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As financing for the “dirtiest” fossil fuel becomes increasingly difficult, Indonesian coal producers are reducing their exposure to coal commodities, from selling mines to expanding into nickel and aluminum smelting operations. There is.
The Southeast Asian country’s coal production capacity is still expanding, and Jakarta, the world’s top exporter, remains the biggest carbon emitter as well, and environmental groups say Jakarta is lagging behind in moving toward greener energy sources. It is criticized that
But companies’ efforts to diversify highlight the scrutiny they currently face amid concerns about the energy transition and long-term demand for coal.
“The pressures[on environment, society and governance]are clearly increasing and coal is at the center of this discussion,” said Ray, president and director of Hulme Energy, which is rapidly expanding into nickel processing.・Mr. Gunara said. “For us, it’s very difficult to raise coal funding, and it’s been that way for the last few years.”
Harum, one of Indonesia’s smaller coal producers, is expected to be one of the first to make coal a minority enterprise. We haven’t put any new money into coal in the past five years. “We’ve just been accumulating cash from our existing (coal) business, and all that cash is going toward growing the nickel business,” Gunara said.
The company plans to shut down its coal operations once reserves are depleted within a few years. “If we just continue with business as usual, the coal business will only slowly take off after six to seven years,” Gunara said.
The company entered the nickel business in 2020 to meet the surge in demand for the metal used in electric vehicle batteries. The company expects nickel to contribute around 60% of its revenue by the end of this year, up from 11% last year, and aims to double production capacity to 150,000 tonnes by the end of 2025. are.
Other coal producers are also making the transition. Indica Energy has launched electric bikes, solar power plants and sold some coal mines. The company aims to reduce coal operations to 50% of total revenue by 2025.
Adaro Energy, owned by billionaire Garibaldi Tohir, is building an aluminum smelter and a hydroelectric power plant. Last month, the company announced plans to spin off its coal business through an initial public offering at a value of about $2.5 billion.
Analysis by the Institute for Energy Economics and Financial Analysis has found that five of Indonesia’s seven major listed coal producers are investing in diversification.
“Funding is very difficult. That’s the biggest problem,” said Gui Pe, an energy finance analyst at IEEFA. Peh added that Adalo’s spinoff strategy is a model that rivals can copy.
Foreign banks have largely stopped lending to coal projects in recent years, and Indonesian companies have mostly secured financing from domestic institutions.
Last year, the Financial Times reported that Adalo was struggling to finance a $2 billion aluminum project that included a coal-fired power plant, and that automaker Hyundai signed an aluminum supply contract with Adalo in April. was discontinued.
Despite diversification efforts, Indonesia’s coal production capacity is still increasing, threatening its goal of achieving net-zero emissions by 2060.
The government has banned the construction of new coal-fired power plants in 2022, but has made a number of exceptions where construction can continue. New plants can be built for dedicated use within mineral processing sites or for other projects deemed strategic to the national interest.
IEEFA’s Peh said two of Indonesia’s seven listed coal producers have major expansion plans that will add an estimated 58 million tonnes of production capacity. Indonesia produced a record 775 million tonnes of coal last year.
More than 60% of Indonesia’s electricity generation comes from coal, and Indonesia has abundant reserves of thermal coal and is the third largest producer in the world. China, India, Japan and South Korea are the top buyers of Indonesian coal.
Developed countries have pledged $22 billion in public and private funds to help transition away from coal. However, progress in allocating funds has been slow.
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Coal remains a profitable business, as prices have increased in recent years. Indonesian coal producers posted record profits in 2022. In August, Glencore, the world’s largest publicly traded coal producer, scrapped plans to spin off its coal business as investors urged it to keep coal to boost profits.
Hulme’s Gunara said it would be easier for smaller coal groups to pivot to other sectors, but it would be difficult for other parts of the industry. “For our large peers, it will be more difficult to diversify into new areas and turn the coal business into a minority contributor. It will take longer.”
Fitch Ratings expects access to financing to become even narrower over the next three to five years. “Companies that adopt meaningful diversification strategies beyond thermal coal will realize better access to financing compared to companies that do not have a diversification plan and maintain conservative financial profiles.” ” the rating agency told the FT.
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