Introduction

This Factsheet outlines the current progress in advancing Sustainable Public Procurement (SusPP) in Indonesia based on a desk review. The review applies an analytical framework of six Pillars (or "building blocks") of SusPP systems.

The Framework is designed to make clear that countries do not need to follow a linear step-by-step path to build effective GPP systems. Rather it is important to examine local contexts and prioritize the Pillars with the most potential in the country. No matter where a country starts, a balanced approach to implementation calls for progress on all Pillars to some degree.

This Factsheet is organized as follows:

• "Country Overview" section with executive summary, indicative maturity rating, key achievements, potential pathways forward and timeline of key events related to advancing sustainable public procurement.
  
• "State of Play & Forward Looking Analysis" section that summarizes the research findings from the desk review for each Pillar theme.
  
• "Key Stakeholders Driving the Agenda" explores opportunities for ADB teams to open discussions with country counterparts and add value to the work of partners.
  

The Factsheet is intended to be a living document that will be revised and improved as new information is uncovered and advances are made. It is designed to support the ADB training programs on SusPP.

Public procurement in Indonesia accounts for 45% of the national budget. Procurement practices are currently governed by Presidential Regulation no. 16/2018, and the Government is planning to upgrade the Regulation to a Procurement Law. The procurement system is decentralized with each State Ministry, State institutions, Regional apparatus and local government coordinating their own procurement units, followig the national procurement system as stipulated in the Presidential Regulation.

Infrastructure, energy and construction projects are a high priority in Indonesia's national development. And a huge potential exists to shift procurements for these projects towards more environmentally sustainable practices. At the same time, Social procurement can benefit the country's SME sector, which accounts for 99.99% of all Indonesian businesses who contribute 60% of the country's GDP and employ 97% of Indonesia’s workforce. Only a fraction of these SMEs —0.26 percent — have obtained a government contract.

Indonesia has achieved significant growth in the last decade and was predicted to become one of the high income economies along with China, India, and Brazil by 2050. The Government has set a vision to become the fifth-largest economy by 2045. However, the COVID pandemic and increasing environmental disasters triggered by climate change threatens this progress. Expansion of coal capacity is planned to respond to the country’s growing energy needs. However, a new direction is being considered with the Ministry of National Development Planning setting out a vision for a post-COVID economic transformation. The vision is based on six strategies, including one centred on “green economy, focusing on low carbon economy and circular economy, blue economy and energy transition.” This shift is predicted to result in >6% GDP growth per year until 2050 and create 1.8 million green jobs by 2030 in energy, electric vehicles, land restoration and waste sectors.

>> Snapshot of Sustainable Procurement Maturity Level

Maturity Level:

Early-Intermediate Stage

Key Achievements

• High-level commitment to green growth and climate change
  
• Procurement law explicitly promotes SusPP
  
• Government interest in contracting with women-owned businesses
  
• Listings of green goods and services with ecolabels/certifications exist
  

Potential pathways forward

• Lack of awareness and buy-in for GPP due to perceived higher price
  
• Need for incentives to motivate Indonesian industries and SMEs to supply green goods/services
  
• Need for more technical criteria and practical guidance
  
• Need for a monitoring and evaluation system
  

>> Timeline of Implementation of SusPP Policies and Activities

2007

2009

2010

2015

2016

2018

2019

2020

2024

National Public Procurement Agency created

Procurement regulations introduce eco-friendly procurement

Technical Team on Green Public Procurement created

Listing of ecolabelled goods and services launched to guide procurements

Law 32/2009 on Environmental Protection and Management promotes adoption of green public procurement

National Medium Term Development Planning 2015-2019 prioritizes sustainable consumption and production

Procurement regulations updated to promote sustainable procurement and local preferences

Capacity building activities, pilot procurements & tools on GPP

LKPP Chairman Decree - Sustainable Procurement Guidance Notes and updated Model Bidding Document for Construction (with sustainable procurement provisions)

Pillar 1: Government Vision & Awareness of SusPP

Governments that establish a clear policy vision on SusPP can accelerate the shift from procurement as an adminstrative to strategic function, making clear how SusPP can deliver on important national social and environmental goals.

