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Bahasa Indonesia |
By Carolyn Marr, DTE
As one of Indonesia top foreign direct investors, it is no surprise that Britain is involved in the country's coal sector.1 This ranges from UK-based companies developing and operating coal mines in Kalimantan, to British investment in coal-fired power stations on Java. The UK and Indonesian governments have also agreed to work together on controversial carbon capture and storage (CCS) technology, aimed at reducing carbon emissions from coal burning in power stations.
Compared to other sectors, such as oil palm and timber, there is little public awareness about the existing and potential future damaging social and environmental impacts of this promotion of coal by the UK and Indonesia.
In the UK, the coal debate has centred on the need to cut carbon emissions and whether coal - the dirtiest of fossil fuels - can ever be 'clean' enough to play a part in a future energy mix. But following the failure of December's UNFCCC climate summit in Copenhagen to galvanise governments into action on climate change, the debate has slid down the government agenda. The focus of Britain's new coalition government is now firmly on dealing with the debt crisis.
In Indonesia, there is pressure to cut carbon emissions too. President Susilo Bambang Yudhoyono has pledged to reduce emissions by 26% on business as usual projections by 2020.2 The strategy includes halting deforestation, one of the causes of which is coal mining. Yet Indonesia wants to increase revenues from mining - and coal is currently the biggest revenue earner among the minerals3 - meaning expansion, not reduction of coal mining.
The international policy contradictions are clear too: countries like the UK want to carry on using coal (including imports from Indonesia) as well as cutting carbon emissions at home. They also want Indonesia to cut its emissions: The UK recently pledged GBP50million to support forest carbon conservation in Indonesia over the next five years - though there are serious doubts as to whether schemes to reduce emissions through deforestation and forest degradation (REDD) can succeed.4
Where do local communities fit into to all this? The impacts of climate change are already hitting poor people in the South - including Indonesia - harder than the richer industrialised countries.5 On top of that, the appalling social and environmental impacts of coal are affecting the lives of ordinary Indonesians. These impacts are all too often ignored in the coal and climate debates, yet they are a key part of the argument against coal. As this special issue of the DTE newsletter highlights, coal mining is currently blighting a whole generation of Indonesians in Kalimantan. It is time that consumers of Indonesian coal and shareholders of companies investing in the Indonesian coal sector become more aware of the damaging consequences of their involvement and take action to prevent yet more damage.
So, although Indonesian coal represents a relatively small proportion of coal used in the UK, this still amounted to over two million tonnes in 2008.
Information on who ordered this coal and where it went once it arrived in the UK is hard to track down.6 Of twenty coal importers listed on the Association of UK Coal Importers website, only seven specifically mention Indonesia in relation to coal, while only one mentions a specific Indonesian mine.
Drax Power Ltd, owner of the UK's largest coal-fired power station, reported successful test burning of Indonesian coal in 2006, but did not mention which mines produced the coal.7
ScottishPower is an electricity company, with a number of power plants totalling 6,400MW, fuelled mainly by coal and gas. The company website lists Indonesia as a source for coal (for example in 2004-2005).8 It mentions a specific Indonesian mine, but only as a potential source of coal.
In its performance summary 2007, the company says its coal and biofuels trading manager visited a coal mine called Gudang Hitam near the city of Samarinda in East Kalimantan to see if the mine operated to acceptable standards, in terms of employee welfare, health and safety, terms and conditions and environmental stewardship. The findings - which are minimal especially as far as environmental stewardships is concerned - were reported as follows:
"This initial visit found that the mine was well-run with an on-site medical centre and canteen. Employee terms and conditions included health insurance, a pension plan and a range of welfare provisions that included family members"
"Environmental stewardship, including transportation of the coal was also scrutinised. Coal is taken a short distance by lorry and then shipped on barges 50 km down the Sanga Sanga River to the coast, where it is placed onto bulk carriers for delivery to customers around the world."9
This report gives no information about the impacts of the mining, coal transport or shipping. Yet Samarinda is one of the areas worst affected by coal mining, where impacts include flooding and loss of local livelihoods due to pollution from the many coal operations in the area (see previous article).
