Coal miners face funding crunch as more banks pledge to ‘go green’ – Business

Divya Karyza (Jakarta Post)

Jakarta ●
Sun, September 18, 2022

2022-09-18
14:00
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Companies
Coal, coal-business, PTBA, renewable energy, bank
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Coal power and mining companies in Indonesia are finding it harder to raise funds due to concerns over the climate crisis and are increasingly under pressure from banks to come up with concrete transition plans away from climate change. dirty energy.

To date, more than 100 globally significant asset managers and owners with assets under management (AUM) greater than $50 billion, as well as banks and insurers with AUMs or outstanding loans greater than $10 billion, announced their divestment from coal mining and/or coal-fired power plants, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA).

IEEFA energy finance analyst Elrika Hamdi expected it would become increasingly difficult for coal power and mining companies to raise finance for the industry in due to growing pressure to transition to renewable energy.

As a result, a growing number of mining companies are announcing their commitment to diversifying their business portfolio away from coal, Elrika said, although they still aim to maximize profits from coal production.

“The price of coal is at its highest level now and [mining companies] make a lot of profit. The question now is whether these companies will remain committed to completing their diversification [plans]?” she said to Jakarta Post Friday. “I hope they are [wise] enough to know that investing in renewable energy will bring them more benefits in the future.

Also read: Coal power projects in doubt as Chinese funding dries up

Standard Chartered Bank has announced it is ending its partnership with PT Adaro Indonesia, a subsidiary of coal miner PT Adaro Energy, as the British financial giant has pledged to stop providing financial services to mining and production companies of electricity deriving 100% of their revenues from thermal coal. , Market Forces, an Australia-based campaign group, 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 participated in a loan syndicate that provided an additional $400 million to the mining company.

Domestic banks are also facing foreign and domestic pressure to stop financing coal-related activities, as the Indonesian Financial Services Authority (OJK) requires lenders in BUKU 4 category – or those whose base capital is over 30 trillion rupees ($2.675 billion). – like the public bank Rakyat Indonesia (BRI) and the private lender Bank Central Asia (BCA), to diversify their portfolio of loans from fossil fuels in order to reduce their climate risks.

“Unfortunately, the [scheme] has not yet become mandatory; so basically there are no penalties for those [who have yet] diversify,” Elrika said.

State-owned lenders Bank Mandiri, BRI and BNI, along with BCA, all of which are the largest banks by assets in Indonesia, provided a total of $3.5 billion in loans to coal companies during the period. 2015-2021, according to an August report published by climate activist group 350.org.

Bank Mandiri provided the largest sum with $3.2 billion in loans, followed by BCA, BRI and BNI with $170.4 million, $122.5 million and $53.3 million respectively, according to the same report.

This photo taken on May 19, 2017 shows an open pit coal mine in Jambi. (AFP/Goh Chai Hin)

Banks increasingly reluctant

Climate Policy Initiative (CPI) senior analyst Luthfyana Larasati said domestic banks were becoming more cautious about financing mining companies and coal-fired power plants. It calls on banks to continue to review and assess their funding strategies to reduce the risk of stranded assets from financing coal companies, “the impact of which can be detrimental in the long term”, she said. she said on Friday.

Indonesia, with large coal deposits and coal-dependent energy systems, faces significant challenges in phasing out the commodity, including the cost of abandoning factories and mines that are still in operation.

BCA’s executive vice president of secretariat and corporate communications, Hera F. Haryn, said the company aims to provide more financing to the renewable energy sector, including solar power plants and hydropower projects. Existing projects financed by the lender have a total capacity of approximately 200 megawatts (MW).

“[BCA] always refers to the applicable regulations in the exercise of operational and commercial activities and supports all government policies in various sectors,” she said when asked about the company’s sentiments regarding the financing of the coal activity.

The company issued 0.2% of its total loan portfolio as loans for coal companies, compared to 24.9% for renewable energy projects.

Meanwhile, BRI Secretary General Aestika Oryza Gunarto said the company would continue to focus on lending to several sectors, including agriculture, manufacturing and financial services.

“The coal industry is not a priority for the BRI. [The company] will continue to increase financing for the new and renewable energy sector as part of a commitment to build a sustainable bank,” Aestika said on Friday, adding that in June the BIS provided a “very small” loan. to coal companies, amounting to 0.3% of its total loan portfolio.

Also read: Mining giant Indika to cut coal revenue by 50% with net zero in mind

Meanwhile, Apollonius Andwie, general secretary of state-owned coal miner PT Bukit Asam, said the company aims to develop the downstream coal industry and build renewable energy power plants.

For example, the company launched a US$2.3 billion dimethyl ether (DME) coal downstream project in January, which is expected to produce 1.4 million DME per year to reduce gas imports. of liquefied petroleum (LPG) of 1 million per year.

“[Bukit Asam] will continue to expand our portfolio of renewable energy power plants,” he said on Friday.

The 10 largest coal miners in Indonesia, including Adaro Energy and Indika Energy, have begun to diversify into non-coal activities, said IEEFA’s Elrika, such as renewable energy development, electric vehicles and the development of the downstream coal industry.

“Adaro has announced that it wants to enter the green aluminum industry using hydropower as its energy source, while Indika is set to build solar power plant projects after announcing a joint venture with Singapore-based Fourth Partner Energy,” she said.


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