Indonesian coal giant Edaro Energy is struggling to secure funding for a $2 billion aluminum project from international banks, as environmental groups accuse the company and its partner, South Korea’s Hyundai, of “greenwashing”.
Adaro Minerals, a unit of Indonesian billionaire Garibaldi Thohir’s Adaro Energy, is marketing the project in North Kalimantan province as a major green, renewable development for the Southeast Asian economy – even though it will involve the construction of a 2.2GW coal power plant. construction involved.
Adaro Minerals listed in January 2022 and was one of the world’s best performing stocks last year – surging 1,595 per cent. It is looking to expand into making aluminum and batteries for electric vehicles, but most of its revenue is still from coal, and the group benefited from higher exports and commodity prices following Russia’s invasion of Ukraine.
The fundraising plan for the project comes as Indonesia, the world’s biggest producers and exporters of coal and one of the biggest emitters of carbon, is rolling out one of the most ambitious coal plant retirement plans globally. In November, Jakarta received a pledge of $20bn in funding from the US and other developed countries to help cut polluting fossil fuels.
Adaro signed a memorandum of understanding with Hyundai the same month to supply the Korean automaker with aluminum the companies said would “accelerate” the transition to sustainable energy.
Adaro Minerals said it planned to raise $1.1 billion in bank loans for the smelter, which is being developed in partnership with Chinese investment group Legend Holdings.
Global banks that previously lent to the Edaro group, including Singapore’s DBS, told the Financial Times that they were not involved in financing the smelter project. A person familiar with the situation said the UK’s Standard Chartered, which continues to work with Adaro, is also not participating.
A global bank executive, speaking anonymously because of business sensitivities, said: “Adaro discussed funding with us, but we have pledged to stop funding coal-related businesses. [This project] will come down to him.
DBS and other banks had already pledged to halt funding to parent Adaro Energy as part of climate change commitments.
Adaro has also approached European banks BNP Paribas, ING and Commerzbank for loans, according to two people with knowledge of the situation. Adaro Energy and Adaro Minerals did not respond to requests for comment and all the banks declined to comment.
Experts and environmental groups say Edaro’s project not only contradicts the country’s claims of breaking dependence on coal, but also shows that Indonesia’s transition is too slow. He warned that the country, the world’s fourth most populous nation, is unlikely to meet global climate goals and commitments.
“Marketing this aluminum smelter as green is greenwashing, as the first two phases will be powered by a massive 2.2GW coal plant,” said Nabila Gunawan, Indonesia campaigner for climate group Market Forces.
“This is a contradiction even after Indonesia received $20 billion in financing commitments for the Just Energy Transition Partnership,” he said.
The partnership, announced as part of Indonesia’s G20 presidency, aims to fund the closure of the country’s many coal plants.
Energy think-tank Ember said last month that the JETP deal was not enough to help Indonesia meet its climate goals. Amber said in a report that Jakarta needs to retire more coal power plants first and reduce the operation of the rest.
,[JETP] There is no need to halt coal plants under construction, both in the power sector and captive plants,” said Amber analyst Achmad Shahram Adianto.
Most of Adaro Minerals’ $666 million in revenue in the nine months to September 2022 came from coal mining, according to its latest report.
Hyundai plans to use aluminum from the smelter for electric vehicle production, described as “green and low-carbon” because it will be produced using hydroelectric power.
However, the smelter will only use hydropower from 2029, while the planned partnership will allow the South Korean company to supply before then, MarketForce’s Gunwon said.
According to data provider Refinitiv, the first phase will involve the construction of a smelter, power plant and a port, which is estimated to cost around $2 billion. Edaro aims to start commercial operations by the first quarter of 2025.
Hyundai said talks with Adaro were at an early stage and funding for the project was yet to be negotiated. It said Hyundai was interested in securing a steady supply of aluminum from the Indonesian company, but the MoU was not binding.
The memorandum of understanding between Hyundai and Adaro “sets a dangerous precedent,” said Matthew Groch, a senior director at environmental group Mighty Earth.
“If Hyundai is serious about its carbon neutrality principles, then buying aluminum from a smelter, which requires adding new coal-fired power capacity, should be a non-starter,” he said.