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Corruption and coal dug up in Indonesia

Prosecutors have indicted the head of a national power firm, raising hopes of a dirty energy clean-up

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Coal in East Kalimantan on the island of Borneo (Image: ©Kemal Jufri / Greenpeace)

Indonesia’s anti-corruption watchdog has accused the head of the state-owned electricity distribution monopoly of facilitating bribery, linking him to a case that has led to the arrest of nine people, including the ex social affairs minister and another member of parliament.

The Corruption Eradication Commission (KPK) indicted Sofyan Basir, the suspended chief executive of electricity provider PLN (Perusahaan Listrik Negara) at a hearing in Jakarta on June 24.

The KPK alleges Sofyan Basir arranged meetings between PLN’s board and two politicians and a businessman who have been found guilty of bribery, reports the Jakarta Post.

Environmentalists and anti-graft campaigners now want the KPK to dig deeper into the role of China Huadian Engineering Co Ltd, which is a project partner in the US$900 million Riau-1 power plant on the biodiverse island of Sumatra. They also hope the high-profile case will stem the expansion of coal-fired power.

Previously, businessman Johanes Budisutrisno Kotio had been jailed for 32 months after being found guilty of paying more than US$300,000 in bribes to obtain Riau-1 contracts for Blackgold Natural Resources Ltd. The Chinese firm is a project partner of Blackgold’s in Riau-1. 

Golkar Party politician Eni Maulani Saragih was jailed for six years in March for taking bribes, Reuters reported. 

“This is meaningful for Indonesia, but [the KPK] has not yet exposed the full picture of corruption in the power plant business,” said Tata Mustasya, regional climate and energy campaign coordinator with Greenpeace Southeast Asia.

“The KPK alleges Sofyan Basir arranged meetings for the convicted to press for contracts. Specifically, it suspects Sofyan Basir ordered one of the directors at PLN to arrange a power purchase agreement between PLN, Blackgold and China Huadian Engineering,” said Mamik, project coordinator for Transparency Indonesia’s mining programme. (Like many Indonesians, she uses only one name.)

Burning more coal

Coal is a key driver of the Indonesian economy, as the archipelago has one of the world’s largest coal reserves, and is among the top coal exporters, alongside Australia. China is the biggest market for Indonesian coal.

The environmental cost is high. Producers in the primary coal-mining region of East Kalimantan province, on the richly forested island of Borneo, have used environmentally damaging open strip-mining techniques. They have also relied on cheap, non-union labour, often migrants from other parts of Indonesia.

Dirty energy is supported by dirty politics in Indonesia.
 

Waterways across the region have been poisoned, productive agricultural regions have been destroyed, and the provincial capital, Samarinda, is now prone to flooding due to loss of tree cover, which has increased water runoff from the surrounding hills.

Nevertheless, the government has ramped up coal output. President Joko “Jokowi” Widodo called for the construction of 117 new coal-fired power plants to counter the mine closures and economic pain caused by the recent global coal slowdown. China’s imports of Indonesian coal fell by 49% in 2015 alone.

His plans will add a total of 35,000 megawatts (MW) of power generation capacity.

Widespread corruption

“We all know that the risk of corruption is higher when there is a rapid build out of a power sector,” said Melissa Brown, an energy finance consultant at The Institute for Energy Economics and Financial Analysis (IEEFA) in Cleveland, Ohio.

“My sense of covering the Asian power sector is that corruption is something that has been a factor for many, many years,” said Brown.

China’s financial institutions have invested more than US$5.5 billion to help build over 7,000 MW of coal plants in Indonesia, before factoring in projects announced at the Belt and Road Forum in Beijing in late April, according to IEEFA data. Across Southeast Asia, China’s coal plant funding amounts to US$10 billion for 24,000 MW of coal plants.

The arrests are the latest sign that the KPK (formed in 2002, shortly after the end of Suharto’s three decades of dictatorship) may focus more on the natural resources sector.

The KPK regularly ranks among Indonesia’s most popular public institutions and has a near-perfect record of convictions in cases that have gone to trial.

In 2016, the KPK found that 40% of 10,992 coal sector licenses issued in four Indonesian provinces had failed to meet all legal requirements, including the payment of taxes, land rents and other royalties. Over 2,000 of these permits have been revoked or allowed to expire.

Digging deeper?

However, the Riau-1 case is the first major KPK investigation in the coal power generation sector, which is heavily dependent on foreign investment.

So far the case has only implicated Indonesian politicians and national companies.

“What we need to do more is bring legal cases involving companies from investing countries,” said Mustasya. “It will change the game if the KPK can do that in Indonesia.”

He believes: “Dirty energy is supported by dirty politics in Indonesia. You can generate profit easily if you are close with policymakers, or if you are a policymaker yourself.”

“There are many similar irregularities that can be found in other power projects that are part of the 35,000-megawatt program,” said Merah Johansyah, coordinator of the Mining Advocacy Network (Jatam) in a press release.

A recent report released by Greenpeace, Indonesia Corruption Watch, Jatam and Auriga, highlighted cosy connections between political elites, most notably powerful cabinet member Luhut Binsar Pandjaitan, coordinating minister for maritime affairs, and both ownership and operations of mining companies.

Authorities have, for now, suspended the Riau-1 plant. However, future moves in the mining industry could impact coal production, which domestic plants depend on.

If the investigation of the 35,000 MW programme deepens, it may implicate many more investors, including Chinese companies and financial institutions.

Pius Ginting, founder of the Indonesian NGO Aksi Ekologi dan Emansipasi Rakyat (Ecological Action and People’s Emancipation), hopes Riau-1 will push China to follow its own public commitments. He cites President Xi Jinping’s statement that China’s foreign investment should be corruption free. “I think that statement should be materialised in practice by reviewing investments in Indonesia that are prone to corruption,” he said.  

Environmental campaigners also point out the financial risks to investors in the 35,000 MW programme, given the growing evidence of oversupply and the potential cost-parity of renewable alternatives.

“It doesn’t make any sense to expand coal power plants as we already have overcapacity,” said Mustasya. “If we continue the expansion it will reach 70% overcapacity, and it will be paid by Indonesian citizens through higher tariffs, or through the government state budget.”

Of course, environmental NGOs want to see a policy move away from coal and towards renewables.

Ginting believes China could take the lead by shifting its foreign investment from coal to clean energy, thereby helping Indonesia to meet its Paris Agreement goals: “China is the biggest investor in renewable energy, and they have the capacity to [invest there] instead of in coal power plants in Indonesia.”

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