September 20, 2022
JAKARTA – Coal power and mining firms in Indonesia are finding it tougher to raise funds due to climate-crisis concerns and are being increasingly pushed by banks to present concrete-transition plans to shift away from dirty energy.
To date, over 100 globally significant asset managers and owners with assets under management (AUM) greater than US$50 billion, as well as banks and insurers with AUM or loans outstanding larger than $10 billion, have announced their divestment from coal mining and/or coal-fired power plants, Institute for Energy Economics and Financial Analysis (IEEFA) report found.
IEEFA energy finance-analyst Elrika Hamdi expected that it would become increasingly difficult for coal power and mining firms to raise finance for the industry due to growing pressure to transition to renewable energy.
Consequently, a growing number of mining companies announce their commitment to diversify their business portfolio away from coal, Elrika said, although they still aim to maximize profits from coal production.
“Coal price is at all-time high now and [mining companies] are making a lot of profit. The question now is, will these companies remain committed to carry out their diversification [plans]?” she said to The Jakarta Post on Friday. “I hope they’re [wise] enough to know that investing in renewables will generate more benefits for them in the future.”
Standard Chartered bank announced it was ending its partnership with PT Adaro Indonesia, a subsidiary of coal miner PT Adaro Energy, as the British financial giant pledged to stop providing financial services to mining and power-generation companies deriving 100 percent of their revenue from thermal coal, Australia-based campaign-group Market Forces reported in July.
The bank has provided $434 million in funding to the Adaro group since 2006, the campaign-group found. Meanwhile, in April 2021, the bank took part in a lending syndicate that provided another $400 million for the mining company.
National banks are also facing foreign and domestic pressure to stop funding coal business as the Indonesian Financial Services Authority (OJK) demands lenders which belong to the BUKU 4 category — or those with core-capital higher than Rp 30 trillion (US$2.675 billion) — such as state-owned Bank Rakyat Indonesia (BRI) and private lender Bank Central Asia (BCA), to diversify their lending portfolio from fossil fuels to reduce their climate risks.
“Unfortunately, the [scheme] has yet to become mandatory; so, essentially, there are no penalties for those [who have yet] to diversify,” Elrika said.
State-owned lenders Bank Mandiri, BRI and BNI, as well as BCA, all of which are the largest banks by asset in Indonesia, gave out a total of $3.5 billion in loans to coal companies in the 2015-2021 period, according to an August report published by climate-activist group 350.org.
Bank Mandiri provided the largest sum at $3.2 billion in loans, followed by BCA, BRI and BNI at $170.4 million, $122.5 million and $53.3 million respectively, according to the same report.
Banks growing reluctant
Climate Policy Initiative (CPI) senior analyst Luthfyana Larasati said that national banks are getting more cautious about funding coal power and mining firms. She calls for banks to continue reviewing and evaluating their financing strategies to reduce the risks of stranded assets from financing coal businesses, “the impact of which can be detrimental in the long term”, she said on Friday.
Indonesia, with significant coal deposits and energy systems reliant on coal, faces significant challenges in abandoning the commodity, including the cost of abandoning still-functioning plants and mines.
BCA executive vice president of the secretariat and corporate communications Hera F. Haryn said that the company aims to provide more financing for the renewable-energy sector, including solar-power plants and hydropower-plant projects. The existing projects funded by the lender have a total capacity of around 200 megawatts (MW).
“[BCA] always refers to the applicable regulations in carrying out operational and business activities and supports all government policies in various sectors,” she said when asked about the company’s sentiments about funding the coal business.
The company issued 0.2 percent of its total lending portfolio in loans for coal businesses, compared to 24.9 percent provided for renewable-energy projects.
Meanwhile, BRI corporate secretary Aestika Oryza Gunarto said the company will continue to focus on providing loans to several sectors, including agricultural, manufacturing and financial-services sectors.
“The coal industry is not a priority for BRI. [The company] will continue to increase financing for the new and renewable energy sector as a commitment to implementing sustainable banking,” Aestika said on Friday, adding that, as of June, BRI issued a “very small” loan to coal companies, amounting to 0.3 percent of its total lending portfolio.
Meanwhile, Apollonius Andwie, corporate secretary of state-owned coal-miner PT Bukit Asam, said the company aims to develop the coal downstream industry and build renewable-energy power plants.
For example, the company began a coal-to-dimethyl ether (DME) downstream project worth US$2.3 billion in January, which is expected to produce 1.4 million DME annually to reduce liquefied petroleum gas (LPG) imports by 1 million annually.
“[Bukit Asam] will continue expanding our renewable-energy power-plants portfolio,” he said on Friday.
The 10 biggest coal miners in Indonesia, including Adaro Energy and Indika Energy, have begun to diversify to non-coal businesses, IEEFA’s Elrika said, such as renewable-energy development,
electric vehicles and coal downstream-industry development.
“Adaro announced that it wanted to enter the green aluminum industry using hydropower as its energy source, while Indika is set to build solar-power plant projects after they announced a joint venture with Singapore-based Fourth Partner Energy,” she said.