, reporting and verification (MRV)
and private sector;
4. a partnership builder amongst the government, civil society, and private sectors.
3.2 PRINCIPLES OF ICCTF
Under the Jakarta Commitments (2008), the GOI and development partners agreed to leverage their
cooperation by intensifying the principles contained in the Paris Declaration on Aid Effectiveness, which is
intended to ensure strengthening country ownership over development, strengthening existing aid
instruments as well as developing new ones, expanding dialogue to include new partners, and focusing on the
delivery and accountability of development results. As part of its commitment,, Indonesia is using external
assistance not to supplement domestic resources, but to complement them – with aid playing a catalytic
role by allowing Indonesia to access international knowledge and best practice. In order to strengthen
country ownership, all external assistance interventions will have some embedded element of capacity
development.
It is proposed that the design of the ICCTF shall follow the principles laid out in the Jakarta Commitments’
existing regulatory framework (please see annex 4 for complete Indonesian regulatory framework) in
addition to the Paris Declaration on Aid Effectiveness, as well as international standards in managing trust
funds.
The design principles are:
1. mainstreaming sustainable development. The proposed activities should be assessed based on their
contribution to environmental, economy and social sustainability. Greater weight should be given to
proposals that improve sustainability rather than just mitigate negative impacts.
2. mainstreaming good governance. The project proponents should implement the proposed activity in
a transparent and accountable manner.
3. mainstreaming civil society participation and local community empowerment. The project
proponents should be encouraged to involve civil society and local community in the implementation
of proposed activities.
4. access to the fund by all related Indonesian institutions in a balanced and equitable manner.
5. country-driven funded activities which are clearly based on needs, views and priorities while taking
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into account national long-term and mid-term development plans.
6. transparency and openness in the governance of the fund, with independent monitoring, evaluation
and financial audits.
7. accountability in management, operation and the use of the funds, with sound financial management,
including the use of international fiduciary standards.
8. avoid duplication with other sources of funding in the use of the ICCTF.
3.3 PROPOSED PRIORITY AREAS FOR ICCTF
Based on the Yellow Book, the GOI had already identified a series of primary and secondary sectors in which
investment activities should be prioritized for ICCTF. The policies, programs and the sectoral priorities in the
first batch are described in detail in chapter 2.
SECTORS MITIGATION ADAPTATION

Primary Energy and Mining, Forestry Agriculture, Coastal Area (incl.
small island, marine life and
fisheries)
Secondary Road Infrastructure, Water, Health, Waste Management,

Transportation, Industry
Table 2: Priority areas identified in the Yellow Book (Bappenas 2008)
ICCTF will be focusing on 3 priority windows:
1. Energy and energy efficiency
Indonesia’s demand for commercial energy resources and services continues to increase as a result
of economic development and population growth. The energy sector ranks as the second largest GHG
emitting sector (354 Mt CO₂e) of the economy, contributing about 30% of CO2 emissions, which is
superseded by emissions from Land Use and Land Use Change and Forestry (LULUCF)8.
Indonesia’s demand for commercial energy resources and services continues to increase as a result
of economic development and population growth. The energy sector ranks as the second largest GHG
emitting sector (354 Mt CO₂e) of the economy, contributing about 30% of CO2 emissions, which is
superseded by emissions from Land Use and Land Use Change and Forestry (LULUCF)9.
Significant opportunities for reducing GHG emissions from economically important activities in the
energy sector exist both in the area of energy supply and in those sectors of the economy which
contribute the most to energy demand. These opportunities exist in (i) supply side, mainly in power
generation by introducing geothermal and renewable energy, and less carbon intensive power plant;
and in (ii) demand side, by improving efficiency in industrial, transportation, residential and
commercial sectors. Implementation of Presidential Decree 5/2006 has been projected to reduce CO2
8 Data over period 2000 – 2005, Second National Communication UNFCCC (LH, 2009)
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emissions from energy-related activities in 2025 from approximately 1150 Mt CO2 to about 950 Mt
CO2, or by about 17 percent.
The Energy Window of the Indonesia Climate Change Trust Fund (ICCTF) is one of three mechanisms
for financing the necessary investments to support the provision of Indonesia’s national priorities of
sustainable national development and poverty eradication and concurrently contribute to the global
efforts in mitigating the negative effects of climate change. The ICCTF Energy Window itself has been
devised to promote and attract investment and financial support to meet its three-fold objective,
namely:
1. To support Indonesia’s national sustainable development priorities;

2. To facilitate investment in renewable energies, in particular geothermal and solar energies;
energy efficiency; cleaner coal technologies; and enhanced oil recovery; and
3. To improve the effectiveness of external financial support for climate change mitigation in
Indonesia.
The investment strategy in ICCTF shall be periodically reviewed and updated through its Energy
Window, to be capable to sustain in this more uncertain global economic condition and volatile
financial markets.
2. Sustainable forestry and peat land management
Given the ongoing roadmap process in the forest sector and that specific priority areas and programs
are still expected the following description serves only as an indicative strategy, which will be
developed later. DFID is currently supporting GOI in designing the investment strategy related to the
first tranche on sustainable management of peatlands, with a specific investment plan expected for
early 2010.
3. Resilience
The evidences of climate change in Indonesia are numerous and varied. These include temperature
and precipitation changes, sea level rise, and extreme weather events. These changes in environment
and natural conditions have already started to impact many development sectors and segments in
Indonesia. The most adversely impacted sectors are likely to include agriculture, water resource
management and coastal zone management. Moreover, climate change also has significant impacts
on MDGs achievement, such as the achievement of eradication of extreme hunger and poverty.
To anticipate the worst possible impacts, and to deal with the risk and uncertainty of climate change,
simultaneous efforts addressing a number of different aspects are regarded as the most effective
approach.
This resilience window will define a set of measures that will enable the adaptations to the negative
impact of the climate changes and accelerate their implementation. Such measures are cross-cutting
and inter-sectoral and includes data and information management, awareness raising and capacity
building, integrated spatial planning, developing local response plan and action.
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Further explanation about each of the priority areas can be found in the Annex 6.
3.4 MECHANISM OF THE ICCTF: “INNOVATION AND TRANSFORMATION FUNDS”
The design of the ICCTF lies in two formats, to be implemented further in two stages (see Figure 1):
1. In the first step, ICCTF will be created as an “Innovation Fund”, which involves grant funding from
development partners and other contributors to be used for activities, which provide indirect
economic and social benefits and will not provide any direct financial return to the participants. This
first phase will thus principally involve government ministries/institutions as the proponents, and
will subsequently expand to local governments, and potentially NGOs and universities. For example,
activities in adaptation such as coastal community preparedness in anticipating increasing sea level
rise and improving knowledge and skills of farmers in tackling climate change issues, could be
financed though the Innovation Fund.
Figure 1: ICCTF Design
2. At a later stage, the ICCTF may advance by establishing a “Transformation Fund” mechanism, which
involves available funding such as public-private partnerships, loans, and world capital market
sources that could harness private-sector finance. It might also be possible to derive potential
benefits from the carbon trading/carbon finance market if permitted. Examples could relate to all
investments requiring high up-front financing with return on investment in the mid-term, such as
accruing through the installation of technologies to enhance energy efficiency in industrial estates or
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capital sharing in reduction emission from deforestation and forest degradation (REDD) activities.
Upfront financing to start carbon-trading projects (such as feasibility studies and documentation for
CDM) is yet another example. Respective credit lines may operate with a competitive interest rate
and ensure that capital flows back into the fund. Accordingly, the objective of the Transformation
Fund is to mobilize investment in a low-carbon economic development path, which will be derived
through the roadmap and a respective climate change investment strategy10. A part of the yield from
such an investment through the Transformation Fund may be reinvested in the ICCTF to prepare a
comprehensive policy framework for mitigation and adaptation. Hence, the ICCTF will require a
conscious and collaborative effort to fully formulate the institutional arrangements and its
mechanism.
The GOI aims for the Innovation Fund to help overcome barriers to early deployment, whereas the
Transformation Fund will aim to assist with market penetration. The innovation chain in Figure 2 represents
the relationship of the two mechanisms and its future concept in a holistic manner. The ICCTF will be
implemented in three phases, which involve different types of executing institutions in each phase (see also
table 3). Initially, with the establishment of the ICCTF it is expected that government funding, and grants, will
dominate the fund provision. However, in the future it is anticipated that funding for the ICCTF will come
predominantly from the private sector.
Figure 2: Concept of ICCTF development
10 This investment strategy and financial architecture are part of the roadmap activities, which are currently under
development.
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ICCTF Phase Estimated starting time Executing Institutions
Phase 1 Sectoral Ministry (K/L)

