The World Bank has offered to meet prominent Indonesian environmental groups after being criticised for the lack of transparency in its public consultation for a framework that will support Indonesia’s development for the next five years.
Last month, 14 advocacy groups including Friends of the Earth Indonesia (Walhi), Greenpeace and Trend Asia called out the World Bank for not informing them of the public consultation for its Country Partnership Framework 2021-2025 for Indonesia. The non-governmental organisations (NGOs) only found out at the last minute and cobbled together a brief response before the consultation ended on 7 January.
In their response, the NGOs called for the International Finance Corporation (IFC)—World Bank’s sister organisation and a fellow member of the World Bank Group—to stop its indirect funding of the Java 9 and 10 coal power plants. The IFC indirectly funds Java 9 and 10 through its investments in Bank KEB Hana Indonesia, the NGOs said.
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They also said that by being a loan guarantor for Indonesian state-owned electricity distributor Perusahaan Listrik Negara (PLN), another World Bank Group member, the Multilateral Investment Guarantee Agency (MIGA), was not being consistent with the group’s commitment to phase out coal. Most of PLN’s borrowings are for new coal projects, said the NGOs.
MIGA promotes cross-border investment in developing countries by providing guarantees to investors and lenders.
The NGOs could meet with the World Bank this month, said Yuyun Indradi, executive director of Trend Asia, a foundation in Indonesia that campaigns for the energy transition.
Over 92 per cent of World Bank’s power-generation lending went to renewables
Responding to Eco-Business’ queries, a World Bank spokesperson said between 2015 and 2019, it committed nearly US$9.4 billion in financing to renewable energy and energy efficiency projects in low- and middle-income countries.
Of its total power-generation lending during that period, 92.3 per cent went to renewables and less than 8 per cent was for conventional generation from fossil fuels. The World Bank has not financed a new coal-fired power plant since 2010 and has no active coal-fired projects in its pipeline. As of 2019, the group no longer finances upstream investments in oil and gas, the spokesperson added.
“However, we continue to assist resource-dependent developing countries with transparency, governance, institutional capacity, technical and regulatory advice on energy solutions,” she said.
I wouldn’t say that any (multilateral development) bank is currently fully aligned with the Paris Agreement. They are striving in this direction to different degrees. Recently the European Investment Bank has been the most forward-thinking on the need to get out of fossil fuels, including natural gas.
Gaia Larsen, senior associate, World Resources Institute’s Sustainable Finance Centre
Under the World Bank Group’s second climate change action plan covering 2021 to 2025, the group has set a target for 35 per cent of its financing to have climate co-benefits, up from 28 per cent under the first action plan.
The World Bank’s country partnership frameworks guide its support for member countries. Under its Indonesia framework for 2016 to 2020, no fossil fuel project was financed, said the spokesperson. During that period, World Bank invested US$9.8 billion, a sum which included emergency Covid-19 response support for Indonesia. The IFC provided US$1.4 billion in equity, debt and guarantee investments, and MIGA provided US$200 million in guarantees to Indonesia, the spokesperson said.
Should MIGA support more borrowing by PLN?
A MIGA spokesman said Indonesia’s economy, like many others, was severely affected by the pandemic. It was in this context that state-owned electricity distributor PLN turned to MIGA to support its working capital needs.
“In response to the crisis, MIGA is providing guarantee coverage to several foreign commercial banks that will lend to PLN to provide liquidity to fund PLN’s working capital requirements in relation to its US Dollar denominated tariff payments under the Power Purchase Agreements (PPAs) to purchase electricity from seven existing geothermal and hydroelectric power plants,” the spokesman said.
This means MIGA’s guarantees ensure that PLN is able to pay for the electricity from the seven renewable energy plants. Funding supported by MIGA will not be used to finance new coal power projects, he said.
The terms of the agreement thus support Indonesia’s efforts to diversify its power supply and increase clean energy generation, the spokesman added.
