Indonesia’s Adaro struggles to secure funding for $2bn aluminium project

Indonesian coal giant Adaro Energy is struggling to raise money from international banks to finance a landmark $2bn aluminium project, as environmental groups accuse the company and its partner, South Korea’s Hyundai, of “greenwashing”.

Adaro Minerals, a unit of Indonesian billionaire Garibaldi Thohir’s Adaro Energy, is marketing the project in North Kalimantan province as a flagship green, renewable development for the south-east Asian economy — even though it involves building a 2.2GW coal power plant.

Adaro Minerals listed in January 2022 and was among the world’s best performing stocks last year — rising 1,595 per cent. It wants to expand into aluminium and battery making for electric vehicles but most of its revenue is still from coal, and the group benefited from higher exports and prices of the commodity following Russia’s invasion of Ukraine.

The fundraising plans for the project come as Indonesia, one of the world’s biggest producers and exporters of coal and biggest emitters of carbon, embarks on one of the most ambitious coal plant retirement plans globally. Jakarta in November received pledges of $20bn in financing from the US and other developed nations to help wean it off polluting fossil fuel.

Adaro signed a memorandum of understanding with Hyundai the same month to supply the Korean automaker with aluminium, a deal the companies said would “accelerate” the transition to sustainable energy.

Adaro Minerals said it planned to raise $1.1bn in bank loans for the smelter, being developed in partnership with Chinese investment group Legend Holdings.

Global banks that have previously lent to the Adaro group, including Singapore’s DBS, told the Financial Times they were not involved in financing the smelter project. A person familiar with the situation said the UK’s Standard Chartered, which continues to work with Adaro, was also not participating.

An executive at one global bank, speaking anonymously because of commercial sensitivities, said: “Adaro discussed financing with us, but we have pledged to stop funding coal-related businesses. [This project] would fall under that.”

DBS and other banks had already pledged to stop funding parent Adaro Energy as part of climate change commitments.

Adaro has also approached European banks BNP Paribas, ING and Commerzbank for loans, according to two people with knowledge of the situation. Adaro Energy and Adaro Minerals did not respond to requests for comment and the banks all declined to comment.

Experts and environmental groups say Adaro’s project is not only contrary to the country’s claims about breaking its dependence on coal, but also shows Indonesia’s transition away from it is too slow. They warned that the country, the world’s fourth most populous nation, is unlikely to meet global climate goals and commitments.

“Marketing this aluminium smelter as green is greenwashing given the first two stages will be powered by a huge 2.2GW coal plant,” said Nabilla Gunawan, Indonesia campaigner for climate group Market Forces.

“It is also a contradiction after Indonesia received $20bn in financing commitments for the Just Energy Transition Partnership,” she added.

The partnership, announced as part of Indonesia’s G20 chairmanship, is intended to fund the closure of many of the nation’s coal plants.

Energy think-tank Ember last month said the JETP deal was not enough to get Indonesia to meet its climate targets. Jakarta needed to retire more coal power plants earlier and reduce the operations of the remainder, Ember said in a report.

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

Most of Adaro Minerals’ $666mn of revenue in the nine months to September 2022 came from coal mining, according to its latest report.

Hyundai is planning to use aluminium from the smelter for electric vehicle production, describing it as “green and low-carbon” because it would be produced using hydroelectric power.

However, the smelter will only use hydropower from 2029, while the planned partnership would give the South Korean company access to supply before then, said Market Forces’ Gunawan.

The first phase, which would involve construction of the smelter, power plant and a port, is estimated to cost about $2bn, according to data provider Refinitiv. Adaro aims to start commercial operations by the first quarter of 2025.

Hyundai said talks with Adaro were at an early stage and funding for the project had yet to be negotiated. It said Hyundai was interested in securing a stable supply of aluminium from the Indonesian company, but the MOU was not binding.

The MOU between Hyundai and Adaro “sets a dangerous precedent”, said Matthew Groch, a senior director at environmental group Mighty Earth.

“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,” he said.