(Innovation fund) 2009
Phase 2 Sectoral Ministry (K/L),

Regional/local government, Private
(Innovation fund) 2010-2011 Firm (through Public Private
Partnership), NGOs, Universities
Phase 3 Harmonize Public Sector involvement

(Loan, reflow of Transformation fund,
(Transformation 2012 Capital market etc)
fund)
Table 3: ICCTF Financing Phases
3.5 THE ICCTF TRUSTEE CHOSEN FOR INNOVATION FUND AND TRANSFORMATION
FUND
A Trustee is a party who is legally trusted to manage funds provided by the Fund Contributors. The Fund
Contributor will submit part or all conforming to the agreement to be used as agreed upon. In the case of the
ICCTF, the Trustee will receive the fund from development partners and other contributors and manage it for
the purpose of the ICCTF and report to the Steering Committee. It is proposed that a national financial
institution will be appointed through a fair and open bidding process as Trustee for the Innovation Fund. It is
proposed that Ministry of Finance will be the party in charge, which will facilitate a fair and transparent
bidding process to select an eligible national institution as Trustee. The case study of the “Industrial Efficiency
and Pollution Control” (IEPC) credit line phase 1 (see box 3.1) has been used as the reference for this proposal.
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Box 3.1: Fund Channeling under IEPC
The IEPC program is intended to provide soft loans to help small and medium enterprises (SMEs) invest in
prevention and control of pollution, enhance energy and production efficiency and related technical assistance. It is
run through a revolving fund scheme with the stipulation that repayments to the fund be used for the purposes of
industrial efficiency and pollution control. Ministry of Environment with the support of Kreditanstalt für
Wiederaufbau (KfW), a German government-owned development bank, is administering this program. In
correlation with the ICCTF, the emphasis is placed on the disbursement process of the fund. In the IEPC case, the
Ministry of Finance acts as the responsible party to disburse the money to the selected national financial institution.
This selected financial institution will further disburse the fund to the selected SMEs once the technical and
financial assessments are accepted by both Ministry of Environment and National bank respectively.
The national financial institution that will be selected as the Trustee has to fulfill the following criteria:
1. Registered in Indonesia.
2. Credible, competent, and well-recognized national institution.
3. Proven financial management capability i.e. asset, ROR (rate of return), cash flow, ROI (return on
investment).
4. Adequate human resources capacity i.e. numbers of staff and their qualifications as well as their level
of knowledge of the GOI financing and treasury system.
With specific reference to the Transformation Fund, there are plans to assign government institutions in the
form of “Badan Layanan Umum – BLU”11 as the Trustee. However, the decision on this matter will only be
made in the later stage, once the government has analyzed the experience gained from setting up the
Innovation Fund and is able to make a decision on whether or not to continue with the Transformation Fund.
During preparation, there are several questions often asked by stakeholders regarding the idea, objectives,
principles and future of the ICCTF. Box 3.2 is developed to serves the stakeholders in understanding the
ICCTF in briefly. List of regulations are used to establish the ICCTF shown in Annex 4.
11 A BLU is a Public Service Entity. Given the current legal framework, the BLU is the only entity that would be allowed to
receive and administer foreign grants as a trustee without the need for GOI to issue a new PP. This is because a BLU is not a
separate legal entity, but forms an integral part of the government agency that established it (even though a BLU operates
under a different set of rules and regulations). If a central government agency establishes a BLU, the BLU is eligible to apply for
a foreign grant – and, if approved, utilize that grant – cf. PP2/2006. It would be sufficient to establish the BLU by ministerial
decree, the preparation of which normally requires 3-6 months (compared to 2-3 years for a PP).
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Box 3.2: Frequently Asked Questions on the ICCTF design:
Would the ICCTF become the only funding mechanism/ option to finance climate change related activities in
Indonesia?
Answer:
No. The ICCTF is one of the financing options to finance climate change related activities in Indonesia.
Development partners may contribute through the existing cooperation channels such as bilateral or multilateral
cooperation. However, it is strongly recommended that development partners contribute to the ICCTF to
streamline all efforts leading towards the same global climate change objectives.
What policy frameworks have been used to design the ICCTF activities?
Answer:
The current reference documents for the design of the Blue Print for the ICCTF are the Yellow Book (2008), the
Annual Government Work plan 2009 and the Policy Matrix for Climate Change (designed for Climate Change
Program Loan). Therefore, any proposed ICCTF activities should refer to those documents as their base reference.
Once the 2010-2014 National Mid-Term Development Plan and 20 years Climate Change Sectoral Road Map is
finalized, these documents will become the major references for ICCTF activities replacing previous mentioned
documents.
How will the ICCTF activities link with other climate change initiatives in Indonesia?
Answer:
Currently, there are several climate change initiatives being conducted in Indonesia. The new proposed ICCTF
activities could support and strengthen the achievement of current initiatives. However, because there is a range
of issues related to climate change in Indonesia, new ICCTF activities could be proposed without linking ICCTF to
the on-going initiatives.
Will the ICCTF priority areas be developed or expanded further?

Answer:
Yes. The ICCTF design is a process of ‘learning by doing’. Therefore, the GOI will start the ICCTF with only a few
priority areas. After the GOI has more experience in managing the ICCTF, the priority areas will be expanded
covering a range of climate change issues in Indonesia.
Will local governments, universities, and NGOs be able to propose activities to the ICCTF?
Answer:
Yes, they could submit proposals when phase 2 of the ICCTF begins in 2010.
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4. INSTITUTIONAL AND MANAGEMENT ARRANGEMENT OF THE ICCTF
4.1 INSTITUTIONAL ARRANGEMENT
A program management unit consisting of a Steering Committee, a Technical Committee and a Secretariat will
be responsible for the programmatic and technical oversight of the ICCTF in collaboration with development
partners and other contributor-supported programs. The Ministerial Steering Committee on Coordination of
ICCTF will provide overall policy guidance and direction to the ICCTF process. All institutional and
management arrangements and other relevant materials will be presented and explained fully in the
Standard Operating Procedures (SOP) document. The coordination mechanism of the ICCTF is shown in
Figure 3 below.
Figure 3: Coordination Mechanism of ICCTF
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4.1.1 STEERING COMMITTEE (SC)
The main responsibilities of the SC of the ICCTF will be for three areas: policy and operational guidelines,
management, and monitoring and evaluation. To achieve these tasks the SC will be divided into two forums:
Policy Forum and Management Forum.
• In the Policy Forum, SC representatives will be responsible for identifying general strategic policy
recommendations in relation to the climate change trust fund (ICCTF). This will include, among
others, the task of defining priority areas to be financed by the ICCTF. Representatives from
development partners and selected NGOs/CSOs may also be part of this forum. Selection criteria for
CSOs/NGOs and development partners for this forum will be outlined in the SOP. Selected
NGOs/CSOs might be further engaged in ICCTF activities with respect to monitoring and evaluation
processes.
• In the Management Forum, SC representatives will be responsible for decision-making and

