South Korea to pump public money into new Indonesian coal despite green election pledges

A South Korean public institution has announced it will back a controversial new coal project in Indonesia. The move is at odds with election promises made earlier this year, say experts. In Jakarta, activists took to the streets to protest the decision.

Coal power plant, Indonesia, Korean-backed
A coal-fired power plant in Indonesia. Image: Cpaulfell via Shutterstock

South Korea’s largest state-owned electric power distribution company and government banks will invest in a proposed coal power venture in Indonesia after years of deliberation, contradicting the ruling party’s pledge that it would phase out coal finance, made in the run-up to the nation’s recent parliamentary election.

Government-owned utility Korea Electric Power Corporation (Kepco) said on Tuesday (30 June) it will hold 15 per cent equity in the Jawa 9 & 10 coal-fired power project sited near the Indonesian capital Jakarta, according to media outlet Asia Today. The decision was unveiled at a board meeting in Seoul.

Kepco’s stake in the controversial venture will see the firm invest US$51 million in addition to providing a shareholder loan guarantee of US$250 million. Korean government-owned banks Export-Import Bank (Kexim) and Korea International Trade Insurance Corporation (Ksure) will contribute the bulk of the financing, with US$1.4 billion in investment, Asia Today reported.

The 2000-MW project, which is to add two power plant units to the Suralaya coal-fired power station in Cilegon, a city in Indonesia’s Banten province, is projected to be in operation from 2024.

The move comes three months after President Moon Jae-in’s party, the Liberal Party of Korea, announced its Green New Deal package, a collection of sweeping green policies aimed at curbing the country’s contribution to global warming, as part of its election manifesto.

Following Moon’s landslide victory, the government has been expected to implement the promised policies, including a phase-out of domestic and overseas coal financing by public institutions. Kepco’s announcement, however, suggests the government has backtracked on its decision.

“It seems that the Korean government’s Green New Deal is just an empty promise”, commented Julien Vincent, executive director of Australian non-governmental organisation Market Forces, which has been campaigning for Asian banks to drop coal. “They have decided to continue supporting overseas coal finance without fully considering the implications on Korea’s reputation overseas and our shared climate.”

Jessica Yun, of South Korea-based climate policy group Solutions For Our Climate (SFOC), said: “By not ending public coal financing, Korea’s Green New Deal would not be green at all. That would just push dirty air pollution and greenhouse gas emissions abroad—the height of hypocrisy and irresponsibility.”

Kepco’s decision to continue the Java 9 & 10 project in the midst of a pandemic has shown the true face of the South Korean government and proves that they are more concerned with short term profits rather than humans and the environment.

Didit Haryo Wicaksono, campaigner, Greenpeace Indonesia

The Jawa project has come under fire from activists over the environmental and health risks involved. A 2019 report by environmental campaigners Greenpeace that modelled the health impacts of the plant concluded it would cause 4,700 premature deaths over its lifetime.

In deciding to push ahead with the venture, Kepco ignores the findings of a new pre-feasibility study conducted by the Korea Development Institute (KDI), which warned it would result in significant losses for investors. The project is estimated to have a negative profitability of US$43.58 million over the station’s lifetime. Kepco stands to lose US$ 7.08 million.

The venture is being mulled over as the costs of renewables continue to plummet, placing it at risk of becoming a stranded asset unable to yield sufficient returns in the long term. A recent report by financial think tank Carbon Tracker finds investing in solar energy in Indonesia is already cheaper than new coal.

Amid an economic slowdown due to the coronavirus pandemic, Indonesia also runs the risk of facing an oversupply of coal-fired electricity, Market Forces said. With power demand down 9.7 per cent, the Jawa-Bali grid, where the plant is located, is projected to be oversupplied by up to 41.5 per cent this year, Reuters reported.

“This project carries a serious stranded asset risk where there are cheaper options available, further exacerbated by financial difficulties governments may experience during the global economic contraction caused by the Covid crisis,” said SFOC’s director Sejong Youn.

In response to Kepco’s announcement, Indonesian activists from local environmental groups Walhi Jakarta, Pena Masyarakat, Greenpeace Indonesia and Trend Asia staged a protest at the South Korean embassy in Jakarta, calling the move “a careless decision that does not show a sense of crisis under current conditions”.

Andri Prasetiyo, researcher and campaigner at Trend Asia, said the project would be a burden on Indonesia’s finances, especially for the country’s state-owned utility company Perusahaan Listrik Negara (PLN).

“Kepco’s decision to continue the Java 9 & 10 project in the midst of a pandemic has shown the true face of the South Korean government and proves that they are more concerned with short-term profits rather than humans and the environment,” said Didit Haryo Wicaksono, campaigner at Greenpeace Indonesia.

Market Forces’ Vincent said the decision to back the project was an “act of climate villainy by the Korean administration”.

Besides the Jawa venture, Kepco looks to buy a share in the planned Vung Ang 2 project in Ha Tinh province, Vietnam, despite a recent estimate by the KDI that the net value of the Vung Ang 2 plant at negative $158 million, with Kepco’s planned investment valued at negative $80 million.

Around the globe, pressure is mounting on corporates and governments to ditch coal, the world’s dirtiest fossil fuel, amid increasingly dire warnings of climate change. Last month, the world’s top asset manager BlackRock, which owns shares in Kepco, raised concerns over several coal ventures the utility company is involved in.

After Japan and China, South Korea is the biggest public financier of coal globally and has been slammed for heavily investing in highly-polluting coal-fired power plants abroad that would not meet the country’s own environmental standards at home.

Two months ago, environmental groups sent a letter to embassies of countries that have been invited to the P4G (Partnering for Green Growth and the Global Goals 2030) summit, a sustainability conference to be hosted in Seoul in 2021, highlighting the ongoing contradictions to the country’s Green New Deal.

The document, signed by Market Forces, Greenpeace and SFOC, among others, criticised the Korean government for still actively pursuing investments in coal power beyond its borders, urging it to close “the alarming gap between its commitments and actions”.

Most popular

Featured Events

Publish your event
leaf background pattern

Transforming Innovation for Sustainability Join the Ecosystem →