A separate corporate responsibility report for the same year included an 'Independent Assurance Statement' from a company called CSR Network Ltd. This remarked upon the fact that the company had included information about potential procurement from an Indonesian mine, but recommended that more details were needed:
"We recommend that consideration be given to providing more systematic information on these issues in future reports, including where possible, reporting on the findings of independent verification of social and environmental impacts and supplier management standards." 10
ScottishPower also states it is a member of a group called the Basic Services Human Rights Network, which is facilitated by Human Rights Consultancy Twenty Fifty. According to the company, its representatives worked with a consortium of UK generators to examine the key issues relating to ethical coal procurement and a report was due to be published in early 2008.11 This report does not appear to have materialised, however.12
Rudrum Holdings runs a fuel procurement company with three import, storage and preparation facilities for coal in Redruth, Cornwall; Avonmouth, Bristol; and Grassmoor, near Chesterfield. It lists Indonesia as a source of coal. The company website states that it pays visits to, and holds regular dialogue with, most of the world's key coal producers, including Indonesia13 but does not mention which mines produce the coal.
Coal in figures
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The Australian-British multinational mining company BHP Billiton holds seven mining concessions covering 355,000 hectares in Central Kalimantan.27 The company is also exclusive marketing agent for PT Arutmin Indonesia, which operates six mining locations in South Kalimantan (see box, below).
The company announced it would sell off the Central Kalimantan project in late 2009, but reversed the decision earlier this year. Then, in March 2010, BHP Billiton announced an agreement to create a new joint venture for its Indonesian Coal Project with a subsidiary of PT Adaro Energy TBK (see also box). Adaro will hold a 25% interest in the joint venture with BHP Billiton retaining 75%.28
According to press reports, the project is expected to start commercial production in 2014, with output reaching 6 million tonnes of both thermal and coking coal within five years.29 Allegedly high proportions of metallurgical grade coal could well be a major attraction for BHP.
What will be the impact of the project? There is scant public information about the indigenous and local communities living in and around the concession area. Instead, the attention has focused on the biodiversity impacts.
In 2007, the UK's Sunday Times newspaper reported that the BHP Billiton planned to exploit mining rights in the Heart of Borneo conservation area and that it had lobbied for the protected status of some of its concession areas to be lifted.30 Previously, a study for WWF confirmed that BHP's concessions overlapped with the Heart of Borneo area.31 Meanwhile, the company's Sustainability Report for 2008 paints a benign picture of BHP, working to protect biodiversity in its concessions areas, (without referring to the Heart of Borneo).
The company estimates that the total 'disturbed area' within its concessions will be around 15,000 hectares, from the total concession area of 355,000 hectares. The report states the area had been under 'considerable threat from changes in land use, such as forestry and the rapid growth of palm oil plantations, plus 'poorly managed mining practices and illegal mining'. BHP does not appear to include itself as one of these threats.
The report also says that, should the project proceed, the plan is to start by creating 'small mines'.
"By starting small, our aim is to develop further understanding of and experience in how to manage the environmental and biodiversity impacts within the region before large scale operations commence." 32
Can BHP be trusted? The company's association with human rights abuses, environmental destruction and climate change was highlighted in an alternative annual report produced by civil society groups for last year's BHP Billiton AGM in London. The report highlights cases from eight countries where the company operates. These, along with other information in the report undermine the company's claims of sustainability. The report's introduction says:
"A number of recurring issues are prominent ... including human rights abuses, labour rights, relocation of communities, mistreatment of Indigenous Peoples, destruction of sacred sites, devastating impacts on food and water, climate change, use of paramilitaries, health concerns, irresponsible tailings disposal procedures and questionable corporate social responsibility".33
Churchill Mining PLC, listed on the Alternative Investment Market (AIM) of the London Stock Exchange, is a British company whose activities are centred on a thermal coal project in East Kutai district, East Kalimantan. Plans for the East Kutai Coal Project (EKCP) include an annual production rate of 20 million tonnes, construction to start this year (2010) and start up in two years time. The project has a resource of 1.4 billion tonnes of thermal coal.34
East Kutai is already one of the most intensively mined districts (see previous article).
Three open pits are planned with the coal transported away from the mine using a 160 km conveyor system. The conveyor will be powered by a 75MW coal-fired plant using EKCP coal. A new deepwater port will also be built and the projected loading rate is 6,000 tonnes per hour.35
The company has another project called Sendawar, also in East Kalimantan, which it describes as a highly prospective area for coal bed methane.36
Until 2003, two of the UK's most powerful multinational companies, Rio Tinto and BP, were joint operators of one of the world's biggest coal mines: the Kaltim Prima (KPC) open-cast mine in East Kalimantan. This project has a long association with evictions, livelihood loss, pollution, strikes, use of the Indonesian security forces and dubious dealings with Indonesia's business and political elite.37
JATAM recently confirmed that local communities have experienced human rights violations since the KPC mine was opened. For example, in 1986, the company displaced 73 families from their land in Sangatta district, without compensation, to make way for employee housing. Four years later, a further 32 hectares of land owned by twenty families in Muara Bengalon was seized to make room for the coal storage area. There was no compensation and local people were banned from entering the area.38 Local protests later forced a lifting of the ban.