approval of the management and operational aspects of the ICCTF including, among other tasks:
approving guidelines, project proposals and/or SOP. One (1) representative only from the
development partners will be part of this forum with selection criteria to be announced in the SOP. In
addition, the voting rights rules for each member will be outlined in the SOP.
Both forums will consist of: Echelon 1 (one) of the non-implementing agencies (Bappenas, Foreign affairs etc)
and sectoral ministries involved in the Priority areas (Energy, Forestry, Marine Affairs and Fisheries as well
as Agriculture). Head of Secretariat of NCCC will also be part of this committee.
The SC will have the tasks and responsibilities as follows:
1. Identify strategic policy recommendations in relation to Climate Change Trust Fund (ICCTF) policies
in general.
2. Define priority areas to be financed by the ICCTF.
3. Establish a funding policy that supports the implementation of the ICCTF.
4. Approval of eligibility criteria of projects and standard operational guidelines with the objective of
ensuring transparency, accountability and aid effectiveness of the ICCTF.
5. Coordinate donors’ contributions to the Trust Fund, in accordance with principles contained in the
Jakarta Commitment as well as in The Paris Declaration on Aid Effectiveness.
6. Ensure the harmonization of benefits and implementation for programs under the Trust Fund.
7. On a half-yearly basis, conduct a meeting to approve the proposed projects by line ministries, CSOs,
academic institutions and private sector mechanisms.
8. On an annual basis, approve the expenditure plan of the operation and management of the Trust
Fund, including the Secretariat.
9. Organize the monitoring and evaluation of projects to assess the effectiveness and the impact of the
project implementation to be delegated to the Secretariat.
10. Organize the auditing of the ICCTF to be delegated to the Secretariat.
11. Approval of Guidelines and/or Manual on the mechanism, modalities and procedures of the Trustee;
including fund transfers from donors, procurement, appointment of consultants and Secretariat’s
tasks.
12. Additional tasks as required, related to the implementation of the Trust Fund.
Following a decision by the SC to support a particular pilot or process, which is in line with the core
objectives of the ICCTF, the body appointed to manage and administer the ICCTF will allocate the budget to
the respective implementing agency.
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It is suggested that the SC meets at least twice a year, or more, depending on circumstances. The suggested
composition of the SC is provided in Annex 5.
4.1.2 TECHNICAL COMMITTEE (TC)
The TC will consist of staff from Bappenas, Ministry of Finance and other line ministries. The main job of the
TC is to advise the SC in all technical matters of the ICCTF.
The TC of the ICCTF has the mandate to:
1. evaluate project proposals in terms of eligibility, feasibility, sustainability and impact on the
environment, the society and the economy, as submitted by the project proponents based on the
criteria approved by the SC. In addition, it will have the mandate to prepare assessment reports,
which will include recommendations for approval or rejection of these project proposals.
2. develop Guidelines and/or Manuals on the mechanism, modalities and procedures of the Trustee;
including fund transfers from donors, procurement, the appointment of consultants, Secretariat
tasks, to be approved by the SC.
3. provide technical assistance to the SC.
4. perform any additional tasks required by the SC.
The suggested composition of the TC is provided in Annex 5.
4.1.3 SECRETARIAT
Daily operations of the Program Management Unit (PMU) team will be supported by a Secretariat. It will
consist of members with technical, administrative and financial expertise. The Head of Secretariat will
manage the secretariat. The secretariat will work on a full-time basis and will be responsible for:
1. Supporting the SC and the TC on:

• Organization of meetings and their corresponding agendas and minutes of meetings.
• Administering grant agreements, proposals and approvals.
• Development and implementation of monitoring and evaluation mechanisms.
• Preparing technical reviews for the SC and the TC.
2. Preparing quarterly progress reports and monthly financial reports for the SC and the TC.
3. Providing semi-annual narrative and financial reports to the SC and the TC.
4. Maintaining the information system on a daily basis.
5. Completing other tasks as requested by the SC and the TC.
The Secretariat will work on a day-to-day basis under the purview of the National Planning Development
Agency (Bappenas). The suggested composition of the Secretariat is provided in Annex 5.
4.1.4 TECHNICAL SERVICE PROVIDERS
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Two types of experts will be used:
1. “Permanent experts” that will assist the Secretariat in its day-to-day activities and, whenever
required, will provide assistance to the SC and the TC.
2. A panel of “On-call experts”, which will assist sectoral ministries with the preparation of
applications for activities financed by the ICCTF, giving their technical expertise in regard to specific
proposals which might be needed by the SC and the TC. In addition, if necessary, the panel will assist
with the selection of contractors to implement these activities.
4.1.5 FINANCIAL SERVICE PROVIDERS (TRUSTEE)
The Trustee of the ICCTF will manage funds granted by development partners and, at the request of the ICCTF
SC, channel funds for payment to contractors selected by central government ministries to implement ICCTF-
financed activities.
4.1.6 DEVELOPMENT PARTNERS
These are the organizations, which provide financial contributions, in terms of grants and/or loans or any
other type of fund channeling, to the ICCTF. The bilateral and/or multilateral institutions and/or public
private partnerships, and corporate social responsibility (CSR) are possible options for ICCTF Development
Partners.
4.1.7 RECIPIENT
For the first phase the recipient of the ICCTF will be central government institutions. In the later stage local
governments, NGOs/CSOs, universities, private sector, and communities can receive funding from ICCTF as
long as the related regulations allows.
4.1.8 CONTRACTOR
The recipient may sub-contract the particular job/assignment based on the approved proposal to the selected
Contractor. The Contractor will implement the project in accordance with the pre-set guidelines, targets and
regulations.
4.2 THE PROJECT CYCLE
The cycle for the financing of activities by the ICCTF will follow the eight (8) steps below and shown in Figure
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4.2.
Step 1: submit prospective proposals:

• Sectoral ministries and local governmental bodies will be invited to submit proposals for
activities eligible for financing by the ICCTF.
• Sector ministries may either submit their own proposals, or partner with other parties such as
NGOs or academic institutions.
Step 2: pre-appraise prospective proposals:

• The Secretariat will check whether documentation required to assess the project proposal is
complete or not.
• After ensuring that all documentation required is complete, the Secretariat will submit the
project proposal to the TC for further assessment.
• In the case of incomplete documentation, the Secretariat will discuss with proponents the need
for the appropriate completion of documentation.
• The Secretariat will also check project eligibility according to eligibility criteria.
Step 3: assessment of the project proposal by the TC:

• The TC will assess the eligibility, feasibility, sustainability and impact of the proposed activities
according to criteria set by the SC.
• These criteria will take into account available funding and existing grant agreements with
development partners.
• During the assessment of the proposal, if required, the TC may ask for assistance from the pool
of experts.
Step 4: submit project proposals for approval by the SC:

• If a project proposal meets all criteria for financing by the ICCTF, the Secretariat will submit
the proposal and assessment reports, which will include recommendations for approval or
rejection, prepared by TC to the SC;
Step 5: approve a proposal:

• During the SC meetings the Head of Secretariat will present the project proposals and ask the
SC for approval or rejection based on the recommendation of the TC.
• If required, the SC could invite the TC or Experts to clarify their recommendations.
Step 6: sign project agreement:

• Secretariat will send notification letter to project proponents informing the approval or
rejection of their proposals. This notification letter will also be sent to the Trustee for the
approved project proposal;
• The Trustee will arrange for the signing of the project implementation agreement by the
Project Proponent.
• The Trustee will send one copy of the agreement to Secretariat for filing;
Step 7: implementation of the approved activities:

• To implement the approved proposal the proponent has to assign a coordination team led by
a Project Manager. This team will be responsible to coordinate the implementation of the
activities. This team will develop execution plan, time schedule and milestones in order to
achieve the targeted outputs as outlined in the approved proposal.
• The approved activity proposal can be implemented by the proponent or sub-contracted to
third party;
• In case the activities will be sub-contracted to third party the Proponent will conduct a fair
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bidding process in accordance with government regulations (Presidential Decree No.
80/2003 and/or other principles of procurement contained in the grant agreement) to select
a Contractor. The Project Proponent will notify both the Trustee and the Secretariat about
the selected Contractor.
• As part of the contract agreement the Contractor must submit regular progress reports to the
Coordination Team, and this team is responsible to make sure that the activity progress is in
line with the targeted output.
• In case the proponent will implement the activities an implementation team, which can be
the same as the coordination team, has to be established with clear tasks and responsibilities,
clear time schedule and milestones, clear planning, and clear reporting responsibilities.
• If required, the proponent can ask for assistance from the secretariat to provide support in
organizing the bidding process, develop execution plan, time schedule and milestones, or
other specific tasks that can not be handled by the proponent due to lack of expertise and
experiences or lack of human resources.
Step 8: disbursement of the fund:

• In accordance with the payment terms, the Contractor or the implementation team can
submit a payment request to the Trustee with a copy to the Secretariat.
• Payment requests will be checked by the Trustee and confirmed with the Project Manager of
the Coordination Team.
• Once the Project Manager approves it, the Trustee can disburse the fund to the Contractor
with a copy of disbursement proof to be sent to the Secretariat.
Step 9: organize monitoring, evaluation and auditing:

• Once a year, on behalf of the SC the Secretariat will organize missions to monitor and evaluate
projects funded by the ICCTF.
• Mission reports will be presented at the SC or Technical Committee level.
• Also, once a year the ICCTF will be audited and an audit report will be presented to the SC.
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Figure 4: Simplified ICCTF project cycle
4.3 MONITORING, EVALUATION AND AUDITING
4.3.1 LEGAL BASIS
The legal basis for the monitoring and evaluation of ICCTF-financed activities, as well as the auditing of
financial transactions related thereto, consists of:
1. GOI’s prevailing laws and regulations. Relevant government regulations include those on
monitoring and evaluation of the implementation of development plans (PP 39/2006) and the
preparation of work plans and budgets by central government ministries (PP 21/2004).
2. Grant agreements between GOI and a development partner. Such agreements will specify
general arrangements for monitoring, evaluation and auditing of development partner funds
channeled through the ICCTF.
3. Contractual agreements between GOI and service providers. The Ministry of Finance will
appoint a national institution to act as a channeling bank for the ICCTF, and enter into a contract with
the selected institution. Similarly, the SC (through the ICCTF Secretariat) will contract technical
service providers.
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4.3.2 MONITORING AND EVALUATION (M&E) MECHANISM
For the purpose of the ICCTF, the Technical Committee (on behalf of the SC) with the assistance of the
Secretariat team will be in charge of the technical aspects of M&E in a regular and systematic fashion. The
results of M&E are to be reported regularly to the SC and Technical Committee for necessary follow up.
M&E policy has four objectives at the ICCTF:

1. to monitor and evaluate results and impacts of activities
2. to promote accountability for resource use against objectives outlined within related agencies
3. to document, provide feedback on, and disseminate results and lessons learned
4. to provide a basis for decision-making on amendments and improvements of policies, strategies,
program management, procedures and projects.
In general, monitoring and evaluation practices explore six criteria that are applicable to projects, programs,
and themes but that do not all need to be systematically reviewed in all cases. The six specific monitoring and
evaluation criteria (efficiency, effectiveness, impact, transparency, relevance and sustainability) used in
combination provide all the stakeholders with essential information in connection with present and future
decisions on projects and programs.
4.3.3 AUDITING MECHANISM
The proposed arrangements can be summarized as follows:

1. Annual ‘policy compliance‘ audit. The ICCTF SC will be held accountable for ensuring that external
grants are allocated according to the provisions stipulated in grant agreements with development
partners. An independent auditor, and paid for by the ICCTF, will conduct annually a ‘policy
compliance’ audit.
2. ICCTF service providers. The same independent auditor will audit the performance of the ICCTF
Trustee, based on contracts with the Ministry of Finance.
3. Recipients of ICCTF grants. An independent auditor will audit the use of ICCTF funds by ICCTF
recipients. The recipient ministries will be totally responsible for ensuring compliance with
prevailing regulations on the use of public funds.
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5. NEXT STEPS
The soft launching of ICCTF is planned for September 14, 2009.
Upon selection of a refined model that is acceptable to both GOI and development partners, GOI would define
the institutional, legal and organizational arrangements of the fund in detail. These arrangements need to be
in place before the ICCTF is operational, and will include: the allocation of GOI budgets for establishment and
running of the ICCTF; the appointment of a trustee; work plans; SOPs; a monitoring and evaluation
mechanism; an initial project pipeline of activities to be financed by the ICCTF; and preparation of its formal
launch.
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6. REFERENCES
• Bappenas, 2008, National Development Planning: Indonesia Responses to Climate Change,

• Bappenas, 2009. Indonesia Climate Change Sectoral Roadmap
• Ministry of Environment, 2007, Rencana Aksi Nasional Perubahan Iklim
• Ministry of Environment Indonesia, 2009, www.dna-cdm.menlh.go.id/id/database
• Ministry of Environment, 2009, Second National Communication
• Multidonor Trust Fund for Aceh and Nias, www.multidonorfund.org
• Amazon Fund, www.amazonfund.org
• PNPM Mandiri, www.pnpm-mandiri.org
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ANNEX 1: DEFINITION OF TRUST FUND
A Trust Fund is based on an act of confidence, by virtue of which an individual or legal entity provides
another with one or more goods with the expectation of compliance with a determined result, established in a
trust fund contract. This result may be for the benefit of the fund contributor or of a third party, whereby as a
consequence of the trust fund contract, a specialized and duly authorized entity (the trustee) agrees to
undertake its best effort to achieve the result determined by the contributor. The trustee maintains total
autonomy between its own capital and the goods received. In addition, a separation is also maintained
between the goods of each trust fund contract in order to avoid confusion. This is known as autonomous
capital.
The actors in this mechanism are:

• the Fund Contributor; an individual or legal entity that entrusts to the trustee a specified
management of one or more of its goods for the achievement of a result, in accordance with the
norms set out by the fund contributor;
• the Trustee; a special and legally recognized entity authorized to administer funds and trust funds
and exercise legal representation, and
• the Beneficiary; the person for whose benefit the trust fund is developed and the results achieved,
and who may be the very contributor or the person(s) designated by the contributor.
Those individuals or legal entities that accept and take on the arrangements indicated in the trust fund
contract are additional contributors. The trust fund is a flexible and legal arrangement of extraordinary
versatility that adapts to the needs of the fund contributors and that is characterized and justified by the
development of its specifications. It is a truly adaptable tool whose conceptual limit is marked by the
creativity of its designer, obviously within the bounds of permissibility and legality.
National Public Financial Institution/Private Financial Institution is a specialized institution in charge of the
financial management aspect of the trust fund. The national public financial institution/private financial
institution may exist as a banking institution. Examples of a national public financial institution may be the
Bank Rakyat Indonesia (BRI) or the Bank Mandiri. The Bahana Sekuritas and the Bank Mega are some
examples of national private financial institutions.
Mechanism and Modality (in a Trust Fund) refer to a set of rationale and objectives, which should serve as
guiding principles of the selected trust fund in order to achieve effective and efficient targets within the
implementation.
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ANNEX 2: OVERVIEW CHARACTERISTICS OF MULTI DONOR FUNDS
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ANNEX 3: ASSESMENT OF THREE ICCTF TRUSTEE OPTIONS
BAPPENAS has done a scoping exercise and explored different options for the Trustee with regard to
• the type of institution that should be appointed as Trustee.
• the definition of its responsibilities in implementing the decisions reached by the SC.
• the identification of its duties in administering and accounting for the Funds.
The table below compares the modalities, strengths and weaknesses of the three options for information
purposes only.
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(2) National Public Financial Institution/Private (3) Government institution, Ministry of

