After complaints surrounding debt and environmental woes, China’s Belt and Road Initiative (BRI) is finally changing. At the Belt and Road Forum this week, China announced that the BRI will now be “Small but Smart”, aiming to fund smaller-sized projects that are greener.
It may take some adjusting for Indonesia, one of the BRI’s largest beneficiaries, which still has a number of mega ambitions to fulfill that include a new capital city, a new fast train route, and an end-to-end electric vehicle industry. But Indonesia could still get plenty of those smaller checks, analysts say. In the absence of other options, Indonesia could grab this opportunity to accelerate energy transition while improving governance according to BRI’s own pledges.
“If China wants to really invest in [green economy], it will boost its image compared to Western countries who are less willing to invest in Indonesia,” Fitri Bintang Timur, a visiting fellow at the International Institute for Strategic Studies (IISS), told CGSP.
Indonesian President Joko “Jokowi” Widodo’s attendance at the forum secured more than $12 billion worth of cooperation agreements in battery, renewable energy, and health between private and state-owned firms in the two countries. In contrast, the $20 billion money from the Western-sponsored Just Energy Transition Partnership (JETP) promised in 2022 has yet to come.
RONALD SIAGIAN / AFP
Firdaus Cahyadi, a communication consultant for international environmental group 350.org, said that efforts to ensure China’s involvement in Indonesia’s energy transition should be a top priority in the coming months as the latter heads into the 2024 elections. “Renewable energy projects are long-term projects, and Jokowi will soon end his term as President of Indonesia,” Firdaus said.
Finance Minister Sri Mulyani has stated that Indonesia needs around IDR 3,500 trillion or $220 billion for clean energy. JETP funds, which like most BRI schemes is also dominated by debt, would only cover barely 10% of that amount, Firdaus continued.
Therefore, “there is a big opening for Chinese investments in renewables,” he said, adding that last year, environmentally-friendly energy projects like solar, wind, and hydro under BRI increased by 50%.
It seems that there is a slightly heightened, albeit cautious, optimism among analysts for the next phase of BRI. A large factor is that the fresher BRI is predicted to come with new financing models and an expanded role of Chinese corporates. Ecologically sustainable projects, and especially green energy, have also seemingly been elevated even further.
China has in the past decade spent $1 trillion, mostly in loans, to build power plants, roads, airports, and other grand infrastructure in developing countries. However many of those investments were heavily criticized for going against the spirit of sustainability and green development often advocated by China.
China has also said it would support decarbonization efforts in Indonesia, but concrete implementations remain to be seen. In fact, about 86% of China’s funding today is still spent on building coal plants, data from Indonesian research institute CELIOS showed.
“Fossil fuel power plants under BRI that are funded by China contribute around 245 million tons of carbon dioxide production per year,” said Bhima Yudhistira Adhinegara, an executive director at CELIOS. “In Indonesia, there are many projects that have high environmental and social risks, especially nickel smelters which still use large-scale coal power plants,” Bhima added.
Joining Hands for Solar Energy
Despite still being at the beginning of its nickel-to-electric vehicles (EVs) journey, Indonesia is now already setting its eyes on another manufacturing dream: solar panels. And just like for nickel and EVs, China is among the first to write a check.
Both Fitri and Firdaus, the analysts, pointed to solar panels as having the highest potential among other renewable energies. About 50% of Indonesia’s total renewable potential could come from solar energy, according to the government.
“Investors love [to invest] because it’s a monopoly here, there’s no competitor,” Fitri said. “[Electricity] in Indonesia is monopolized by Indonesia’s State Electricity Company (PLN), any partnerships would be coordinated by PLN, any profit will go to PLN, and any losses will be covered by the government,” she explained. The downside, she continued, is that it would be difficult to monitor the impact and benefits for the people.
PLN signed an agreement at the Belt and Road forum to develop a super grid transmission line and smart grid and a solar cell and panel factory in Central Java, worth a total of $54 billion. This is on top of China’s Xinyi Group’s pledge in July to disburse $11.6 billion to develop a glass and solar panel factory in Rempang Island.
Indonesia has been under global scrutiny for the way it develops nickel, a crucial part of the EV supply chain. Now with solar energy, it might be already showing signs of repeating the same mistakes. Thousands of residents in Rempang are now facing forced eviction from their villages to make way for the solar panel factory. Local authorities would suppress and intimidate those who protest the eviction.
Rempang is incredibly strategic because it is surrounded by islands that contain silica sand and quartz sand, which are raw materials for solar panels and electronics. Senior government officials have declared that they will encourage the downstreaming of silica and quartz sand, as is done with nickel.
Faris Adnan, a researcher at the Institute for Essential Services Reform (IESR), said quartz and silica sand might hold an even bigger revenue potential than nickel. “This is a personal opinion,” Faris said. “But battery players are starting to move away [from nickel] since the resources are limited.” On the other hand, “quartz sand won’t be replaced that fast,” Faris explained.
Bhima, the CELIOS researcher, recommends that the BRI should going forward support a better governance of critical minerals mining and processing industry, transform it to be more transparent, and eliminate environmental damage as well as harm to local communities and workers. At the same time, the Indonesian government must be more assertive in lowering carbon emissions from all projects. It must also be more selective in choosing funding, Bhima continued.
“Indonesia needs to talk about China’s commitment to green development because Indonesia needs China as a strategic partner in funding a just energy transition, with or without JETP,” Bhima concluded.
