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Bonds funding Indonesia’s second-largest coal company: Adaro

  • Adaro Energy is Indonesia’s second-largest coal-mining company which derives 70% of its profits from coal (GCEL) and has no credible plan to transition away from coal. Banks and investors face a choice whether to refinance its $750m bond due in October this year.
  • Adaro Energy is promoting its new aluminium smelter as “green” while simultaneously building a captive coal-powered fire plant to supply electricity to the smelter.
  • Adaro’s coal empire has destroyed biodiversity, traditional occupations, and caused displacement of Indigenous and other local populations in Indonesia’s North, South and Central Kalimantan. In South Kalimantan’s Wonorejo village, Adaro’s mining activities have ousted villagers and rendered Wonorejo a ghost village.

Adaro Energy Indonesia, the country’s second largest coal mining company, has a US$750 million bond maturing on October 31, 2024 that it may seek to refinance. The Indonesian coal giant wants to portray this funding as advancing its decarbonization strategy. But, in reality, its decarbonisation pathway involves building and promoting an aluminium smelter in North Kalimantan as “environmentally friendly”, while concurrently constructing a 1.1 GW coal-fired power plant to provide electricity to the smelter. Adaro Energy is one of the world’s largest coal exporters that is continuing to expand its coal production. It is openly flouting Indonesia’s commitment to fossil fuel phase-out and exacerbating environmental degradation, human rights violations and destroying local livelihoods.

Adaro’s planned aluminium smelter and 1.1 GW coal-fired power plant is located inside the North Kalimantan Industrial Park of Indonesia. If Adaro is allowed to proceed with these coal-powered assets, it will be at the expense of land contour changes with biodiversity loss, coastal erosion, air pollution, as well as loss of livelihood and decline in incomes of people employed in agriculture, livestock, and fisheries in North Kalimantan.

North Kalimantan is not the only affected region. In Central Kalimantan, Adaro plans to increase coal production through massive coal mines that threaten a primary rainforest, pollute water sources, and deprive Indigenous peoples of their customary land. In South Kalimantan, Adaro has systematically bought land to expand its mining complex and drive residents of the Wonorejo village away. Wonorejo is now a ghost village with coal mines instead of community infrastructure. As the largest coal miner in South Kalimantan, Adaro’s activities have also led to a reduction in the catchment area of the Barito river and contributed to deadly flooding.

Although the Adaro group has released a Net Zero Emissions statement, it offers no credible transition plan and remains misaligned with internationally-agreed climate goals. Adaro currently derives 70% of its revenue from coal (Data from GCEL) and has set an internal target of reducing it by merely 20% by 2030. Adaro’s lack of credible, time-bound plans or targets to reduce emissions demonstrates that it has no intention of ceding its climate-destructive coal empire.

Adaro’s flagrant greenwashing has sparked outrage from local communities. Consequently, Hyundai, a major electric vehicle manufacturer and Adaro’s client, has said that it will only procure “low-carbon aluminium using hydroelectric power generation”. Many banks, too, realise that Adaro’s continued reliance on coal despite tightening regulator conditions and strong public sentiment in favour of transitioning away from fossil fuels is exposing itself and its financial backers to grave risk. French bank BNP Paribas and Singapore bank DBS have already ruled out providing any finance or underwriting services to Adaro in light of the company’s thermal coal expansion.

Whilst Adaro’s activities exacerbate the climate crisis, grassroot and Indigenous communities supported by local NGOs are standing up against Adaro’s catastrophic climate destruction. Investors keen to proceed with this bond therefore face significant potential risks, including complicity in the destruction of the environment, local livelihoods, and human rights abuses.