KPC was sold to Bumi Resources in 2003, a company controlled by the Bakrie Group. This conglomerate is owned by Aburizal Bakrie, chairman of Golkar (former dictator President Suharto's political vehicle) and recently appointed by current president Susilo Bambang Yudhoyono as head of a new secretariat to oversee the governing coalition parties (which includes Golkar).39 Bakrie was listed as Indonesia's richest person in 2008 by Globe Asia.40 His companies have been embroiled in legal disputes over tax evasion, 41 and another Bakrie company is also responsible for an an ongoing 'mud volcano' disaster associated with one of its oil operations in East Java. The Lapindo disaster claimed 14 lives and has people forced tens of thousands of local people to abandon their villages.42 (See also separate article on KPC and corruption).
Coal mining companies in IndonesiaKPC is Indonesia' biggest coal mine and one of the world's biggest too, producing 55-60 million tonnes a year.45 2) PT Adaro Indonesia, another Indonesian company, operates the Tutupan mine in South Kalimantan, Indonesia's second biggest coal producer after KPC.46 3) Banpu Public Co. Ltd, a Thai company, operates four open pit mines in South and East Kalimantan: Jorong, Indominco Bontang, Kitadin-Embalut and Trubaindo.47 4) PT Kideco Jaya Agung, owned by South Korean and Indonesian companies, operates the Roto mining complex in East Kalimantan. Roto North supplies South Korean power generators while Roto South produces coal for export and domestic markets.48 In 2006, the first three companies accounted for 69% of the country's coal exports, worth a total of US$6.2 billion.49
Other large thermal coal producers are:
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International Power PLC is a UK-based electricity generating company with interests in 21 countries, including Indonesia and the UK. In Indonesia it holds interests in the Paiton power station which started operations in 1999 with a gross capacity of 1,365MW and is also involved in the 815MW Paiton III plant now under construction next to the original plant in Probolinggo, East Java.56
International Power owns PT Paiton Energy along with two Japanese companies (Mitsui, Tokyo Electric Power Company) and one Indonesian partner (PT Batu Hitam Perkasa).57 International Power's shareholding in PT Paiton is 40.5%.58 The new Paiton III plant's operator will be IPMOMI (operator of the existing Paiton plant) in which International Power holds a 59.9% interest.59
Paiton III will be a 'supercritical' coal plant. According to the company, supercritical technology can achieve efficiencies of between 42 and 44% in comparison to around 40% for a subcritical coal plant. The company also says it is investing in low carbon technologies, including a pilot carbon capture and storage (CCS) project in Australia which started up in April 2009 and has been capturing 25 tonnes of CO2 per day.60 As far as costs of future environmental restrictions are concerned, the company indicates that it does not expect this to cause additional costs as there is no major imminent legislation expected in Asia and - under its long-term agreements with state electricity company PLN - it won't be responsible for future carbon costs.61
Meanwhile, Paiton I is a huge CO2 emitter, pumping almost 9 million tonnes of the greenhouse gas into the atmosphere each year.62
As far as human rights are concerned, International Power's policy talks about the application of the Universal Declaration of Human Rights principles throughout its workforce.63 There is no mention of the human rights of people affected by procurement of coal, or impacts in communities living near the power station project. Instead its 'Communities' web page commits to playing a 'positive role' by providing local employment, supporting the local economy; acting as a responsible neighbour and employer and contributing towards the improvement of local health and education services.64
PowerGen, now the Germany based energy giant E.ON, was previously involved in Paiton II, a 1,220MW power station which began operation in 2000. The company held a 35% stake but disinvested in 2004.65
Powergen said that it addressed the issue of human rights throughout its operations around the world through its commitment to equal opportunities and treating people "fairly, with dignity and respect".66
Despite international criticism of its continued funding for fossil fuel projects, the UK remains one of the top five shareholders in the World Bank.67
Analysis last year by the US-based think tank, the Bank Information Center, showed that the World Bank Group is continuing to spend on the extractive industries68 while simultaneously adopting a leading role in the management of global climate change mitigation and adaptation funds.