Green public procurement was first introduced in Law 32/2009 on Environmental Protection and Management, Articles 42(2)c and 43(3)a. The Law identified procurement of environmentally sound goods and services as an ‘economic instrument of the environment’ to promote sustainable consumption and production (complementary to environmental taxes, levies, subsidies, permitting, labels etc). The use of ecolabels are encouraged to identify environmentally-friendly goods and services.

In 2013, the 10-Year Framework of Sustainable Consumption and Production launched quick-win programs designed to advance SusPP:

• The Ministry of Energy was mandated to develop criteria for ecolabelling and means of verification, including public participation;
  
• The Ministry of Industry was mandated to green industry; and
  
• The Ministry of Public Works and the Green Building Council were mandated to develop green building construction.
  

All of these initiatives appear to be in progress but not yet finalized or mainstreamed across the country.

The implementation of SusPP can contribute to the country's national development goals. The National Medium-term Development Plan (RPJMN 2015-2019) specifies that the green economy is to be the foundation of Indonesia’s development programme, a vision reinforced in the 2020-2024 updated to the Plan. Key development priorities include:

• Reducing deforestation: Between 60-80% of timber consumed by the domestic wood industry every year is illegally obtained, with a significant proportion purchased in government procurement.
  
• Renewables: The country plans to reduce its coal capacity and is calling for international donor support to shift to renewables.
• Waste: The Government set a national targets of 30% waste reduction and 70% waste management by 2025, including 70% ocean plastic reduction by 2025.
• Construction Waste: Ministerial Regulation 2/2015 was adopted to reduce environmental impacts from the construction industry.
• Circular economy: Opportunities for the circular economy are expected to be high in five key sectors: food & beverage, textiles, construction, wholesale & retail trade, electrical and electronic equipment.
• Climate change: The 2022 Enhanced Nationally Determined Contribution aims for 32% GHG reduction by 2030 and net zero by 2060.

SPP may hold the greatest potential at the sub-regional and local levels. The Smart City in the new National Capital City Project (IKN) concept is one of the examples of GPP implementation in Indonesia - with the goal to become the world’s most sustainable city and an economic driver for Indonesia’s future. The Project has set goals to:

• Designed according to nature: Over 75% of government properties remain green and all residential, institutional and commercial buildings are constructed using strict environmentally friendly construction methods;
  
• Low carbon emissions: Renewable energy will provide 100% of energy needs, all new public buildings will achieve a 60% energy efficiency increase and net zero emissions will be achieved by 2045.
  
• Circular and resilient: Achieve 60% waste recycling rate by 2045 and 100% of wastewater treated properly by 2035.
  

Similarly the City of Semarang has set green growth priorities into its city planning, including the adoption of green procurement policies including criteria relating to energy efficiency and recycled material requirements. The city aims to promote green buildings with natural air circulation, natural lighting, water recycling and environmentally friendly materials.

Pillar 2: Legal & Regulatory Framework

Procurement law reform can be key to clear obstacles to implementation by establishing "value for money", not "lowest price", as a core procurement objective, and authorizing procurement approaches suited to SusPP.

Green procurement

The formal legal basis for public procurement in Indonesia began with a Presidential Decree in 2000 that was later amended to a Presidential Regulation 54/2010. This 2010 Regulation first introduced environmentally-friendly procurement in Indonesia. It set out three rationales to justify the integration of GPP into procurement practice:

• First, to provide the most benefits to the government, community and economy with minimum impact to the environment.
  
• Second, to promote the wise use of natural resources through the inclusion of an environmental impact assessment (EIA) in tenders or by the use of recycled materials.
  
• Third, to improve the efficiency and effectiveness of the procurement and deliver value for money given that purchases carry expenses beyond purchase price.
  

Public procurement is now governed by Presidential Regulation 16/2018 as amended No. 12/2021. It outlines SusPP as a core procurement objective (Articles 4,5). Article 68 outlines the three aspects of SusPP:

• economic aspects including the cost of producing goods/services throughout the life of the relevant goods/services;
• social aspects including empowerment of small businesses, guarantees of fair working conditions, empowerment of local communities/businesses, equality, and diversity; and
  

• environmental aspects including the reduction of negative impacts upon health, air quality, soil quality, water quality, and use of natural resources in accordance with the provisions of the legislation
  

Article 19 requires the Procuring Entity to maximize the use of green industrial products and green criteria in technical specifications and Terms of Reference. Sustainable Procurement shall be implemented in the planning/budgeting process, preparation of technical specifications/TOR and draft contracts and in preparing bidding documents. The bidder shall meet the environment and social requirements as indicated in the Standard Bidding Documents. Articles 19(1).d and 19(4) also clearly mention that the Commitment Making Officer (PPK) shall, in preparing technical specifications/TOR of goods, services, prefer ecolabeled products.