Option (1) Multilateral institution
Financial Institution Finance
Modalities GOI will assign a multilateral institution as GOI will assign a private or public national GOI will assign Ministry of Finance as
Trustee, such as WB, ADB or UNDP financial institution trust fund Trustee
The role of the Trustee will include financial The role of the Trustee would consist solely of The role of the Trustee would consist of a
and program management tasks financial management treasury role
Such institutions have considerable experience Trust Fund mechanism operation manuals Trust Fund mechanism operation
with managing funds and have therefore would have to be developed and proposed to manuals would have to be developed and
established necessary Trust Fund rules and the relevant institution proposed to the relevant institution
procedures
A tendering process will be necessary for the It is likely that this option can be put in
It is therefore likely that this option may be the selection of the Trustee; a conceivable body place relatively quickly, once the relevant
“quickest” (relative to the others) to put in would be a national bank such as BRI or stakeholders have agreed
place. However, as practice shows, this might Mandiri. It may be the case that this option will
not necessarily be the case (e.g. elections MDP take more time (relative to the others) to put in It would furthermore contribute to the
fund – UNDP) place development of national capabilities for
Fund management
Unlike the other options, this option does not On the other hand choosing this option creates
contribute optimally to national capacity and enhances national capabilities for Fund There will be no management fee and an
building, as all program/financial matters are Management external auditor will be appointed (e.g.
handled by the multilateral institution BPK) to verify the Fund activities
A management fee is to be expected, but it is
A management fee can be expected (e.g. WB 5- likely that the fee will be very competitive The Fund disbursement mechanism will
10%, UNDP 11%) However, this fee has the (because of the tendering process) happen according to KPPN rules and
potential to increase easily to include costs of regulations
monitoring and evaluation, cost recovery for Auditing will be handled by an internationally
recognized, independent auditing company
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hiring consultants, and so on. The mechanism for the disbursement of Funds
has to be developed and will be subject to
Auditing will be handled by the Multilateral negotiations
Institution itself; GOI will only have limited
influence in this process There are several requirements that a potential
Trustee would need to fulfill in order to qualify
The disbursement of Funds (i.e. grant for the tendering process:
mechanism) will happen according to the
regulations of the Multilateral Institution operating in Indonesia (legally registered in
Indonesia)
proven financial management capability: asset,

ROR (rate of return), cash flow, ROI (return on
investment)
proven relevant experience of 7 years,in

handling small to medium financial
management (> than USD10 million asset)
the Human Resource Capacity, i.e. numbers of

staff and their qualifications is another criteria
as well as their level of knowledge of the GOI
financing and treasury system
it needs to have a good reputation from an

independent Auditor
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Strengths Direct appointment by GOI GOI driven rules and regulations can be applied GOI ownership
Multilateral Institution has vast experience with Negotiable management fee (can be low) Possibly small management fee
TF Management and GOI has vast experience
with Multilateral Institutions Open to more eligible institutions Priorities would be driven by GOI, in
accordance with national planning
International best practices and lessons learned The Trustee has experience with financial
from multi-countries would significantly management Established rules and mechanisms would
increase value added apply by following Keppres 80 and GOI
Opportunity to improve capacity of Indonesian fund disbursement mechanisms
Provide a structure to engage with nascent institutions to manage external funding
governments or governments with limited
Priorities would be driven by GOI, in
capacity, and reduce, for both donors and
accordance with national planning
national counterparts, the transaction costs
associated with such engagement
Offer a multilateral umbrella through which a

broad range of needs can be addressed through
partnerships between the UN and a broad range
of recipients (public entities, civil society,
private sector, and other international
institutions)
Weaknesses
Relatively high management fee (to include Needs Trustee procurement process Additional stage needed to open Special
other costs), rigid rules (esp. WB)
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Institution driven rules and regulations, limited Possible capacity building to become engaged Account
available multilateral institutions (WB & UNDP) in “trustee” activities out of the usual banking
business (this is for future reference) could take More complicated fund disbursement
Difficult to monitor and evaluate performance a long time and much effort process (through KPPN) - although this
may be changed but has to be dealt with
No opportunity to build capacity for Indonesian GOI has limited experience with private internally with MoF,- this can be a
institutions in managing external funding companies lengthy procedure
Also, there is some uncertainty as to the

level of trust from development partners
for this option, given the, at times,
lengthy and rigid disbursement
procedures one may face when choosing
this option
Transactions, disbursement and

management of funds might not be as
efficient as in the case of a private
Trustee (option 2)
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ANNEX 4: REGULATORY FRAMEWORK
Regulatory elements, which serve as the base for the development of the ICCTF, are listed below.
Laws:
1. Law No. 17/2003 on state financial management, which states that the state’s income and
expenditure in one fiscal year has to be recorded in the national budget. The national income consists
of taxes, non-taxes and grants.
2. Law No. 25/2004 on national development planning system, Article 2, the objectives of the national
development planning system are:
• To facilitate the coordination between stakeholders in national development planning
• To assure the integrity, synchronisation, and synergy between the local and central government
relationship at all levels
• To assure the linkage and consistency between planning, financing, implementing and
monitoring systems
• To optimize the participation of citizens
• To assure the implementation of resources in an effective, efficient, fair and sustainable manner.
3. Law No. 1/2004 on state treasury
Government Regulations:
1. Government Regulation No. 2/2006 about modalities of foreign loan and grant
• Article 6, Foreign Loan and Grant Planning will be developed in conjunction with the Minister of
Finance and State Minister of Development Planning according to the sectoral priorities
proposed
• Article 7, Related Ministry/Institution submits the sectoral priorities to the State Minister of
Development Planning to get funding from Foreign Loans or Grants
• Article 9, State Minister of Development Planning has the right to appraise sectoral priorities
proposed that will be funded by Foreign Loans and Grants
• Article 17, State Minister of Development Planning will arrange the utilization of Foreign Loans
and Grants that will consist of administration and accounting. Foreign Loans and Grants will be
included in the budgeting unit document and the budgeting implementation document.
2. Government Regulation No.39/2006 regarding the monitoring and evaluation of the
implementation of development plans
3. Government Regulation No.21/2004 regarding the preparation of work plans and budgets by
sectoral ministries
Ministry Decree/ Ministry Regulations:
39
1. Decree of State Minister for National Development Planning Agency/Chairman of Bappenas No

PER.5/M.PPN/06/2006 on procedures for planning and submitting proposals and assessing projects
funded by foreign loans and/or grants
2. Minister of Finance Regulation No.52/PMK.010/2005 regarding the procedure of grant distribution
to the region (regional government)
3. Ministry of Finance Regulation No. 143/PMK.05/2006 on modalities of foreign loan and grant
disbursement. (Based on this regulation, there are four payment methods: Direct Payment, Special
account, Reimbursement and Letter of Credit (L/C))
4. Ministry of Finance Regulation No. 57/PMK.05/2007 on Management of Accounts owned by State
Ministries/Bodies/Offices/Work Units
5. Ministry of Home Affairs Regulation No. 38/2008 on Grant Acceptance and Assistance towards Civil
Society Organizations (CSOs) from/and to Foreign Party.
Deputy Minister/ Director General Decree/ Regulations:
1. Decree of the Director General of State Treasury Regulation No. PER 67/PB/2006 on procedure on
registration and legalization of foreign grants (in revision as grant disbursement without KPPN
procedures). The related project must be recorded in related ministry’s DIPA. The grant received,
which is not yet recorded in DIPA/project implementation document, can be included in DIPA
through the revision mechanism.
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ANNEX 5: PROPOSED MEMBERS OF ADVISORY COMMITTEE, STEERING

COMMITTEE, TECHNICAL COMMITTEE AND SECRETARIAT
Ministerial Steering Committee on Coordination of ICCTF
• Minister of Finance
• Minister of National Development Planning Agency (Bappenas)
Steering Committee (SC)
Chairman : Secretary of the Ministry of State for Development Planning/Chief Executive

