- The internal inquiry will address allegations that the World Bank Group’s private lending arm, the International Finance Corporation (IFC), is contributing to immense harm through its back door support for the expansion of Southeast Asia’s largest and dirtiest coal-fired power station.
- Expansion of the Suralaya coal complex, through the addition of two new plants known as Java 9 and 10, has already caused forced evictions and destroyed local businesses, and is expected to cause thousands of premature deaths and contribute more than 250 million metric tons of CO2 to the earth’s atmosphere.
- Local community members and civil society groups say that IFC violated its own Performance Standards on Environmental and Social Sustainability by sitting by while its client invested in the project, despite its predictably catastrophic impacts.
(Banten Province, Indonesia – July 11, 2024) The International Finance Corporation’s internal watchdog, the Compliance Advisor Ombudsman (CAO), announced that it is launching an investigation into the institution’s investments in a commercial bank that is financing construction of two new coal-fired power plants at Indonesia’s Suralaya Power Station. The investigation comes in response to a complaint filed last year by communities in Indonesia’s Banten Province who say the new plants, known as Java 9 and 10, will have catastrophic impacts on their health, livelihoods, and the environment. The complaint was filed with the support of local and international non-governmental organizations PENA Masyarakat, Trend Asia, Inclusive Development International and Recourse.
“It’s encouraging that the CAO will do a full investigation, which brings us one step closer to justice,” said Sarah Jaffe, senior legal and policy associate at Inclusive Development International. “People’s lives are being upended by this project, and they deserve full and fair redress for the harm they’ve suffered. The IFC has a responsibility to contribute to that and to ensure that, at the very least, the project developer is taking measures to better protect local communities moving forward.”
According to the CAO’s initial assessment of the complaint, completed in June and published last week, the IFC has supported the construction of Java 9 and 10 through equity investments totalling $46.9 million in Hana Bank Indonesia, one of the projects’ financiers. By launching an investigation, the CAO is acknowledging that there are indications that IFC has not complied with its environmental and social policies in relation to its most recent investment and that its non-compliance could have contributed to project-related harms. In its report, the CAO raises serious questions about the IFC’s management of predictably high risks associated with investment in Hana Indonesia. The report suggests that the IFC may have underplayed those risks by classifying its investment as “moderate” as opposed to “high” risk, and notes that the IFC failed to ensure, over many years, that known deficiencies in Hana Indonesia’s environmental and social management system were rectified. This calls into question the adequacy of the client’s oversight and reporting on social and environmental risk in its portfolio, including that associated with Java 9 and 10.
The Java 9 and 10 plants will make an already dire situation worse
With a combined capacity of 2000 megawatts, completion of the Java 9 and 10 plants will increase the size of the already massive Suralaya coal complex by 50 percent—something advocates say is unnecessary given the current oversupply of energy in the Java-Bali grid. This will compound and add to ongoing harms, including air pollution, acute respiratory infections and other health problems caused by coal dust and toxic waste, and greenhouse gas emissions. The plants are expected to cause thousands of premature deaths and will release an estimated 250 million metric tons of carbon dioxide into the atmosphere over their 30-year lifespan.
The project has also involved physical and economic displacement without compensation or livelihood restoration. In their complaint to the CAO, local community members described a lack of information and consultation prior to land acquisition by the Java 9 and 10 developer, and evictions conducted under duress and amid fears of retaliation if they did not agree to the terms offered, which amounted to insufficient compensation. They also describe how destruction of the Kelapa Tujuh Beach, the last remaining beach in the area, has destroyed a key source of income from tourism and fishing. Fisherfolk are now forced to fish far from the shore using boats, which greatly increases expenses, and they fear that the project will lead to further declines in their already reduced catch.
“The new plants will exacerbate already devastating health and environmental problems these communities face,” said Novita Indri, energy campaigner at Trend Asia. “This project brings extreme risk and little to no benefit for the people of Banten Province.”
Not only do the environmental and social risks involved make the project untenable, but as the complaint argues, construction of new coal plants is unnecessary in the region, where electricity supply already exceeds demand.
The IFC has a responsibility to help prevent and remedy harm from the project
The complainants are confident that the CAO investigation will confirm that the IFC has failed in its due diligence responsibilities to prevent ongoing harm and future risk associated with construction of the Java 9 and 10 plants. They are asking the IFC to use its leverage to halt construction of the coal plants and, if stopping the project is not possible, to ensure that it is upgraded to minimize social and environmental harm. This includes implementing best practices for waste management, which the project has so far failed to do, leading to serious problems for nearby communities. Complainants are also seeking remedy for harm the project has already caused, including restoration of livelihoods and compensation for those forcibly evicted to make way for the plants’ construction. They also want to see an end to Hana Bank Indonesia’s financing of coal projects altogether, along with systemic policy changes by the IFC to eliminate all indirect support for coal projects.