Trend Asia’s Yuyun said MIGA should not be supporting new loans taken by PLN because the utility firm suffered significant losses last year, and its pipeline of projects are still closely related to coal. For instance, a PLN subsidiary is testing the mixing of biomass at 15 coal power plants.
PLN’s problems are the oversupply of electricity in Java and Bali of over 40 per cent, and challenges in distribution outside of Java and Bali, Yuyun said.
Its debt burdens will eventually fall on PLN’s customers—the people of Indonesia, he said.
IFC should pressure bank to exit coal projects, say activists
As for the IFC, Trend Asia and three other groups noted in a report last October that IFC’s approach to financing has become more climate-friendly.
The IFC published its green equity approach last September, laying out how it will help clients increase climate lending and reduce coal exposure. It will no longer make new equity investments in financial institutions that do not have a plan to cut coal-related investments to zero or near zero by 2030. It also make clients’ climate and coal-exposure targets publicly verifiable.
Over the last year, IFC has excluded coal power from its business with most entities it lends to and invests in, stated the report by civil society groups, titled Coming clean: Can the IFC help end coal finance?
“Loopholes remain, however. In light of the climate emergency, it is vital that IFC cease support for all fossil fuels, including oil and gas, and from both its direct and indirect investments. At present, the World Bank’s 2018 pledge to end financing for upstream oil and gas does not include indirect financing through financial institutions – this is nonsensical and must be rectified when the IFC reviews the green equity approach in 2021,” said the report, which Trend Asia co-published with Recourse, the Philippine Movement for Climate Justice and Korea Sustainability Investing Forum.
They noted that IFC piloted its green equity approach with PT Bank KEB Hana Indonesia, which is financing Indo Raya Tenaga, the company developing the Java 9 and 10 coal power plants. Coal is the single biggest source of carbon emissions and the Java 9 and 10 plants will contribute to climate change and premature deaths of surrounding residents, environmental groups say. Coal makes up nearly 60 per cent of Indonesia’s electricity mix.
The NGOs want the IFC to pressure Hana Indonesia to pull out of the Java 9 and 10 projects.
An IFC spokesperson said it is not associated with, and has not taken part at any stage in the development of the Java 9 and 10 projects. “IFC does not fund these projects and therefore has no direct leverage in terms of bringing about a cessation in funding,” she said. IFC “will continue working with (Hana Indonesia) to reduce its exposure to coal-related projects over time”.
The green equity approach does not stop IFC’s equity investees may have portfolio exposure to coal, “which remains an important part of the energy mix for many of the World Bank Group’s member countries”, she noted.
Are multilateral development banks Paris-aligned?
Major multilateral development banks such as the World Bank Group, Asian Infrastructure Investment Bank and Asian Development Bank said in a joint statement in 2017 that they would align their financial flows with the Paris Agreement, and have since been working on a framework for what such alignment means, said Gaia Larsen, senior associate at the World Resources Institute’s Sustainable Finance Centre. The WRI was not among the NGOs that signed the letter to the World Bank Group.
“I wouldn’t say that any (multilateral development) bank is currently fully aligned with the Paris Agreement. They are striving in this direction to different degrees. Recently the European Investment Bank has been the most forward-thinking on the need to get out of fossil fuels, including natural gas,” said Larsen, who added that natural gas is quickly becoming obsolete as a transition fuel.
She said multilateral development banks can support climate action in various ways. For one, Covid-19 relief funds should be additional to, and not a replacement for climate-related funding.
Covid-related support, such as improved healthcare systems, will tend to have a co-benefit of reducing vulnerability to the impacts of climate change. When it comes to investments to support wider economic recovery, these investments must assist rather than undermine the attainment of climate goals, said Larsen.
Besides steering clear of high-emission projects, multilateral banks can also support green activities. These include “debt for climate” swaps whereby countries’ debt burdens are reduced in exchange for climate mitigation or adaptation efforts, said Larsen.