Indonesia : Support for coal development through World Bank DPLs

1. Indonesia: Support for coal development through World Bank DPLs ArifFiyanto Greenpeace Southeast Asia - Indonesia World Bank Group AGM – October 2013

2. Indonesia – Climate Change • Indonesia is highly vulnerable to climate change impacts, including: • Threats to food security, agricultural & coastal zone productivity, and water availability • Increase in water- and vector-borne diseases • Puts development and poverty alleviation gains at risk.

3. Indonesia – Climate Change • World’s largest thermal coal exporter • World’s third largest emitter of greenhouse gases (GHG), mainly due to deforestation and peat fires

4. Indonesia – Climate Change • GHG emissions per capita are growing faster than GDP per capita • Current energy growth path relies on increasing contributions from carbon intensive sources - coal-fired power. • Unless there is a shift from the current government plan, IEA (2007) projects Indonesia’s fossil fuel related GHG emissions could triple by 2025

5. Current Government Energy Growth Plan: Fast Track I & II Power Projects (under development)

6. Overview of World Bank Involvement WORLD BANK SUPPORT INDONESIAN GOVERNMENT COAL DEVELOPMENT Purukcahu Cangkuang Railway PPP Framework providing industry subsidies World Bank: Infrastructure Development Policy Loans (2007-2010) Sumsel (South Sumatra) Mine-Mouth Plants (600 MW and 1200 MW) Indonesia Infrastructure Guarantee Fund (IIGF): Guarantee of $34 to CJPP Guarantees in pipeline for other projects World Bank: Loan to IIGF of $30 million Central Java Power Project (2000 MW) World Bank: $480 million standby faciity for IIGF IFC: Transaction Advisor

7. World Bank Infrastructure Development Policy Loans • Four I-DPLs covering 2007 to 2011 totaling $850 m aimed at roads, water, and electricity • Support to GOI infrastructure development plan, including the Fast Track power projects • Framework for public-private partnerships (PPP): • Indonesia Infrastructure Guarantee Fund (IIGF) • Indonesia Infrastructure Financing Facility (IIFF)

8. Indonesia Infrastructure Guarantee Fund (IIGF) • Guarantees for infrastructure projects under the PPP scheme, including Fast Track power projects • Key to obtaining finance • World Bank $480 m standby facility and additional $30 m IIGF loan (FY2013)

9. Indonesia Infrastructure Guarantee Fund (IIGF) – Coal Projects So far: • Central Java Power Plant – 2,000 MW ($40 million guarantee) • Kalimantan - PurukCahu-Bangkuang Coal Railway (for exports) • 1,200 MW Coal-Fired Mine-mouth SumselPower Plant 9 • 600 MW Coal-Fired Mine-mouth SumselPower Plant 10

10. Central Java Power Plant • IFC Transaction Advisor: • analyze project fundamentals (grew from GOI-proposed 800 MW to 2,000 MW) • promote and secure project to investors • prepare PPP contract

11. Indonesia Power Sector PPP Framework • PPP framework provides government incentives including: • VAT tax exemptions, • import duty exemptions, • income tax rate reductions, • accelerated rates of depreciation, • land tax exemptions, • building tax exemptions, • the IIGF guarantees • Subsidies to private investors for power projects whether fossil fuel or renewable.

12. OP8.60 Review of Potential Impacts • Inadequate Identification of Impacts • Despite DPL support for energy infrastructure based largely on coal: • OP8.60 Review concluded “Generally, policy actions supported by the operation do not have significant adverse impacts on the environment.”

13. OP8.60 Review of Potential Impacts • Environmental review focused mainly on electricity tariff reform – not guarantees for coal projects– thus concluded positive • “Potential negative effects include changing the natural landscape, increased emissions of greenhouse gas and other pollutants due to increased fossil fuel based electricity generation capacity, …” but the DPL would address this by strengthening the government’s EIA capacity.

14. OP8.60 Review of Potential Impacts • If the Indonesia DPL policies and institutions enabling big coal projects did not qualify, it is difficult to understand when a DPL would be considered by the Bank to represent a potential for significant negative impacts • All Coal Power Plants are category A projects, if this DPL were subject to Safeguard OP 4.01, it would be a category A DPL

15. Local opposition to IIGF supported projects • Central Java Power Plant • Lawsuit against the Batang regent for making a bylaw for the project that contradicted regulations to protect the Marine Natural Park • Multiple protests have been held by thousands of residents who insist that the power plant will harm the environment and threaten their livelihoods

16. Central Java Power Plant • If it is built, it will pump 10,8 million tones of CO2 into the atmosphere annualy • Itwill also release 226 kg of mercury each year • It will also release 16200 tonnes of SOx, 20200 tonnes NOx, and 610 tonnes of PM 2.5 each year

17. Local opposition to IIGF supported projects • Kalimantan - PurukCahu-Bangkuang Coal Railway (for exports) • More than a dozen Central Kalimantan-based organizations oppose the coal railway based on environmental, social, and economic concerns. • Railway construction will accelerate deforestation and undermine goals of Central Kalimantan as a REDD+ pilot province.

18. Conclusions • World Bank Indonesia Infrastructure DPLs initiated policies and institutions that promote coal development in Indonesia • Instead of guiding Indonesia – already the world’s largest coal exporter – onto a low-carbon development path, the Bank’s infrastructure program has fortified a coal-intensive future • OP8.60 environmental review did not adequately identify potential DPL negative impacts

19. Recommendations • Withdraw the Bank’s financial backing from the Indonesia Infrastructure Guarantee Fund (IIGF) unless the IIGF stops support for the Central Java Power Project and all other coal projects. • Ensure that the Bank’s Energy Directions’ limit on coal financing is comprehensive and applies to all forms of support, including development policy loans, financial intermediaries, and advisory services. • Safeguard OP4.01 - DPLs should be subject to environmental and social risk categorization based on a robust screening processfollowed by an Environmental and Social Assessment (ESA)for category A DPLs (like Indonesia)