Article 39(1) of PPR states that evaluation of bids from Providers of Goods/Construction Works/Other Services shall be based on one of three methods: (1) Scoring system, (2) Economic Life Cycle Cost evaluation; or (3) Lowest Price. Article 39(3) states that Economic Life Cycle Cost evaluation shall be used for the procurement of Goods taking account of economic life, prices, operational costs, maintenance costs and residual value.

Ministerial Regulation No. 5 on the Procedure for Application of Eco-friendly Labels for Green Public Procurement (GPP) was adopted by the Ministry of Environment and Forestry in 2019. The Regulation requires that procurements be made based on a list of ecolabeled goods and services in priority product categories: office paper, plastic files, wood for furniture, medical waste treatment equipment and air conditioners (as specified in Circular Letter No.16/2020). The list of products are to be updated annually and gradually expanded to other product categories with time. Three product categories were added in 2021: processed wood for construction, cement, and eco-friendly concrete.

Domestic preferences

The 2018 Regulation also reserves bids valued up to Rp2,500,000,000 for small businesses, requires the use of domestic products including design and engineering, and allows price preferences for domestic bidders (25% for goods and services contracts and 7.5% for construction works).

To support domestic enterprises in the face of COVID, the Government updated the procurement rules through Regulation 12/2021. Procuring agencies to allocate at least 40% of their budget to domestic products from micro-level businesses and cooperatives. It also raises the limit on the amount that can be procured from micro-level businesses to Rp 15,000,000,000 (previously Rp 2,500,000,000). This 2021 regulatory update also clearly mandates the preference towards environmentally friendly goods and services in public procurement in order to contribute to national goals on efficient use of natural resources and waste minimization.

Pillar 3: Institutions & Capacity

In the early 2000, procurement was largely decentralized with each public authority charged with creating a central procurement unit to coordinate procurements. A central procuring body - the National Public Procurement Agency - was created under Presidential Decision No 106 of 2007, the LKPP (Lembaga Kebijakan dan Pengadaan Barang/Jasa Pemerintah) to nationalize the public procurement rules and system.

Currently, responsibility for public procurement is still decentralized across state, regional and local authorities in 33 provincial governments. However, all follow the national procurement rules stipulated in the 2018 Presidential Regulation. The motivation for this inter-governmental transfer of regulatory authority from the national to regional governments was to benefit the poorest regions. The result has been that approximately 47% of public expenditure has been transferred to regional governments.

On green public procurement, the Ministry of Environment and Forestry (MoEF) acts as the lead agency for GPP implementation, working together with related Ministries and institutions who are members of the GPP

Technical Team. The Technical Team consists of representatives from the Ministry of Environment and Forestry, Ministry of Public Works and Public Housing, Ministry of Energy and Mineral Resources, Ministry of Commerce, Ministry of Industry, Ministry of Tourism, Technology Application and Assessment Agency and the National Public Procurement Agency.

Initiatives to build awareness and capacity on GPP have been underway since 2019 in international donor projects. In December 2020, a GPP workshop was organized with support from EU-Switch Asia and GIZ to launch awareness raising materials on GPP including an online platform of environmentally friendly goods and services (https:// sibarjasramling.com), informational video and GPP handbook. The National Public Procurement Agency has developed a GPP training module that offers a general introduction to the GPP concept, motivations, case studies, market readiness and engagement and designing and verifying green criteria. A MOOC (massive open online course) based SPP training is planned to be hosted on a platform widely accessible to the public.

Pillar 4: Market Practices

Market dialogue throughout the procurement process helps procuring entities to choose realistic sustainability criteria and ensure suppliers succeed in delivering on sustainability commitments over the contract duration.

