Energy financiers in Asia must stop supporting region’s costly addiction to LNG and coal power
- Development banks should be funding Asia’s clean energy transition – not saddling countries with cripplingly expensive and outdated fossil fuel infrastructures
Policy changes on fossil fuel financing have not been confined to the West. Japan Bank for International Cooperation, the export credit agency, has said it will stop financing coal-fired power overseas – a huge announcement as Japan has been a major backer of coal -fired power across developing Asia.
The energy minister of the world’s largest LNG exporter, Qatar, has warned of further price spikes, while S&P Global Ratings updated its oil and gas industry risk assessment from “intermediate” to “moderately high” in January.
LNG investment decisions across Asia are likely to be affected as higher fossil fuel prices kill long-term demand and make renewable energy seem even cheaper. Around US$50 billion of LNG projects across Vietnam, Bangladesh and Pakistan are at risk of cancellation because of increasing price volatility.
Bangladesh’s five-year plan (2020-2025) notes that further reliance on imported LNG and coal will mean having to charge higher power tariffs or increase subsidies (or both) – an unsustainable burden. It also points out the subsidies have held back renewable energy development in Bangladesh, which already has too much power capacity.
Many of these issues are also present in Pakistan, where the financial crisis in the power sector is substantially worse. Debt caused in part by subsidised fossil fuels and overcapacity payments is expected to reach more than US$17 billion by the end of this financial year. Power tariffs were increased significantly for a second time this year to try and arrest the growing debt as Pakistan comes under pressure from the International Monetary Fund to increase tariffs further. Pakistan has also approached China for debt relief on its coal power loans.
It is clear that the funding that has enabled developing Asian nations to become more reliant on coal and LNG is contributing to worsening energy sector financial crises. Further reliance on coal and LNG will lead to ever larger and unsustainable fossil fuel subsidies and rising power tariffs. Both threaten to hold back development.
Multilateral development banks should not be in the business of hindering Asian nations’ development by saddling them with outdated fossil fuel infrastructures and their corresponding fiscal burdens. Cheaper, cleaner and more reliable renewables should be at the front of development banks’ energy financing in Asia.
Simon Nicholas is an energy finance analyst at the Institute for Energy Economics and Financial Analysis