February 23, 2023
JAKARTA – The construction of a hydropower plant in Batang Toru district in South Tapanuli has caused global controversy for years as it is built in the habitat of the endangered Tapanuli orangutan. The Jakarta Post joined the Society of Indonesian Environmental Journalists (SIEJ) in December in a collaborative reporting project to visit the construction site and nearby villages to get the latest developments on the project. This is the second part of the report.
While battling public scrutiny over its construction, which has encroached on the habitat of the endangered orangutan in South Tapanuli, North Sumatra, the Chinese-backed Batang Toru hydropower plant has also experienced financial struggles, resulting in delays to the project and a change of ownership.
An audit by the Supreme Audit Agency (BPK) in 2020 revealed that Bank of China (BOC), which had initially agreed to lend US$1.68 billion to finance 75 percent of the total cost of the project, decided to pull out shortly after its announcement to review the project in 2019.
The lender’s withdrawal dealt a major blow to PT North Sumatra Hydro Energy (NSHE), the developer and designated operator of the power plant, as it was forced to find new financiers willing to take part. This stalled construction for months and resulted in the missing of the plant’s planned operation for 2022.
This left NHSE’s shareholders at the time, Chinese-owned Dharma Hydro Nusantara (DHN, owning 52.8 percent), Singapore-based Fareast Green Energy (FEGE, owning 22.2 percent) and state-owned electricity monopoly PT PLN’s subsidiary PT Pembangkitan Jawa Bali Investasi (PJBI, owning 25 percent), scrambling to search for a replacement for the BOC.
Combined, the shareholders were only expected to cover 25 percent of the project cost.
Read also: Poor planning causes PLN to pay more for Batang Toru hydropower plant
NSHE, which was predominantly owned by Chinese companies through DHN and FEGE, told media at the time that the delay was due to the COVID-19 pandemic, which prevented Chinese contractors from entering Indonesia.
The BPK audit found that the delay was caused by financing difficulties and a major change in project financiers within the company, which occurred not long after BOC left the project.
Transfer of ownership
In 2021, Chinese-based publicly listed hydropower equipment manufacturer Zhefu Holdings, the parent company of DHN, sold its shares to China’s state-owned State Development and Investment Corporation (SDIC), through its subsidiary SDIC Power, marking a major change of ownership in NHSE.
Upon the completion of the transaction, Zhefu Holdings wrote an announcement that the sale of its shares in the Batang Toru power plant would help the company improve asset quality and finances and implement an environmental protection strategy.
Zhefu Holdings had indirectly controlled a 52.82 percent stake in NSHE through its Hong Kong-based subsidiary Asia Ecoenergy Development (AED), which held a 96 percent stake in Jakarta-based DHN.
SDIC said it approved the investment proposal for the Batang Toru power plant in November 2020, which was then followed by approval from SASAC, China’s state-owned asset supervisor, in May 2021, according to SDIC Power’s 2021 annual report.
Zhefu transferred its ownership in several steps, which began with the sale of AED to FEGE in August 2021. Then SDIC Power acquired FEGE through its wholly owned subsidiary Singapore-based Jaderock Investment from Singapore-based Hydro Sumatra.
SDIC Power, retaining 93 percent of FEGE, handed a number of FEGE shares to Singapore-based Asia Hydria, owned by two executives linked to Malaysian conglomerate Genting Berhad.
Genting is not a new player in the country’s energy sector. The company also owns a 55-percent stake in a coal-fired power plant in Banten.
The transaction was concluded in October 2021, resulting in SDIC Power holding about 70 percent in NSHE with 25 percent owned by PLN’s PJBI and the rest by Asia Hydria.
The Batang Toru hydropower plant project is SDIC Power’s first project located in Indonesia. A reputable energy company, it has operated various kinds of power plants with most in China and other countries including Thailand and the United Kingdom.
SDIC Power’s takeover has revived the ailing project. The company said it had adopted a syndicated loan from a group of lenders led by the Export-Import Bank of China (Exim Bank of China), which has a track record in financing many of China’s Belt and Road Initiative (BRI) projects.
The loan amount and the other participants remain unclear, but the loan adoption required SDIC Power to provide a $1.25 billion guarantee as a perquisite of the syndicated loan, the company’s filing on Nov. 24 said. The guarantee figure is the exact amount that NHSE had sought from BOC prior to its withdrawal.
Environmental groups have criticized the participation of China’s big and internationally renowned companies in the disputed project.
“It was only a few years ago that the Bank of China pulled out of the Batang Toru dam in Sumatra over environmental concerns, now another Chinese bank [Exim Bank of China], wholly owned by the government, has been handed the baton to finance this toxic project,” Amanda Hurowitz senior director for Southeast Asia at Mighty Earth told The Jakarta Post on Jan. 23.
Hurowitz also slammed the participation of SDIC, saying that it should have “thought twice” about investing in a project plagued by controversies like Batang Toru.
She further said that the involvement shows the “rank hypocrisy” of China, which had just hosted the 2022 United Nations Biodiversity Conference in December.
“China cannot claim to be leading the world on protecting nature, while its banks and businesses destroy precious ecosystems with huge, unnecessary infrastructure projects,” Hurowitz said.
Profundo, a not-for-profit Netherlands-based research institution for sustainability, found that SDIC’s good reputation had made it possible for the company to accumulate the required amount of loans through bond issuance for Batang Toru.
Using data from Refinitiv, Bloomberg and IJGlobal, Profundo found that the most recent bondholders for its parent SDIC Group came mostly from Chinese financial institutions. It has also successfully gathered funding from Western financial institutions in countries such as the United States and Canada, as well as Danish and Swedish pension funds.
“If SDIC were to try to sell new bonds, these would likely be contacted first,” said Ward Warmerdam, researcher at Profundo.
Furthermore, several Western institutional investors also hold stakes in SDIC Power, making them the owners of the Batang Toru power plant project and responsible for backing a project that is a major threat to the Batang Toru forest ecosystem, Warmerdam said.
He added that road access and hydropower lines would fragment the remaining habitat of the Tapanuli orangutan, pushing the already endangered species further toward extinction.
Profundo data show that the Western financial institutions include the “big three” US asset managers BlackRock, Vanguard and State Street, as well as German Deutsche Bank.
BlackRock and Deutsche Bank declined to comment on the matter, while Vanguard and State Street did not respond to requests for comments.
Similarly, PLN, as a state-owned company that has a quarter stake in the project, is also capable of attracting prominent financiers to cover the project cost. Profundo found state-owned lenders BRI and Mandiri have been among the top creditors of PLN in the past few years.
SDIC Power, NSHE and the Chinese Embassy in Jakarta did not respond to requests for comments.