Secretary of National Development Planning Agency/BAPPENAS
Vice Chairman I : Deputy Minister of Natural Resources and Environment, State Ministry of
Planning/Bappenas
Vice Chairman II : Director-General of Debt Management, Ministry of Finance
Vice Chairman : Head of Secretariat of the National Council on Climate Change
III
Member : Deputy Minister of International Cooperation, Coordinating Ministry of Economy
Deputy Minister of Development Fund, State Ministry of Planning/Bappenas
Deputy Minister of Infrastructure State Ministry of Planning/Bappenas
Deputy Minister of Economy State Ministry of Planning/Bappenas
Deputy Minister of Regional Development and Local Autonomy State Ministry of
Planning/Bappenas
Deputy Minister of Poverty, Man Power, and Small and Medium Enterprises State
Ministry of Planning/Bappenas
Deputy Minister of Human Resources State Ministry of Planning/Bappenas
Deputy Minister of Development Performance Evaluation State Ministry of
Planning/Bappenas
Director General of Treasury Ministry of Finance
Director General of State Budget Ministry of Finance
Director General of State Asset Ministry of Finance
Head of Fiscal Policy Agency Ministry of Finance
General Secretary Ministry of Finance
In its role as a Policy Forum, in addition to the above list, representatives from development partners and
selected NGOs/CSOs will also be members. Selection criteria for CSOs/NGOs and development partners for
this forum will be presented in the SOP. In its role as a Management Forum, 1(one) representative from the
development partners will be part of this forum with selection criteria to be announced in the SOP. Voting
rights rules for each member of the forum will be included..
Technical Committee (TC)
The Director of Environment of National Development Planning Agency/ Bappenas will chair the TC.
41
Members of the TC will come from relevant Ministries and other Government Bodies. In its functions, the TC
may be advised by a group of experts that will assist with technical issues regarding climate change activities.
The composition will be as follows:
Chairman : Director of Environment of National Development Planning Agency/ Bappenas

Vice Chairman I : Director of Treasury System Ministry of Finance
Vice Chairman II : Director of Multilateral Fund, State Ministry of Planning/Bappenas
Member : Director II of State Budget Ministry of Finance
Director of Foreign Loan and Grant, Ministry of Finance
Director of Evaluation, Accounting and Settlement Ministry of Finance
Assistant Deputy Minister of Climate Change Mitigation State Ministry of Environment
Secretary of Research and Development Agency Ministry of Forestry
Head of Planning Bureau Ministry of Energy and Mineral Resources
Head of Planning Bureau Ministry of Agriculture
Head of Planning Bureau Ministry of Forestry
Head of Planning Bureau Ministry of Marine Affair and Fisheries
Head of Planning Bureau Ministry of Public Work
Head of Planning Bureau Ministry of Communication
Head of Planning Bureau Ministry of Industry
Head of Climate Change Centre Geophysics, Climatology and Meteorology Agency
Director of Economic Development and Environment Ministry of Foreign Affair
Director of Environment and Spatial Planning, Ministry of Home Affairs
Head of Planning Bureau and International Cooperation National Land Use Agency
Director of Bilateral International Cooperation, State Ministry of Planning/Bappenas
Director of Water Resource Conservation and Forestry, State Ministry of
Planning/Bappenas
Director of Food and Agriculture, State Ministry of Planning/Bappenas
Director of Marine Affair and Fisheries State Ministry of Planning/Bappenas
Director of
Director of Mineral Resources, Energy and Mining, State Ministry of
Planning/Bappenas
Director Of Energy, Telecommunication and Informatics State Ministry of
Planning/Bappenas
Director of Transportation, State Ministry of Planning/Bappenas
Director of Irrigation, State Ministry of Planning/Bappenas
Director of Urban, Spatial Planning and Land Use, State Ministry of Planning/Bappenas
Head of Legal Bureau State Ministry of Planning/Bappenas
Head of Legal Bureau Ministry of Finance
Head of Planning Bureau, Organization, Governance State Ministry of
Planning/Bappenas
Secretariat
The Management Team will be supported by a Secretariat, established under a SC, which will consist of
technical, administrative and financial experts. The main job of the Secretariat is to oversee the day-to-day
operation of the SC. The Secretariat will work on a full-time basis.
42
The following is the composition of the secretariat:
Chairman : Head of Sub-Directorate Climate, Weather, Directorate of Environment State Ministry

of Planning/Bappenas
Vice Chairman : Head of Sub-Directorate Conservation and Forestry Environmental Service
Development, Directorate Water Resources Conservation State Ministry of
Planning/Bappenas
Member : Head of Division Budget and Program Planning, Organization, Governance, State
Ministry of Planning/Bappenas
Head of Division Legislation and Regulation Development, Legal Bureau State Ministry
of Planning/Bappenas
Head of Division of Finance, General Affair Bureau State Ministry of
Planning/Bappenas
In carrying out its functions, the Secretariat may be assisted by a group of technical experts (“On-call and
Permanent experts”). The secretariat will be under the purview of the Bappenas.
Two types of experts are identified, namely:
1. “Permanent experts” that would assist the Secretariat in its day-to-day activities and, whenever
required, would provide assistance to the Technical and SCs. These include:
• Trust Fund Manager
• Finance and Administration Specialist
• Operation Specialist
• Fund Specialist
• Procurement and Compliance Specialist
• Communication and Knowledge Management Specialist
• Admin and Financial Assistant (x2)
• IT Assistant
• Secretary
2. A panel of “On-call experts”, which would assist sectoral ministries with the preparation of
applications for activities financed by the ICCTF, giving their technical expertise in regard to specific
proposals which might be needed by the Technical and SC and (if necessary) assisting with the
selection of contractors to implement these activities.
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ANNEX 6: PRIORITY WINDOWS
A. Investment Rationale for the Energy Window of the Indonesia Climate Change Trust Fund
I. Introduction
The Energy Window of the Indonesia Climate Change Trust Fund (ICCTF) is one of three mechanisms for
financing the necessary investments to support the provision of Indonesia’s national priorities of sustainable
national development and poverty eradication and concurrently contribute to the global efforts in mitigating
the negative effects of climate change. On the latter priority, UNFCCC has underlined the important that
member parties shall incorporate climate change into national development planning, in the case of Indonesia
is in its medium-term development plan (Rencana Pembangunan Jangka Menengah/RPJM) 2010-2014 and
beyond. The government of Indonesia has shown its commitment to this agenda by indentifying such
essential issues in its National Development Planning: Indonesia Responses to Climate Change in 2008. This
documentary has been currently updating to meet the steady changes on climate issues and will be further
updated as necessary from time to time. Concurrently, investment strategy in ICCTF shall be periodically
reviewed and updated through its Energy Window, to be capable to sustain in this more uncertain global
economic condition and volatile financial markets.
The ICCTF Energy Window itself has been devised to promote and attract investment and financial support to
meet its three-fold objective, namely:
4. To support Indonesia’s national sustainable development priorities;

