Chinese firms to build more coal power plants in Asia despite Beijing’s pledge for greener Belt and Road Initiative projects
President Xi Jinping told the second Belt and Road Forum in Beijing in April this year that infrastructure projects built under the BRI must be green and sustainable.
China, which has pledged that projects built under its Belt and Road Initiative will be green and sustainable, will fund more fossil fuel power projects in Southeast Asia even as western, Japanese and South Korean financiers increasingly walk away from them over sustainability concerns.
This will be the case until the host nations – such as Indonesia – have come up with good enough financial incentives and expanded power transmission and distribution infrastructure to make mass renewable energy projects viable, according to Martin David, Asia-Pacific head of projects practice group at international law firm Baker McKenzie.
“While Chinese officials have signaled a move towards more sustainable projects in BRI nations, I don’t see this materially changing Beijing’s [actual] funding of infrastructure projects [there],” he said in an interview. “It will take some time for this to manifest into an obvious change.”
Chinese developers – mostly state-backed construction firms – still prefer to build large fossil fuel projects, on effort and return considerations, he added.
This is because bidding and contract preparation work involved in developing a power project typical requires similar effort, whether for a US$40 million renewable project or a US$1 billion thermal power project.
The BRI, initiated by President Xi Jinping in 2013, aimed to foster closer trade and investment ties with nations in Asia, Europe, Africa and Latin America, initially through mostly China-funded infrastructure projects.
Xi told the second Belt and Road Forum in Beijing in April this year that infrastructure projects built under the BRI must be green and sustainable, adding there will be a focus on transparency and zero tolerance for corruption to ensure “high-quality” growth.
The signalling of a recalibration of China’s approach to BRI projects came amid increased international scrutiny on debt-servicing sustainability, corruption and environmental concerns, besides delays or cancellations of key projects.
Push-backs from interest groups at host nations – such as Indonesia and Kenya – may pressure Chinese firms to pare back their ambition on building coal-fired plants in BRI nations, said Charles Yonts, head of power and environment, social and governance research at CLSA.
He cited the recent high profile case of environmentalists and anti-graft campaigners asking the Indonesian corruption watchdog to look into China Huadian Engineering’s role in a US$900 million coal-fired power project, after its local partner was jailed for bribing to win the project.
In Kenya, judges of the National Environmental Tribunal late June halted the construction plan of a US$2 billion Chinese-backed coal-fired power plant near the coastal town of Lamu, a Unesco World Heritage Site over environmental concerns, the BBC reported.
A myriad of international financial institutions have implemented policies to limit their exposure to coal power projects by ceasing to finance them or subjecting them to special review committees, Neil Johnson, a managing director at Macquarie infrastructure and Real Assets, told the Belt and Road Summit in Hong Kong last week.
“As Japanese banks and South Korean banks, two of the stalwarts of the power plants financing in Southeast Asia, have followed their western counterparts to largely move away from coal-fired project financing, we see them being replaced by the regional Asian financial institutions including the Malaysian and Chinese banks,” David said.
China funds over a quarter of coal power plants with generating capacity of 399 gigawatts under development outside the nation, US-based Institute for Energy Economics and Financial Analysis said in January this year.
Meanwhile, in South Africa, China’s largest African trading partner and the continent’s largest recipient of Chinese infrastructure funding, coal power projects have been stalled by environmental lobby groups through court actions, said Wildu du Plessis, head of Baker McKenzie’s banking and finance practice in Johannesburg.
Major project delays, cost blowouts and corruption concerns have also stood in the way.
“Even with a 30-year government- backed power purchase agreement, the industry cannot get a single financier – domestic or international,” he said. “This is despite having explored using Chinese engineering, procurement and construction contractors.”
