Proposed plants in Indonesia, Bangladesh scrapped as Japan scales back coal funding

Two planned coal-fired power plants, one in Indonesia and the other in Bangladesh, have had their funding withdrawn by the Japanese government, as part of Tokyo’s decision to no longer bankroll coal projects in either country.

Chemical Analyst_Indonesia
A chemical analyst in Lahendong Geothermal Plant, a facility that provides clean and sustainable energy to the residents of Manado, North Sulawesi Province, Indonesia. Image: Asian Development Bank, CC BY-SA 3.0, via Flickr.

Major coal-fired power plant projects in Indonesia and Bangladesh have effectively been cancelled after the Japanese government, their main funder, recently announced it would stop providing loans to build such plants in the two countries.

For Indonesia in particular, the move also means the loss of the top three foreign funders of coal plants in the country, after similar decisions by China and South Korea.

The projects affected by Japan’s decision are the Matarbari 2 coal expansion project in Bangladesh and a plan to build two additional 1,000-megawatt coal-fired units at the Indramayu coal plant in Indonesia. Both Indonesia and Bangladesh had been conducting surveys for the projects with Japan’s backing, but construction hasn’t commenced for either project.

On June 22, the Japanese Foreign Ministry announced at a press conference that Tokyo has decided to withdraw financing for both projects.

In light of the announcement, Bangladesh’s energy minister, Nasrul Hamid, said the Matarbari 2 project had been scrapped.

“We have already cancelled the plan of Matarbari phase-2,” he told local media. “We plan to build an LNG-based power plant. The plant will be interconnected with the LNG [liquified natural gas] terminal.”

In 2021, the Bangladeshi government also cancelled plans to build 10 coal power plants, which were expected to pull in about $10 billion in investments.

China has already said they would no longer fund coal-fired power plants last September. The same goes for South Korea. So the option is to look for new sponsors and commercial funding outside of those three countries.

Fabby Tumiwa, executive director, Institute for Essential Services Reform

In Indonesia, the $4-billion Indramayu project is also likely to be scrapped, the government has indicated. Wanhar, director of electricity program supervision at the country’s energy ministry, said the Indramayu project is already on hold and could be halted completely, in line with Indonesia’s goal of achieving net-zero greenhouse gas emissions by 2060.

Japanese Foreign Ministry press secretary Hikariko Ono also alluded to the Indramayu project being terminated.

“[R]egarding this Indramayu coal-fired power generation plan, the Indonesian government itself has a policy of not implementing it anymore,” she said at the press conference. “And the Japanese government has decided not to consider further official development assistance [ODA] loan support.”

Indonesian state-owned electricity utility PLN, which operates the existing coal plants in Indramayu and was to have built the additional units, said it’s committed to stop building new coal plants as part of the net-zero drive.

“In that [net-zero] road map, it’s clear that PLN will no longer build new coal-fired power plants, and thus doesn’t need funding for new plants,” Gregorius Adi Trianto, PLN’s vice president of corporate communication, said in a press release. “So PLN took the same initiative to stop loans [for coal projects] as a part of PLN’s move towards achieving Carbon Neutral 2060 target for the sake of creating an Earth that’s cleaner and more hospitable for future generations.”

Coal funding drying up

The announcement by Japan marks a reversal of policy by Asia’s second-largest economy, which accounted for more than half of the $6.6 billion in coal support pledged by the world’s seven largest advanced economies, or G7 countries, in 2019.

Japan is also the G7’s second-largest provider of public finance for fossil fuels, pouring $11 billion into overseas fossil fuel projects each year.

This funding has enabled the construction and operation of coal power plants in developing countries like Indonesia, seen as coal’s final frontier due to the country’s overreliance on the fossil fuel to power its economy. Coal, of which Indonesia has abundant reserves, now accounts for nearly 60 per cent of the nation’s electricity generation, a figure that has risen steadily since 2010.

Last year, Japan, along with other G7 countries, agreed to stop international financing of coal projects that haven’t taken measures to reduce greenhouse gas emissions. This was part of efforts to meet globally agreed climate change targets, which call for limiting the rise in global temperatures to 1.5° Celsius (2.7° Fahrenheit) above pre-industrial levels.

But when the G7 countries made that pledge, Japan insisted on continuing to fund coal projects in Indonesia and Bangladesh on the grounds that these projects were “ongoing cases” and thus should be exempted from the pledge.

Critics of the expansion plan in Indonesia have welcomed Japan’s reversal of its stance, saying the new plants would have exacerbated already dire social impacts on the ground. Communities around the Indramayu site have reported problems such as respiratory diseases, diminishing crop yields and reduced catches of fish and shrimp as a result of the pollution from the existing plant.

Rodi, the head of a local group called the Indramayu Coal-Smoke-Free Network (JATAYU in Indonesian), said he’s grateful that the locals’ demands have been heard by the Japan government.

“Our fight isn’t for nothing,” he said in a press release.

Meiki W. Paendong, head of the provincial chapter of the Indonesian Forum for the Environment (Walhi), Indonesia’s biggest green NGO, said Japan’s decision highlighted its commitment to fighting climate change. However, Japan shouldn’t stop there, he said.

“This commitment has to be really proven by also urging their banks to adopt the same stance by no longer funding all coal plants and other fossil fuel projects in Indonesia,” Meiki said in a press release. “Because there are still some Japanese banks that still channel credit to coal-fired power plant projects that are operated by the private sector, such as the Cirebon power plant. Some of them are JBIC, SMBC, MUFG and Mizuho.”

Fabby Tumiwa, executive director of Indonesian private policy think tank the Institute for Essential Services Reform (IESR), said Japan’s announcement means it will become even more difficult now for Indonesia to secure coal funding.

An analysis by the Institute for Energy Economics and Financial Analysis (IEEFA), a Jakarta-based think tank, suggests there are at least 44 coal plant projects with total capacity of nearly 16 GW in the pipeline between 2021 and 2030, with the biggest ones planned for the islands of Java and Sumatra.

Fabby said coal plant projects in Indonesia are usually funded by China, Japan and South Korea. Since 2013, public finance from the three countries accounted for more than 95 per cent of total foreign financing of coal-fired power plants.

“China has already said they would no longer fund coal-fired power plants last September. The same goes for South Korea,” he told local media. “[So] the option is to look for new sponsors and commercial funding outside of those three countries.”

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