The IFC’s support for Java 9 and 10 via Hana Bank Indonesia violates its Sustainability Framework and Green Equity Approach
As outlined in the complaint, IFC’s failure to appropriately assess the mega coal project being bankrolled by one of its financial intermediary clients against its social and environmental policies represents a serious supervision failure. It also highlights weak points in in IFC’s Green Equity Approach1 that allowed it to continue indirectly financing new coal up until it closed some of those loopholes. However, even the updated approach with its “no new coal” commitment, allows financial intermediary clients to invest in captive coal power and to underwrite bonds for coal developers. And, while IFC has stated that the approach applies to all existing equity clients, it is unclear whether and how that is being enforced.
“The IFC’s financing of Java 9 and 10 is yet another example of the risky business of financial intermediary lending,” said Daniel Willis, finance campaign manager at Recourse. “By entrusting public funds to commercial banks that are more concerned with profits than people, the IFC has found itself supporting a monstrous coal project that is both unnecessary for energy supply and disastrous for the environment. The IFC must cooperate with its ombudsman to remedy the harms identified by the investigation and make systemic changes to how it invests in the future.”
Support for Java 9 and 10 also puts the World Bank Group at odds with Indonesia’s Just Energy Transition Partnership, a $20 billion initiative funded by a coalition of wealthy countries and global lenders to help the country speed its transition away from coal, toward cleaner energy sources.
Additional Quotes:
Sarah Jaffe, senior legal and policy associate at Inclusive Development International: “Promoting coal expansion is antithetical to IFC’s mission. The Java 9 and 10 project is so out of line with the bank’s environmental and social standards it’s unlikely it can be brought into compliance. IFC’s responsibility now is to stop further harm from the project and to help remedy the harm already caused.”
Kate Geary, programme director at Recourse: “Support for Java 9 and 10 is completely at odds with the World Bank’s mission—the plants will exacerbate, not reduce, the impacts of both poverty and climate change. IFC’s failure to prevent its client funding two massive new coal plants in the 11th hour of the global climate emergency undermines its commitment to the Paris Agreement on climate change.”
Novita Indri, energy campaigner at Trend Asia: “The Java 9 and 10 expansion is totally unwarranted—electricity needs in the area are already being met and the Java-Bali grid is already oversupplied—and yet it will devastate local communities and tip the world closer to a climate catastrophe, to which Indonesia and its citizens are uniquely susceptible. That’s the opposite of what’s needed to achieve the net-zero emissions target and undermines the Paris Agreement.”
Mad Haer Effendi, Director of PENA Masyarakat: “I’m confused as to why Java 9 and 10 are being built, because the Suralaya community does not experience any advantageous benefits; in fact, the new projects would worsen existing environmental degradation and lead to respiratory disease. It’s silly for the company to claim that this project will generate prosperity for the community.”
The CAO’s Compliance Appraisal Report can be found here: https://www.cao-ombudsman.org/sites/default/files/downloads/Indonesia-KEB-Hana-CAO-AppraisalReport-June-2024_1.pdf
The full complaint can be found here: https://www.inclusivedevelopment.net/documents/java-9-and-10-cao-complaint/
More information on the impact of the Java 9 and 10 projects and IFC’s role can be found here: https://www.inclusivedevelopment.net/cases/java-9-and-10/
Photos for use with proper accreditation can be downloaded here: https://drive.google.com/drive/folders/1LW1MkGl0T2opZFtYy4GBn16fwudUgV7H?usp=drive_link
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Media Contacts
Mignon Lamia, communications director at Inclusive Development International
mignon@inclusivedevelopment.net
+1 617 470 4142
Time Zone: EDT (GMT-4)
Languages: English
Daniel Willis, finance campaign manager at Recourse
+44 7595 054391
Time Zone: BST (GMT+1)
Languages: English
Novita Indri, energy campaigner at Trend Asia
Time Zone: Western Indonesian Time (GMT+7)
Languages: English, Bahasa Indonesia
About Trend Asia
Trend Asia is an Indonesian independent civil society organization that, in light of the opportunities and threats posed by global climate change, is working to drive Asia’s energy and development transformation away from fossil fuels and wasteful consumption and production and toward a sustainable, clean and renewable energy, people-powered future.
About Inclusive Development International
Inclusive Development International is a non-profit organization that works to advance social, economic, and environmental justice by supporting communities around the world to defend their human rights and environment in the face of harmful corporate activities. Learn more at: https://www.inclusivedevelopment.net
About Recourse
Recourse campaigns to redirect international financial flows away from dirty, harmful investments, towards greener and more inclusive development. Recourse works in partnership with others to support communities in their struggle for their rights to be respected and their voices to be heard, and holds financial institutions to account for harms to people and the environment.
- An initiative launched in 2019 requiring financial intermediary clients to increase climate-related lending and eliminate coal exposure—or reduce it to near zero—by 2030. ↩︎