ADB backs Indonesia with US$600 million new coal funding despite climate pledge: report

A new study by civic society groups accuses the Asian Development Bank of indirectly financing coal power plants in Indonesia as the multilateral holds its annual general meeting in Tbilisi, Georgia. ADB insists the loan does not violate its energy policy.

Suralaya Power Station among houses
The Suralaya Power Station in Banten Province, Indonesia. Image: Inclusive Development International

A new 2,000-megawatt coal power plant expansion in Indonesia is getting indirect funding from the Asian Development Bank (ADB), according to a group of non-government organisations present at the annual general meeting of the multilateral held this week in Tbilisi, Georgia.

Indonesia, Southeast Asia’s largest economy, is already the world’s third-largest coal producer and a major coal consumer.

ADB describes its US$600 million loan to Indonesia’s state-run electricity utility, Perusahaan Listrik Negara ( PLN), as a bid to “promote the use of clean energy.” 

But the loan agreement does not explicitly include a no-coal clause, which would have been the simplest way for the bank to ensure that PLN would not use the money for scaling up its fossil fuel facility, stated a report by United States-based Inclusive Development International, Netherlands-headquartered Recourse and Indonesian nonprofit Trend Asia. 

“Publicly funded institutions like the Asian Development Bank must include robust coal exclusions in contracts with clients and financial intermediaries in order to end coal finance for good,” said Daniel Willis, finance campaigner at Recourse. “Without these, general purpose loans, or even funds earmarked for green projects, could end up supporting coal expansion.”

photos adverse impacts of ADB projects on

Photos that show the alleged adverse impacts of ADB projects on both the environment and human rights are exihibited on the sidelines of the bank’s annual general meeting in Tbilisi, Georgia. Image: NGO Forum on ADB

PLN’s plan includes an extension to two new coal plants, Java 9 & 10, in the island’s Suralaya region, one of the biggest coal complexes in Southeast Asia. 

“ADB’s loan agreement does not just fail to exclude coal. It actually allows PLN to use ADB funding for coal-fired power plants,” said Dustin Roasa, research director at Inclusive Development International. 

“The loan’s eligible expenditures expressly cover anything in PLN’s 10-year plan, which does not shy away from new coal.”

The new report was released before the ADB’s annual general meeting which runs from 2 to 5 May. At its last annual meeting in May last year, bank president Masatsugu Asakawa announced US$100 billion in climate-friendly financing, including funding for renewable energy projects and the early retirement of coal plants, and reaffirmed the bank’s pledge to stop financing new coal.

By backing the Indonesian government’s coal expansion plans, it is not only violating that pledge and the no-new-coal commitment in its energy policy, it is undermining its investments in clean energy in the country, added the study.

The multilateral denied that the loan violates the policy it revised in 2021, which states that it will not finance coal mining, as well as oil and natural gas field exploration, drilling, or extraction activities. 

An ADB spokesperson called the agreement a “results-based loan”, where the borrower must achieve certain disbursement-linked indicators such as upgrading power lines and promoting clean energy before loan tranches are paid out. An independent agent appointed by ADB verifies the indicators twice a year.

“Eligible expenditures under the loan agreement do not include support for coal-fired power plants. Together with ADB’s safeguards policy and the verification process, the loan does not violate ADB’s energy policy,” the spokesperson told Eco-Business.

Paying for the sins of the past

Apart from ceasing support for new coal development, the ADB is obliged to provide remedy for the impacts of its past coal funding, the report added.

This includes support for earlier development and expansion of the Suralaya Power Station dating back to the 1980s.

coal fishing boats

The Suralaya power plant overlooks fishing boats in a village in the province of Banten. Image: Inclusive Development International

Pollution from an earlier ADB-backed expansion of the Suralaya Power Station has displaced families, reduced fish stocks and agricultural yields, and sickened their children, stated the study.

Banten Province already has some of the highest rates of acute respiratory infections in the country and it is estimated that the added pollution from the Java 9 & 10 plants will cause between 2,400 and 7,300 premature deaths over their expected 30-year lifespan.  

“Any new coal plant built in Indonesia is likely to operate for 35 to 40 years. By backing PLN’s coal development plans, the Asian Development Bank is helping to lock Indonesia into a future at least partly dependent on the dirtiest of fossil fuels,” said Novita Indri, energy campaigner at Trend Asia. 

“The consequences of this decision, which will make it difficult for Indonesia to meet its Paris Agreement emissions targets, are global. But they will be felt most acutely by the people of Banten.”

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