BIC showed that the Bank's private lending arm, the International Finance Corporation (IFC), increased lending for fossil fuel projects by a substantial 165% during July 2007-June 2008.
The UK was joint third biggest shareholder in the IFC in 2009 (with 5% of IFC shares).69
A survey by the US NGO Environmental Defense, found that in 2009 Indonesia was the highest recipient of public funds (including World Bank Group funds) for coal-fired power stations.70
In Indonesia, recent IFC lending approvals in the extractives and fossil fuel- based power generation sectors, amount to over USD 240 million. They include loans to a coal-fired power plant in South Kalimantan to be operated by an Indonesian company called PT Makmur Sejahtera Wisesa, (a subsidiary of PT. Adaro Energy Tbk) approved 21st June 2007.71
IFC provided $25 million for its own account and arranged a $96.8 million syndicated facility with five international banks (Calyon [France], Cordiant Capital [Canada], DBS [Singapore], ING Bank [Netherlands], and KBC [Belgium]) to help build this 60-megawatt coal-fired power plant. According to IFC, Makmur Sejahtera Wisesa will sell the generated electricity to PT Adaro Indonesia, while excess electricity from the plant will be sold to the state electricity firm, PLN, "to help stabilize the local power grid for other commercial and residential users."72
The power plant is expected to be completed by 2010. The new electricity supply will save Adaro $100 million annually in foreign exchange from diesel oil imports, as well as substantially reduce the company's operation costs.
In other words, public money is being used to help save money for this powerful mining company which is Indonesia's second biggest coal producer.
Another channel for UK public funds is the Asian Development Bank (ADB), where the UK is 14th largest investor.73 The ADB is part of an international group providing USD1.8 billion to finance Tata Power's Mundra power stations in Gujarat, India. According to Tata, almost half of the dry fuel required for the 1,600 MW project will be sourced from Indonesian mines.74(See also separate article on Indonesia-India coal links.)
In 2008, the UK and Indonesia governments signed a memorandum of understanding on environmental cooperation and climate change to strengthen mutual cooperation in these areas. As well a paragraphs on Reducing Emissions from Deforestation and Forest Degradation (REDD) and oil palm, the MoU included a commitment to "continuing bilateral cooperation on studying of Carbon Capture and Storage (CCS) potential for Indonesia."
In May 2009, DTE wrote to the UK Department of Energy and Climate Change (DECC) expressing concern about measures to study CCS as a possible future option for Indonesia's coal-fired energy sector. This, argued DTE, would mean "support for an industry which is associated with serious resource rights conflicts, forest destruction and air and water pollution in coal mining areas in Indonesia, as well as being one of the dirtiest means of energy generation in terms of GHG emissions."
The letter said: "We believe that efforts need to be focused now on moving away from fossil fuel generation to renewable alternatives (both in Indonesia and the UK), rather than supporting this industry in the hope that as yet unproven CCS technology can eventually clean it up."75
DTE never received a reply.
A new UK-Indonesia group, (the UK-Indonesia Working Group on Environment and Climate Change), which was set up under the MoU, had its first meeting in June 2009. The second meeting will be held in July 2010. The core members of the working group are DECC, the UK's Department for Environment, Food and Rural Affairs (DEFRA) and the Indonesian Ministry of Environment as co-signatories of the memorandum. Representatives from other government departments and agencies from both the UK and Indonesia also participate in meetings as appropriate.
According to Joan Ruddock, a minister in the previous Labour government, outcomes of the working group to date include the exchange of information on the EU renewable energy directive; CCS; sustainable palm oil; and forestry and land use issues. In March this year the UK government also hosted a two-week placement for an Indonesian Government official at DECC and DEFRA.76
The same month a new government report was launched: 'Clean coal: an industrial strategy for the development of carbon capture and storage across the UK'.78 The very title of this report highlights the limited nature of the debate around coal and CCS. Even if all the carbon was captured, coal would still not be 'clean', as evidence from Indonesia's coal-blighted communities shows.
The British government, as well as the private sector and company shareholders need to recognise the implications of their continued support for coal through UK energy policies that encourage coal imports from Indonesia; public money for government-to-government assistance on CCS; public funding for IFI involvement in Indonesia-based coal projects or for projects in other countries which rely on Indonesian coal; and private sector investment in Indonesian coal mining and power generation.
While local people continue to suffer the damage to their health and livelihoods inflicted by such coal connections, coal will remain both dirty and deadly.
Thanks to Roger Moody for editorial advice