The advancement of green industry practices is a key priority in the Government’s green growth vision. Several supportive initiatives and structures have been put in place in the country. The Indonesian Cleaner Production Center was established in 2004 by Ministerial decree to promote, implement, develop and provide the Resource Efficiency and Cleaner Production (RECP) services in Indonesia. In addition, the Government plans to develop environmentally source industrial estated (“Eco-Industrial Parks”) to foster eco-innovation. The Chamber of Commerce (KADIN) is working to improve domestic industrial capacity for the production of green products and the Research and Applied Technology Bureau are working to improve green product innovation.

Under the EU-Switch Program, market readiness studies and capacity building sessions have been held for companies in the office paper and wood furniture industries to meet the ecolabel standards required to qualify for public procurements. In December 2022, a “She-Bid Training” was held to equip women-led SMEs to access public procurement tenders, increase their competitiveness and market shares within the framework of UNDP’s FairBiz Project.

However, classification by green criteria has not been enabled to date.

Pillar 5: Procurement Operations

Various tools and procurement approaches can be employed to help procurers more easily identify environmentally friendly goods and services and attract a competitive market response.

Guidance note on the application of sustainable procurement and related model bidding document for construction was published in March 2024.

SPP practices are not widely documented across Indonesian ministries, institutions, regional and local governments. The reasons for this may be due to the gap in a lack of enforceability of supportive regulations, risk aversion of procurers to divert from lowest price, and the low market supply of certified environmentally goods and services.

Ecolabels & Standards

Currently the procurement of environmentally friendly goods and services in Indonesia must be on the basis of recognized ecolabels or certifications. The Government has developed several schemes:

• Timber Legality Verification System (TLVS/SVLK) to ensure that all timber products circulating and traded in Indonesia are not sourced from illegal logging operations.
  
• National green ecolabel “Ramah Lingkungan”
  
• Green Industry Standard by the Ministry of Industry
  
• Energy Efficiency Scheme by the Ministry of Energy and Mineral Resources.
  
• Green building standards by the Ministry of Environment
  

Green Buildings

Regulation No. 8 of 2010 on Criteria and Certification of Eco-friendly Building sets out the nine criteria for a green building. New and existing buildings with floor space from 5,000 m2 to 50,000 m2 must comply with these criteria. Certifications can be obtained from the Ministry of Public Works and Public Housing and Green Building Council Indonesia. Certified buildings are granted incentives including exemptions from building approvals, approval to construct additional floors, technical support and promotion.

The Public Works and Housing Ministry has been working with the IFC since 2015 to devise a national green building code. Green building development in Indonesia presently covers 25 million square meters, mainly due to significant progress made in Jakarta and Bandung in pioneering green building codes. A 2022 Roadmap for Energy Efficient Buildings and Construction sets the path for the transition towards low-emission, efficient and resilient buildings and construction. It outlines eight Focus Areas with actions and targets that can provide ideas for criteria to include in tenders for more sustainable construction projects in the country.

Energy efficiency

Energy efficiency initiatives are rising in importance across the country. A study was completed in 2022 that provided 40 recommendations for the Government to improve energy efficiency in electricity generation, appliances and equipment, buildings, industry and transportation.

Pilot Tenders

Pilots were carried out in 2020 in several ministries, institutions and local governments in Indonesia for the procurement of ecolabelled photocopy paper and sustainably sourced wood furniture. Currently LKPP is in the process of drafting the SPP SBD for legal wood furniture in which there is requirement related to environment such as requiring the bidder to submit eco-friendly certificate.

E-marketplace

LKPP also established e-catalogue system for the five “highest budget” ministries, which also includes green products, Several local governments have developed their own supplier e-catalogues. LKPP is also responsible to develop, manage and supervise implementation of e-marketplace for procurement of goods and services

Pillar 6: Monitoring & Impact Measurement

Monitoring systems are essential to gather the information needed to keep SusPP implementation on course and communicate on the benefits achieved for the country.