5. To facilitate investment in renewable energies, in particular geothermal and solar energies;
energy efficiency; cleaner coal technologies; and enhanced oil recovery; and
6. To improve the effectiveness of external financial support for climate change mitigation in
Indonesia.
II. Overview of Commercial Energy Use in the Indonesian Economy
Despite a relatively rapid growth in primary energy consumption, Indonesia still has large developable
energy resources and significant proven reserves of fossil-fuels. At current rates of extraction, Indonesia’s oil
reserves will last for the next twenty-four years. Current natural gas reserves would last over 60 years and
coal reserves at least 75 years at current rates of production (MEMR, 2008).
Given the dynamics of forces at work in Indonesian society and in the global energy economy, it is likely that
the mix of energy supplies required in Indonesia in 2025 will be rather different from the mix observed in
2007. Many factors (economic, social, geopolitical, etc.) will affect the rate of future growth of the Indonesian
economy, the mix and distribution of economically-important activities around the country, and the pattern
in primary energy consumption. If the energy-efficiency and fuel-switching goals outlined in Presidential
Decree 5/2006 were fully achieved, oil use would decline from 47 percent of primary energy consumption in
2025 in the BAU Scenario to only 20 percent of primary energy, while the market share of natural gas would
44
expand from about 20 percent to about 30 percent. In addition, modern renewable energy technologies and
geothermal resource use would increase to around 17 percent of primary energy supply. And investments in
renewable energy and geothermal energy, along with energy efficiency, and cleaner coal technologies would
significantly reduce future GHG emissions.
But achieving the goals of Presidential Decree 5/2006 would not exhaust all the potential for cost-effective
energy-related investments that could advance Indonesia’s national development priorities while reducing
GHG emissions. Even greater achievements are possible through technology cooperation and innovative
financing approaches. The role of the Energy Window of the ICCTF is to stimulate new partnerships that will
lead to achieving these greater possibilities.
III. Biomass Energy Systems
Indonesia has vast amounts of biomass resources and these are not being exploited to their maximum
potential. Currently this resource has been utilized inefficiently, primarily as firewood, mostly for cooking and
heating in poor households and small industries (TNA, 2009). Despite its large energy potential (50,000
MWe), the utilization of biomass potential seems to be stagnant unless it will be tapped by introducing end-
use technology, along with financial support in a cost-effective project.
IV. Geothermal
High-temperature geothermal energy reserves in Indonesia are the largest in the world, estimated to be
greater than 27,000 MWe. There are 256 mapped locations with geothermal development potential
distributed around Indonesia (DGMCG, MEMR 2008). Its potential and way forward has been prepared in
national geothermal roadmap, while some of its potential will be developed in the coming second 10,000 MW
fast track program.
V. Large and small hydropower
Indonesia’s vast hydropower potential could generate as much as 76,000 MWe scattered all over the country
and of about 1,315 locations have significant hydropower potential (MEMR, 1990). On Indonesia’s mini- and
micro-hydro potential, due to the geographic and demographic conditions, is suitable to be developed to
substitute for existing unclean and often unreliable, diesel gen-sets. Construction is currently under way for
several small hydropower plants, but growth of this technology remains slow due to some constraints on its
viabilities.
VI. Solar energy
With an average intensity of 4.5 - 5.0 kWh/m² per day, Indonesia has abundant solar energy potential. The
two most commonly installed technologies in Indonesia are solar thermal power, used for cooking, drying,
and water heating systems; and solar photovoltaic power systems which are used for rural electrification,
water pumping, telecommunication systems and refrigerators in remote areas. Installed solar photovoltaic
capacity was estimated at 8 MWe in 2005, which will be increased to 870 MWe by 2025.
VII. Greenhouse Gas Emissions from Indonesia’s Energy Sector
Indonesia’s demand for commercial energy resources and services continues to increase as a result of
45
economic development and population growth. The energy sector ranks as the second largest GHG emitting
sector (354 Mt CO₂e) of the economy, contributing about 30% of CO2 emissions, which is superseded by
emissions from Land Use and Land Use Change and Forestry (LULUCF)12.
Significant opportunities for reducing GHG emissions from economically-important activities in the energy
sector exist both in the area of energy supply and in those sectors of the economy which contribute the most
to energy demand. These opportunities exist in (i) supply side, mainly in power generation by introducing
geothermal and renewable energy; and in (ii) demand side, by improving efficiency in industrial,
transportation, residential and commercial sectors. Implementation of Presidential Decree 5/2006 has been
projected to reduce CO2 emissions from energy-related activities in 2025 from approximately 1150 Mt CO2 to
about 950 Mt CO2, or by about 17 percent.
VIII. Required fund and financing strategy
Some of the high-priority opportunities that will be addressed by the ICCTF in its efforts to facilitate
achievement of Indonesia’s goals of energy security and reduction of CO 2 emissions from energy-related
activities include the following:
a. Accelerate investments in Renewable and Geothermal Energy
The second 10,000 MW crash program for the energy sector (December 2008) sets a target of increasing to
60 percent the contribution to Indonesia’s total electricity generating capacity from renewable energy
technologies. Of this amount, geothermal energy will contribute the lion’s share, reaching 48 percent of total
national power generating capacity. The investment required to achieve this level of geothermal capacity by
2018 is estimated to be approximately USD$16 billion. The GOI expects that 70% of the total investment in
geothermal power generating capacity will come from the private sector.
b. Accelerate investments in Energy Efficiency in the Industry and Residential Sectors

The GOI estimates that Indonesia could reduce energy demand in 2030 by about 15 percent through a
combination of efficiency-improving measures. These include increased use of more efficient electric motors
(e.g., in elevators, conveyors, and pumps); replacing incandescent lights with more efficient LEDs or compact
fluorescent lights; and introducing a time-of-day tariff to stimulate load shifting from peak periods to low-
demand, night-time periods. The advantage of this approach is that, in principle, only bridge finance is
required as the required investments, which repay themselves through lower operational cost over a period
of 6 years.
c. CO2 Emissions Reductions from Improved Transport

Significant emissions reductions could be achieved in the transport sector through a mixture of policies aimed
at avoiding the need for excessive travel; shifting to public transportation modes; and improving the mileage
and fuel shifting toward cleaner fuel. The required changes will not only have an impact on GHG emissions,
but also will reduce air pollution and traffic congestion, while assist in making cities cleaner, safer and more
efficient for Indonesia’s citizens.
IX. Conclusion
The proposed investment program for the Energy Window of the ICCTF is in the interest of both Indonesia
and the world as a whole. The total estimated reduction in carbon emission ranges from just over 3 million
tons CO2 in 2010 to over 124 million tons of CO 2, in 2025. The total reduction for the period 2010 – 2030 is
estimated to be on the order of 1,000 million tons of CO2. With modest grant contributions of about USD$ 300
million, donors would leverage an investment of over USD$ 46 billion that would stimulate economic growth
46
and energy security, while significantly reducing GHG emissions from this strong, stable, democratic
economy.
B. Sustainable Forestry and Peat Land Management
Given the ongoing roadmap process in the forest sector and that specific priority areas and programs are still
expected the following description serves only as an indicative strategy, which will be developed later. DFID
is currently supporting GOI in designing the investment strategy related to the first tranche on sustainable
management of peatlands, with a specific investment plan expected for early 2010.
Background
The forestry and peatland window of the ICCTF pursues principally strategies related to the mitigation of
climate change through the sustainable management of peatlands and forestry. Accordingly, the window will
be divided into a distinct tranche for peatland and another tranche related to various forestry mitigation
programs as emerging from the roadmap process. The latter would potentially include Reducing emissions
from deforestation and forest degradation (REDD) as well as the enhancement of carbon stocks through
afforestation, reforestation and forest rehabilitation activities. The investment strategy is based on national
priority programs and plans as emerging through the 20 year climate change roadmap process (20 ICCR).
Given the breadth and complexity of GHG emissions from LULUCF, an initial ecosystem focus on peatlands
with its significant rates of GHG emissions is proposed as a test case to then structure parallel or broader
support on REDD and forestry.
Indonesia’s emissions of greenhouse gases oscillated around 1 Gton CO2e annually over the period 2000 –
2005 (SNC, 2009), making it the largest source of GHG emissions, followed by the energy and waste related
sectors. The main processes contributing to the significant GHG emissions are the degradation of peatlands,
deforestation and forest degradation, and conversion to other land uses, among those agriculture, energy and
mining. The drivers of these processes are largely cross sectoral in nature and need to be addressed
accordingly. Restoration of these areas in the near term will require considerable human intervention and
investment.
Investment Strategies
The investment strategy follows two main approaches, which are in the first place related to sustainable
peatland management and secondly to REDD:
1. First tranche: The sustainable management of peatlands. Indonesia’s peat swamps cover some
20-27 million hectares – the largest deposits of tropical peat on earth. National and regional
economic development policies have targeted peatland areas for increasing food production,
industrial timber and agricultural plantations development and transmigration. Prominent
examples include the 1 million ha rice project in Central Kalimantan. These policies have required
large-scale forest conversion and drainage. GHG emissions from Indonesia’s peatlands may be in
the order of 1 Gt CO2 in peak years. This figure remains contested. It is clear that Indonesia has the
potential to make a major contribution to climate change mitigation efforts, through action to tackle
peatland GHG emissions. Action in this one sector is a sign of Indonesia’s global leadership. An
ICCTF strategy on peatlands aligns with existing Government of Indonesia policy on the sustainable
management of peatlands. This includes baseline scientific, legal and economic analyses; and work
to put in place governance, finance and investment strategies, for longer-term action. For this
reason, peatlands have been identified as a priority for early coordination and action under the
ICCTF. The strategy aims to comprehensively address the key drivers of degraded peatland through
47
several main priority outputs related to “Best-available science” including:

