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Commodities

In ironic twist, drive for clean energy creates Asian coal boom

Public outcry over dirty fuel overshadowed by power needs of growing economies

A tug pulls a coal barge past the Islamic centre in Kalimantan, Indonesia( Getty Images).

JAKARTA -- Coal, one of the world's most polarizing commodities, has now become an Asian irony. Efforts to curb use of the so-called black diamond in the West have been a boon for coal companies in the East, more so now that the benchmark price for thermal coal exceeded $120 per ton in July, the highest since 2012.

No one was surprised in March when Tambang Batubara Bukit Asam, one of Indonesia's largest coal producer, posted a 123% year-on-year jump in net profit to 4.4 trillion rupiah( $325 million)  for the period ended December. That was because only a week prior to the results, Adaro Energy, the country’s second-largest coal miner, posted a 45% surge in net profits to $483 million.

The common denominator for both companies was rising coal prices.

"The revenue increase is a result of continued efforts by the corporate management … amid improving global coal prices," said Bukit Asam, while Adaro noted, “2017 was a good year for Adaro Energy … within the more supportive coal sector.”

Bukit Asam is reported to be mulling acquisition of a new mine, while Adaro said that "if a good opportunity arise, we will look into" acquiring new coal assets. And they are not the only ones.

ABM Investama, an Indonesian-based investment company that focuses on the energy sector, has set aside $500 million for acquiring new mining areas. State power utility PLN is reportedly in the process of acquiring eight mines in Kalimantan and Sumatra.

This was probably not what environmentalists foresaw after 196 countries and regions, albeit now without the U.S., signed the Paris climate accord in 2015. It was hoped that the world would stop burning coal -- the largest source of carbon dioxide emissions -- in order to limit the rise in global temperatures to below 2 C.

Public pressure against burning coal has been on the rise in Asia. Local resistance in Thailand's Songkhla and Krabi provinces have halted projects for coal-fired power plants, while in Myanmar public outcry has stalled a $2.8 billion plant in Mon State.

Even so, energy demand in Asia continues to grow, and both Bukit Asam and Adaro are doing their part to provide power to some 65 million people in member states of the Association of Southeast Asian Nations who are without electricity.

Asian financial institutions are also still willing to finance coal-related projects. According to Rainforest Action Network, a U.S. nongovernmental organization, China Construction Bank has been the largest financier of coal mining from 2015 through 2017. It was followed by other Chinese banks, including Bank of China, Industrial and Commercial Bank of China and Agricultural Bank of China. The banks were also the main backers of coal power.

“For the emerging economies in Southeast Asia, providing affordable electricity remain priorities for governments to support the robust and energy-intensive economic growth,” said Shirley Zhang, principle analyst at Wood Mackenzie. “Without a binding carbon commitment, coal offers baseload supply at the lowest cost for at least another 15 years for those countries. This is fundamentally driving coal's growth in this region.”

The International Energy Agency forecasts that by 2040, coal will account for 40% of the energy mix to support the region’s economic and population growth, and mining companies are taking full advantage of the high coal prices which, ironically, were brought about by the West's push to phase out coal.

A string of measures by Western financial institutions to divest from the coal industry surrounded the Paris agreement. In December 2017, French insurance group AXA issued a statement saying that it had "decided two years ago to divest 500 million euros from the coal industry" and that it would "increase its divestment fivefold to reach 2.4 billion euros.”

“In the spirit of the Paris agreement, we want to accelerate our commitment and confirm our leadership in the fight against global warming,” explained CEO Thomas Buberl in a statement.

Meanwhile, British-based HSBC became the latest international bank to shun coal, announcing in April that it will stop financing coal power stations, although it has made an exception until 2023 for new coal-fired power plants in Bangladesh, Indonesia and Vietnam.

 A coal-fired power plant in Jiangsu province, China.   © Reuters

According to Zhang: “The price rise is driven by multiple factors, primarily higher-than-expected demand in China and India, while domestic supply was unable to catch up. Seaborne supply [tightened], especially [for] primary quality thermal coal, [and there was a] lack of capital investment in regions like South Africa.”

Simple economics is at play. While global production of coal, according to BP, dropped by 2.4% in 2017 compared to 2015, global consumption only dropped 0.8%, with demand rising in the Asia-Pacific region, which accounted for 74.5% of global coal consumption. Combined coal consumption in five Southeast Asian countries -- Indonesia, Malaysia, the Philippines, Thailand and Vietnam -- increased 10.4% in the two years to 2017, while India saw a 7.2% rise.

“We believe that long-term fundamental [demand] for coal is [strongly] supported by developing countries in Southeast Asia, India, China and even OECD North Asia countries, all of which still depend on coal for electricity generation,” said Garibaldi Thohir, CEO of Adaro, in a written response to a question from the Nikkei Asian Review. “Despite [the] renewable energy push, thermal coal will still be preferred due to its affordability and abundant reserves in the region.”

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