Indonesia’s PT Adaro in funding crisis for $2bn aluminium project; faces “greenwashing” accusation

The Indonesian leader of coal-related operations, Adaro Energy, is toiling hard to collect enough funding for the actualisation of its US$2 billion aluminium project since environmentalists worldwide have started to accuse the firm and its partner, Hyundai of “greenwashing”.

The Indonesian billionaire Garibaldi Thohi owns the mother company of Adaro Minerals, Adaro Energy which has been keen on advertising this particular project as a green-renewable one even though it requires the inclusion of a 2.2GW coal power plant. The project in North Kalimantan would be crucial for the Electric Vehicle (EV) industry.

The stocks of Adaro Minerals were soaring 1,595 per cent up above the ground the last year after being just listed in January 2022. The company is positive about making a diversion focused on the aluminium and battery-making industry for Electric Vehicles. This is yet a farfetched dream as the group’s major revenue accumulation can be attributed to coal and the augmented exports and prices of commodities due to the prevailing Russia-Ukraine crisis.

Indonesia can be regarded as the biggest exporter of coal and the biggest carbon emitter; thus, this particular fundraiser was directly meant to realise the country’s Net-Zero goals. Jakarta received a US$20 billion pledge in November made by the USA, which promised to help the country eradicate carbon emissions.

In the same month, an agreement was signed between Adaro and Hyundai, a Korean automaker, for the supply of aluminium for their vehicles, which was apparently supposed to “accelerate” their transformation to sustainable energy. Adaro Minerals designed its actions in a way to raise US$1.1 billion in bank loans for the aluminium smelter, being developed in collaboration with the Chinese investment group Legend Holdings.

This time, other international banks, previously involved with the group’s activities, refused to lend any money or support to the smelter. As was reported by sources, one such bank was Singapore’s DBS. An associated official extremely fluent with the company’s situation also revealed that the UK’s Standard Chartered, which has a complete bond with Adaro, has refused to participate as well.

A global bank executive commented anonymously, fearing public sentiment: “Adaro discussed financing with us, but we have pledged to stop funding coal-related businesses. [This project] would fall under that.”

DBS and other international banks have already refrained from funding the parent organisation Adaro Energy as the latter has not maintained the laid climate-saving protocols. It has been sourced that Adaro was desperate to reach out to other acknowledged banks like ING, BNP Paribas and Commerzbank for this humungous loan. The banks have not published any comment elaborating on this matter. 

Environmentalists and experts have notified that Adaro’s project completely discards the country’s lofty claims of being independent of coal, also projecting a very slow transition from fossil fuel. They are unsure if the country is successfully meeting the global climatic conditions standards.

The Indonesia campaigner for climate group Market Forces, Nabilla Gunawan, referred to the grave consequences while elaborating her concerns: “Marketing this aluminium smelter as green is greenwashing given the first two stages will be powered by a huge 2.2GW coal plant. It is also a contradiction after Indonesia received $20bn in financing commitments for the Just Energy Transition Partnership.”

This partnership, forged during the G20 summit, was aimed at finally shutting down many of the coal plants around the area. Yet last month, it was posted by Energy think-tank Ember that the JETP deal was not sufficient enough to thrust Indonesia into meeting its climate goals. Ember also mentioned in a statement that to successfully lessen the carbon content in the area, Jakarta had to close more coal power plants immediately and curtail operations in the rest of them.

“[JETP] has no requirements to stop coal plants under construction in both the power sector and the captive plants,” an Ember analyst Achmed Shahram Edianto, exemplified.

According to the latest financial data, Adaro Mineral’s US$666 million revenue for the nine months to September 2022 can be largely attributed to coal mining and nothing else. Now, Hyundai has also embarked on a journey to apply Adaro’s aluminium for electric vehicles, wilfully claiming them to be “green and low-carbon” since the manufacturing process would be based on hydroelectric power.

The reality is that the smelter will start using hydropower in 2029, whereas the conglomeration with Hyundai will start accepting raw materials before that. The first phase of the project, enlisting the construction of the smelter, power plant and port consecutively, has been estimated to cost almost US$2 billion. Adaro is optimistic about commercial production, scheduled to begin in the first quarter of 2025.

Adaro, in a statement, revealed: “The Kalimantan project is supporting Indonesia’s green economy plan. The main power source for the industrial park will be renewables. However, as it takes longer time to construct, transition to renewables will be powered by fossil fuel.”

Hyundai declared that the South Korean automaker and Adaro were in the early discussion stages for finalising the project’s funding. The company also claimed that Hyundai was eager to secure an uninterrupted supply of aluminium from the Indonesian supplier, but the MOU had no concerned referral defining the act.

A senior director at environmental group Mighty Earth, Matthew Groch, seemed sceptical about the MOU between Hyundai and Adaro, as he said:  “This sets a dangerous precedent! If Hyundai is serious about its carbon neutrality principles, purchasing aluminium from a smelter that requires adding new coal-fired power capacity should be a non-starter.”