a. a consensus reached on peatland-area emissions and monitoring protocols.
b. Emissions reduction scenarios shall be generated, against alternative interventions.
c. Business and investment models for sustainable management of peatlands facilitated, to
deliver emissions reductions.
d. Protocols developed to integrate sustainable peatland management into regional and
national development plans.
e. Protocols developed to strengthen oversight of land-use decision-making in peatland areas.
2. Second tranche: Reducing emissions from deforestation and forest degradation (REDD) and
enhancement of carbon stocks,. Emission avoidance or emissions reduction from deforestation
and forest degradation can be achieved through activities related to the eradication of illegal
logging, prevention of forest fires, forest resource conservation, community empowerment,
strengthening the forest tenure as well as conservation forest management. It is regarded essential
that policies involving forest management contribute to emission reduction from deforestation and
forest degradation when implemented properly. REDD would be the major investment vehicle for
development partners and private sectors. It would cover suitable forest landscapes, particularly
the Peatland area.
Enhancing the carbon sink capacity of the forestry sector can be achieved through increased
establishment of forests on degraded lands or non-forest areas. National programs such as the
development of Industrial Forests, Community Forestry, Public Forest (HR), and the Forest and
Land Rehabilitation program (GERHAN).
A conducive investment strategy in the forest sector has to consider the economic and social challenges now
faced by the Indonesian forest sector which are, among others: the lack of supply of raw wood, overcapacity,
industrial inefficiency, low competitive value of products, decreasing market share, and the processed wood
products have low added value. It should be borne in mind that at least 20 million people depend on forest
resources for their livelihoods in Indonesia (Sunderlin, 2000). The problem of deforestation and forest
degradation is intrinsically linked with overall national development. Forestry as a land use-based sector can
not be separated from the development needs of other sectors such as agriculture, infrastructure, industry
and energy, among others.
C. Resilience
The evidences of climate change in Indonesia are numerous and varied. These include temperature changes,
precipitation changes, sea level rise, and extreme weather events. These changes in environment and natural
conditions have already started to impact many development sectors and segments in Indonesia. The most
adversely impacted sectors are likely to include agriculture, water resource management and coastal zone
management. Moreover, climate change also has significant impacts on MDGs achievement, such as the
achievement of eradication of extreme hunger and poverty. To anticipate the worst possible impacts, and to
deal with the risk and uncertainty of climate change, simultaneous efforts addressing a number of different
aspects are regarded as the most effective approach.
The adaptation efforts would need a set of measures that will enable and accelerate the implementation. Such
measures are crosss cutting and intersectoral and includes below:
Data and information management
48
Data and information system are the most preliminary critical factor for assessing the impact of climate
change and the vulnerability level, and also needed to determine the most effective adaptation responses.
Vital to information management is the effective application of climate and meteorological services. Weather
and climate forecasting information (short-, mid- and long-term) will be critical in the coming decades to
adapt to climate change. Climate change modeling will also be critical to predict the expected impacts on local
level and sectors.
Awareness raising and capacity building
Raising the awareness of citizens on the importance of climate change and integrating climate change issues
into national education is essential to ensure public buy-in and the success of adaptation and mitigation
programs. It is imperative that the right information is being disseminated to the right target groups at the
right time.
Integrated spatial planning
Impacts arising from gradual changes in the climate need to be immediately anticipated by formulating
suitable spatial plans. A robust policy framework will be put in place to integrate climate into spatial planning
at the national and local levels.
Adaptation efforts will prioritize the most vulnerable locations, which are determined by level of risks,
population size, existing infrastructure, institutional conditions, and the socio-economic importance of the
area.
Local response plans and actions
The most critical actions to adapt to and mitigate the effects of climate change will occur at the local level.
Considering the cross-sectoral nature of climate change, local action plans need to be prepared in
coordination with, and synchronized to, other activities at the local level. Some local actions in key target
areas are as follow: coastal urban slums, food insecured areas in eastern of Indonesia, small islands and Java’s
northern coast, which includes the nation’s key rice production areas.
49

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Final ICCTF Blueprint

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REPUBLIC OF INDONESIA

BLUEPRINT FOR INDONESIA CLIMATE

FOREWORD BY MINISTER OF NATIONAL DEVELOPMENT PLANNING/ CHAIRMAN

Climate change is increasingly threatening national sustainable development paths, and

This is why it is of utmost importance to reach an agreement on how to combat climate

Jakarta, September 14, 2009

FOREWORD BY MINISTER OF FINANCE/ ACTING COORDINATING MINISTER FOR

Climate change is increasingly threatening national sustainable development paths,

This is why it is outmost importance to reach an agreement on how to combat climate

Jakarta, September 14, 2009

Minister of Finance of the Republic of Indonesia

Sri Mulyani Indrawati

Foreword by Minister of National Development Planning/ Chairman of National

Foreword by Minister of finance/ Acting Coordinating Minister for Economic

2. Options In Climate Change Financing....................................................................4

2.1 Existing Climate Change Financing MechanismS.................................................4

2.2 Review of Multi Donor Trust Funds in Indonesia...................................................5

2.3 International Experience with Multi-Donor Trust Funds.........................................6

2.4 Summary of Lessons Learned...............................................................................8

The Indonesia Climate Change Trust Fund (ICCTF)................................................10

3.1 Objectives and Strategy of the ICCTF.................................................................10

3.2 Principles of ICCTF..............................................................................................11

3.3 Proposed Priority Areas for ICCTF .....................................................................12

3.4 Mechanism of the ICCTF: “Innovation and Transformation funds”.....................14

4. Institutional and Management Arrangement of the ICCTF..................................19

4.1 Institutional Arrangement.....................................................................................19

4.1.1 Steering Committee (SC) .................................................................................20

4.1.2 Technical Committee (TC)................................................................................21

4.1.4 Technical service providers..............................................................................21

4.1.5 Financial service providers (Trustee)................................................................22

4.1.6 Development Partners......................................................................................22

4.1.8 Contractor ........................................................................................................22

4.2 The Project Cycle ...............................................................................................22

4.3 Monitoring, Evaluation and Auditing ...................................................................25

4.3.1 Legal Basis.......................................................................................................25

4.3.2 Monitoring and Evaluation (M&E) Mechanism..................................................26

4.3.3 Auditing Mechanism.........................................................................................26

5. NEXT STEPS ..........................................................................................................27

ANNEX 1: Definition of Trust fund............................................................................29

ANNEX 2: Overview Characteristics of Multi Donor Funds...................................30

ANNEX 3: Assesment of Three ICCTF Trustee options...........................................33

ANNEX 4: Regulatory Framework.............................................................................39

ANNEX 5: Proposed Members of Advisory Committee, Steering Committee,

ANNEX 6: Priority windows.......................................................................................44

ADB Asian Development Bank

Figure 1: ICCTF Design..............................................................................................14

Figure 2: Concept of ICCTF development................................................................15

Figure 3: Coordination Mechanism of ICCTF...........................................................19

Figure 4: Simplified ICCTF project cycle..................................................................25

Table 1: Review of Indonesia experience on Multi Donor Trust Fund.....................6

Table 2: Priority areas identified in the Yellow Book (Bappenas 2008).................12

Table 3: ICCTF Financing Phases.............................................................................16

2 Known as Badan Perencanaan Pembangunan Nasional or BAPPENAS.

3 Known as Dewan Nasional Perubahan Iklim (DNPI).

Chapter 5: addresses the undertaken and future steps of ICCTF.

2. OPTIONS IN CLIMATE CHANGE FINANCING

2.1 EXISTING CLIMATE CHANGE FINANCING MECHANISMS

2.2 REVIEW OF MULTI DONOR TRUST FUNDS IN INDONESIA

Table 1: Review of Indonesia experience on Multi Donor Trust Fund

2.3 INTERNATIONAL EXPERIENCE WITH MULTI-DONOR TRUST FUNDS

Box 2.1: Amazon Fund: Learning Experience

2.4 SUMMARY OF LESSONS LEARNED 6

THE INDONESIA CLIMATE CHANGE TRUST FUND (ICCTF)