Currently, there is no routine collection and reporting on GPP practices by LKPP on the implementation of GPP, so there is no data specifically related to GPP, which can be accessed easily by public. The procurement process is carried out through government e-procurement system (Sistem Pengadaan Secara Elektronik, SPSE). Bidders register to the SPSE e-GP to download the bidding documents. Procurement data including publication of contract award are published in SPSE system and can be accessed to public. However, at the moment, there is no specific tracking system by LKPP on the implementation of GPP, so there is no data specifically related to GPP, which can be accessed easily by public, neither in SPSE nor Sistem Informasi Rencana Umum Pengadaan-SIRUP (General Procurement Plan). (World Bank, 2022)

However, indicators to track GPP implementation have been specified - with the Government aiming that all Ministries/Institutions and Local Governments have implemented GPP and 100 environmentally friendly goods and services have been certified and listed for public procurements by 2024.

In terms of tracking impact, no indicators have been established. However the Government created a Green Economy Index in 2022 that offers ideas on the range of impact indicators that could be tracked to assess the contribution of SPP to the country’s development goals.

Projects Supported by ADB

Current ADB operations in Indonesia are implemented under the country partnership strategy 2020-2024 (CPS). The CPA aims to support inclusive, competitive, sustainable development and green recovery in the country.

ADB is a member of the steering board of Indonesia’s National Plastic Action Partnership, and can prioritize the elimination/reduction of plastic waste in project procurements. Procurements can be designed to offer co-benefits that improve waste management and waste-to-energy development; mobilize investments for low-emission transport schemes; nature-based solutions, and circular economy practices - all CPS priorities.

Integrating sustainability criteria into infrastructure projects can help contribute to ADB's efforts to step up green infrastructure investments, including by incorporating G20 principles for quality infrastructure investment.

ADB, through its TA9923 – Strengthening Project Readiness, Procurement and Financial Management in Southeast Asia, supported National Public Procurement Agency of Indonesia (LKPP) on a capacity building initiative to increase awareness of sustainable procurement among public procurement practitioners and business community in Indonesia, and is developing a new Sustainable Procurement guidance notes, technical reference focusing on infrastructure construction and Standard Bidding Documents update.

Other Initiatives supported by National/International Agencies

Under the SWITCH-Asia Grants Programme, nine pilot projects in Indonesia have been implemented and completed focusing on supporting SMEs on sustainable value-chain and production systems of selected products (agri-food, wood and textiles), lead paint elimination, financial schemes for eco-innovation, and two ASEAN projects on energy efficiency. Three grant projects are currently ongoing and focusing on sustainable food systems, sustainable solutions of fish consumption and production, and sustainable cleaner development through housing and building construction.

The Green Growth Program supports Indonesia in realizing the ambitious goals of strong, sustainable landscapes and inclusive economic growth in three priority sectors of sustainable energy, sustainable landscapes and sustainable infrastructure in Special Economic Zones (SEZs) as outlined in the 2016-2020 Country Planning Framework (CPF).

The Partnership for Action on Green Economy (PAGE) project supports low carbon development projects in Indonesia, including support to green industries.

The Advancing High Efficient Lighting Market (ADLIGHT) project promotes the manufacturing and application of high efficiency lighting technologies in Indonesia through the transformation of the national market.

Resources

Asia-Pacific Economic Cooperation, 2022. Follow-up Peer Review on Energy Efficiency in Indonesia.

Bappenas, 2021. The Economic, Social and Environmental Benefits of a Circular Economy in Indonesia.

Bappenas, 2021. A Green Economy for a Net-Zero Future: How Indonesia can build back better after COVID-19 with the Low Carbon Development Initiative (LCDI)

Climate Bonds, 2022. Green Infrastructure Investment Opportunities: Indonesia Green Recovery.

EU Switch Asia, 2022. Indonesia Country Report: Current Status of Green Public Procurement Implementation.

IEA, 2022. Energy Sector Roadmap to Net Zero Emissions in Indonesia.

IISD, 2021. How Can Indonesia Foster Sustainable Infrastructure Solutions That Deliver Low-Carbon Development and Bring Additional Benefits?

George Tomossy∗ and Shawkat Alam, “Shifting Public Procurement towards Sustainability: A Comparabtive Case Study on Indonesia and Australia, Australian Journal of Asian Law, 2017, Vol 18 No 2, Article 7: 185-198 at p. 190.

GGGI, 2015. Delivering Green Growth for a Prosperous Indonesia: A Roadmap for Policy, Planning and Investment.

OECD, 2019. Green Growth Policy Review of Indonesia.