Project – ActiveThis profile is actively maintained
Will O'Sullivan – BankTrack
Project – ActiveThis profile is actively maintained
Will O'Sullivan – BankTrack
Why this profile?
This proposed captive coal plant, which will power a new aluminium smelting facility, is the most climate-damaging project currently being developed by Indonesian coal giant Adaro. The proposed 1.1GW coal plant is also significant because it represents the trend of metal-smelting industrial projects being promoted as sustainable, despite being powered by coal.
What must happen
At this crucial stage, as the project seeks finance, banks should immediately commit not to finance the project, nor to provide debt financing to Adaro. Hyundai, the South Korean automotive company that has agreed to buy the aluminium being produced by this facility, must commit to procuring its metal products from sustainable sources that aren't implicated in displacement of communities, risks to ecosystems, and massive greenhouse gas emissions.
|Coal Electric Power Generation , Coal Mining
This project is a proposed captive coal power plant located in the 30,000 hectare Kalimantan Industrial Park Indonesia (also called the Kaltara Industrial Park, KIPI or KIHI in Indonesian). The so-called green industrial park will contain the captive coal plant as a means of powering an industrial smelter to supply Hyundai, the Korean automaker, with aluminium.
The aluminium smelter will progressively ramp up over three phases, with commercial operations date for each phase scheduled for 2025, Q4 2026, and Q4 2029, respectively. Each phase will add a production capacity of 500,000 tonnes of aluminium per year.
The third phase of the project’s life will be powered by the Mentarang Hydropower Project, a vast new complex of five hydropower dams built on the Kayan river, 200km north of the industrial park, by PT Kayan Hydro Energy, a joint venture that includes Adaro. The five dams, part of China’s Belt and Road Initiative, will have 1.3GW generation capacity and cost over US$ 2bn to build. Planned to be online by the third phase of the smelter’s life, the hydropower project will therefore begin to power the smelter in late 2029, four years after the smelter’s projected start date of 2025. This is significant because the smelter project’s developer, PT Adaro Minerals Indonesia Tbk (AMI), an Adaro subsidiary, has touted the project’s sustainable and “green” credentials on the basis of its hydropower energy source. Philippine environmental advocates have accused Adaro of greenwashing by downplaying the fact that coal will be instrumental for two of three phases of the project.
Impact on human rights and communities
No public environmental impact assessments are yet available for the project, although it is in the construction and land-clearing phase. The project's location within an industrial park does not preclude impacts on nearby communities, given the range of developments associated with transporting the coal and aluminium to and from the park. Aside from the land- and forest-clearing necessitated by the plant, there will also be extensive construction for worker accommodation and a jetty at the coast for transporting materials.
The Mentarang Hydropower project, which will power the smelter in later years, is also likely to have severe impacts on communities throughout North and East Kalimantan, including the inundation of Long Lejuh and Long Peleban villages, which will force 160 households or around 2000 people to relocate and jeopardise the livelihoods of local fisherpeople. This is in addition to its impacts on nature, set out below.
Impact on climate
With a generation capacity of 1.1 gigawatts (GW), the emissions from the captive coal plant would emit 5.2 megatonnes of carbon dioxide-equivalent greenhouse gas emissions (Mt CO2-e) per year. Details on the exact size and capacity of the plant have not yet been confirmed. Given that the project will progressively increase its aluminium output each year (see “About” above), the energy demand from (and therefore the climate impact of) the coal plant will also ratchet up over time. This is before the envisioned hydropower project replaces coal as the smelter’s energy source.
The KIPI park and its coal-fired aluminium smelter have been repeatedly criticised as a massive greenwashing exercise. Activists have argued that international finance for the project risks accepting the tenuous “green” credentials of the project, and thereby condoning broader development of Indonesia’s less populated islands. At a time when international support is flowing simultaneously to Indonesia's renewable energy transition, international companies and investors must recognise that this project and the climate burden it poses runs counter to Indonesia's ambitions to reach net zero emissions.
Impact on nature and environment
The construction of the smelter will entail significant impacts on the environment in North Kalimantan, while the much larger industrial park in which it is located will have even more severe damage. Aside from the smelter and its coal power source, the KIPI industrial park will produce steel, electric vehicle batteries, solar panels, industrial silicon, petrochemicals and other goods. The entire industrial park will cost US$ 132bn, US$ 2bn of which will be spent on the smelter and its coal facility.
There are significant potential risks to local soil and freshwater resources from the park and the smelter. Media reports emphasise the remote, pristine nature in which the massive park will be located, describing it as on "the road to nowhere", a two-hour boat journey from the capital, and in which construction activity has already begun. Significant land-clearing has been undertaken at the industrial park site; President Joko Widodo initially estimated 16,400 hectares of land will be used, but that the park could ultimately expand to 30,000 hectares, roughly half the size of Jakarta.
As noted above, the industrial park will require the construction of large jetties to accommodate the transport of materials to and from the plants. Its developers have sought US $1bn for two jetties on the nearby coast for this purpose. It is unclear how increased maritime activity associated with the massive industrial park will impact nearby marine life. Similarly, the massive hydroelectric project noted above is being developed on 5,000 hectares of forest land, and is expected to cause large-scale environmental damage through that greenfield development.
Corruption Hyundai E&C, a sponsor of this project and buyer of the aluminium being produced by the smelter, already has a questionable history in coal-fired power projects in Indonesia. A Hyundai broker was charged in 2022 with corruption by Indonesia's Corruption Eradication Commission for having bribed high-ranking local politicians, with the regent of the area being convicted for accepting the bribes from Hyundai. The bribes helped Hyundai to win the contract for the Cirebon coal-fired power plant in 2015. Hyundai will be bringing this history of graft in Indonesia to the North Kalimantan Industrial Park.
The wider Kalimantan Industrial Park (KIPI) industrial park is being developed by a consortium of Indonesian, Chinese and Emirati companies, while Adaro has reportedly approached a number of international banks to finance the captive coal project. Standard Chartered and DBS, both of which have previously financed Adaro projects and continue to be involved with the mining company, are reported to have ruled out the project. BNP Paribas, ING and Commerzbank have been approached by Adaro. No financier is yet confirmed, but AMI aims to reach a final investment decision by the end of 2023, according to IJGlobal.
While the entire KIPI complex will reportedly cost US$ 132bn, the first phase of the aluminium smelter is projected to cost US$ 2bn, according to IJGlobal. Adaro is seeking to finance this first phase of the captive coal plant through roughly one-third equity financing and two-thirds debt financing.
On 12 May 2023, the smelter reached financial close. The four largest Indonesian banks (Bank Negara Indonesia, Bank Mandiri, Bank Rakyat Indonesia, Bank Central Asia) and Permata Bank (majority owned by Bangkok Bank) were confirmed as the financiers. They provided two loans, worth 2.5 trillion rupiah (US$166.8 million) and US$1.5 billion, respectively.
According to Global Energy Monitor, Adaro Minerals Indonesia has signed a non-binding Memorandum of Understanding (MoU) with Hyundai for the Korean steel automaker to buy the plant's aluminium. Hyundai's involvement in the project has been criticised as being out-of-step with the company's sustainability ambitions, according to several NGOs, including Market Forces in Indonesia, the Mining Advocacy Network (JATAM) and the Center of Economic and Law Studies (CELIOS).