CASE FILE | |
| Location: | Indonesia–Banten |
| Project | Coal-fired power plants |
| Companies: | PT Indo Raya Tenaga, Indonesia Power, PT Barito Pacific Tbk |
| Key concerns:
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| Community goals: |
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| Key investors and financiers: | Key investors in Java 9 & 10 developer PT Indo Raya Tenaga include South Korea’s state-owned utility Korea Electric Power (KEPCO) and Indonesia’s state-owned utility PT PLN. KEB Hana Indonesia (Hana Bank Indonesia), a financial intermediary of the International Finance Corporation, provided $56 million in project finance to Java 9 and 10. The project has also secured financing from Korea Development Bank (KDB), Korea Export-Import Bank (KEXIM), Korea Trade Insurance Corporation (K-SURE), CIMB and Maybank of Malaysia, Bank of China, DBS Bank Ltd, Bangkok Bank and Exim Bank of Indonesia. |
| Our partners: | Trend Asia, PENA Masyarakat, Recourse |
Uninhabitable. That is how one local community member describes the current conditions in Suralaya due to the massive coal power complex dominating the area. In this context, adding two new 1,000MW coal plants is almost unimaginable, but that is the plan.
The Suralaya Complex is already the largest power station in Southeast Asia, with eight operating units that have a current combined capacity of just over 4,000MW. Air pollution in Banten has resulted in some of the highest rates of acute respiratory infections in the country, and it is estimated that the added pollution from the Java 9 and 10 mega plants will cause roughly 4,700 deaths over their operational lifetimes. Expansion of the Suralaya Complex will compound other problems the community faces, including toxic dust storms that send poorly contained waste from the coal plants into nearby areas, and coal barge fires resulting in coal spilling into the surrounding seas, further threatening local communities’ livelihoods, long dependent on fishing and farming.
Along with local Indonesian and international partners, Inclusive Development International is working with communities affected by the new Java 9 and 10 mega coal plants to halt the project. If it cannot be stopped, communities aim to mitigate harms and ensure compensation for those that cannot be prevented.
To support these efforts, Inclusive Development International has investigated the financiers behind the project. We found that the International Finance Corporation (IFC), part of the World Bank Group, is indirectly financing the project through its financial intermediary client Hana Bank Indonesia. With our support, alongside partners, local communities have filed a complaint to the IFC’s Compliance Advisor Ombudsman (CAO), which is now under review.
Based on this information, we joined with these partners, along with the Indonesian organization PENA Masyarakat and local community advocates to file a complaint in September 2023 to the IFC’s internal watchdog, the Compliance Advisor Ombudsman (CAO). The complaint requests a full compliance review investigation of IFC’s investment in Hana Bank and its support of the Java 9 and 10 coal plants.
As the complaint argues, Hana Bank’s financing of the Java 9 and 10 expansion violates IFC’s environmental and social Performance Standards for clients in multiple ways. Expansion of the Suralaya Complex would make an already dire situation for local communities even worse. The environmental and social impact assessments—which have not been fully disclosed in an accessible manner to the local community—fail to sufficiently analyze impacts on pollution and climate, do not provide complete information about hazardous waste, and overlook the physical and economic displacement the project will cause. Furthermore, community consultations have been incomplete and undermined by transparency failures and intimidation. Community members have faced threats for raising concerns about the project and report that they have little to no formal information about the project’s risks or any of the company’s plans to mitigate or compensate for harm.
IFC’s investment in Hana Bank Indonesia also runs contrary to the spirit of its Sustainability Framework and Green Equity Approach. As a Green Equity Approach client, Hana Bank Indonesia should have a plan to phase out coal investments, reducing its coal exposure by 50% by 2025 and eliminating coal exposure—or reducing it to near zero—by 2030. This will be extremely challenging, if not impossible, to achieve given the bank’s investment in the Java 9 and 10 mega coal plants, especially considering that the project loan term will run to 2035.
It is clear that IFC did not conduct appropriate due diligence and supervision surrounding its investment into Hana Bank, and that the Java 9 and 10 project does not comply, and likely cannot be brought into compliance, with the IFC Performance Standards. It should therefore never have been undertaken and should be stopped immediately. If stopping the project is no longer possible, complainants are calling on IFC to use whatever leverage is at its disposal to ensure the project is upgraded and modified to come as close as possible into compliance with IFC Performance Standards, including avoiding and mitigating harm and compensating for any current and future harm that cannot be fully mitigated.
Additionally, we are seeking an end to Hana Bank Indonesia’s financing of coal projects, as well as systemic policy changes at IFC to eliminate all indirect support for coal projects. Complainants want to ensure that any remaining loopholes that would allow IFC to indirectly finance a new coal project via financial intermediary clients in the future are closed. While IFC’s 2023 update to the Green Equity Approach—which will prevent clients investing in new coal—is welcome, even the updated approach allows financial intermediary clients to invest in captive coal power and to underwrite bonds for coal developers. Furthermore, while IFC has stated that the approach applies to all existing equity clients, it is unclear whether and how that is being enforced.
IFC’s indirect financing of the new Java 9 and 10 mega coal plants is symptomatic of the World Bank Group’s ambivalent approach to a just transition in Indonesia. To genuinely shift finance away from fossil fuels and toward renewables in support of a just transition, the World Bank needs to ensure it is not funding new coal power via any direct or indirect investments.
Suralaya, Indonesia currently houses the Suralaya power plant complex. Java 9 and 10 are two new plants that are being constructed as expansion projects of the Suralaya power station, which is already the largest coal-fired power complex in Southeast Asia. Java 9 and 10 would add 2,000 megawatts (MW) of capacity to the already operating 4,025 MW throughout Banten Province.
The social and environmental impact of Java 9 and 10 will be grave, including contributions to climate change. Air pollution is already a daily problem in Banten, and a thick dust from the power plants and other local industry coats everything, including the leaves of trees. It is estimated that the added air pollution from Java 9 and 10, which are being constructed in close proximity to a residential area housing around 6,500 families, will cause nearly 5,000 deaths over their operational lifetimes. In addition to the constant, daily air pollution, Suralaya residents face toxic dust storms when wind blows large quantities of poorly managed toxic waste into residential areas. The Indonesian Waste Management Association in Banten has concluded that Banten is in an industrial waste emergency. Banten residents have some of the highest rates of acute respiratory infections in the country.
Land acquisitions for the project began before many residents had concrete information about what was happening. Displaced residents of a housing complex, many of whom work for the power company, report being pressured into accepting inadequate compensation.
The already existing power plants have decimated traditional livelihoods. Farmers struggle to grow crops, and traditional fishing techniques are becoming increasingly unviable. Additional impacts from Java 9 and 10 are already being felt. Construction of the mega plants has entirely destroyed the community’s only remaining beach, cutting off the livelihoods of residents who used to earn a living selling food and services to beachgoers and eliminating an important community recreation site. Fisherfolk who used to fish from the beach can no longer do so.
Over their operational lifetimes, the plants will generate over 250 million metric tons of CO2, contributing to increases in sea surface temperatures and rising sea levels. This is of paramount concern for Indonesia, which is already one of the world’s most vulnerable countries to climate change. A vast group of islands with 81,000 km of coastline and 42 million people living on lands less than 10 meters above sea level, rising sea levels could devastate the country. It is estimated that 2,000 of Indonesia’s smaller islands will be submerged by 2050, and 5.9 million people will be affected by annual coastal flooding by 2100. Preventing these disasters depends on the world divesting from fossil fuels.
