In the identical week that Malaysia declared it could retire its whole fleet of coal-fired energy stations over the subsequent twenty years to curb climate-wrecking greenhouse gasoline emissions, one of many nation’s main growth banks is dealing with scrutiny for financing a brand new coal plant in Vietnam.
The two,120-megawatt Track Hau 2 undertaking in southern Vietnam, its development delayed for over a decade because it struggled to draw financing, can now proceed after securing a US$980 million mortgage from Export-Import Financial institution of Malaysia (Exim Malaysia), a growth financial institution owned by the Malaysian authorities.
The deal to fund the US$3 billion coal plant in Hau Giang province has drawn criticism for undermining Malaysia’s local weather commitments and jeopardising Vietnam’s US$15 billion Simply Power Transition Partnership (JETP) local weather support bundle.
Vietnam dedicated to wean itself off coal as a part of its JETP settlement with wealthy nations in 2022. This settlement included a promise by Vietnam to restrict its coal-powered technology capability at 30.2 gigawatts by 2030.
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As a monetary arm of the Malaysian authorities, Exim Financial institution ought to have seen the contradiction in its involvement in Track Hau 2.
Christina Ng, managing director and co-founder, Power Shift Institute
Track Hau 2’s development may torpedo the funding deal, mentioned Christina Ng, the managing director and co-founder of Power Shift Institute, an Australia-based vitality suppose tank.
Moreover casting a shadow over Vietnam’s local weather pledges, which embrace the phasing out of coal after 2035 and carbon neutrality by 2050, the deal undermines Malaysia’s participation on the COP28 local weather talks final 12 months, when nations agreed to start transitioning away from fossil fuels.
Malaysia’s minister for vitality transition and water transmission had additionally pledged on Tuesday to halve Malaysia’s coal fleet by 2035 and retire all of its vegetation by 2044.
Bankrolling Track Hau 2 confirmed inconsistency within the Malaysian authorities’s strategy to vitality investments and financing at dwelling and abroad, “particularly given the sensitivity round fossil gasoline financing which has garnered heightened scrutiny world wide,” Ng advised Eco-Enterprise.
Whereas most Malaysian business banks have insurance policies in place that exclude coal after strain from environmental teams to scrub up their lending portfolios, growth banks comparable to Exim Malaysia, which is wholly-owned by Malaysia’s finance ministry, haven’t been uncovered to the identical stage of scrutiny.
“As a monetary arm of the Malaysian authorities, Exim Financial institution ought to have seen the contradiction in its involvement of Track Hau 2. If it goes forward with this deal, it sends a sign that the federal government’s pledges don’t imply a lot – and that’s not an excellent search for a rustic that’s courting overseas capital,” Ng mentioned.
Exim Malaysia had not responded to requests for remark on the time of publishing.
“Any monetary establishment ought to rethink whether or not it needs to be concerned on this deal, no matter whether or not it has a coal exclusion coverage. Their repute is on the road,” Ng mentioned.
A Malaysian financial institution govt talking on situation of anonymity, mentioned Malaysia’s involvement within the Track Hau 2 undertaking needs to be a “get up name” for Malaysia’s monetary regulators, as so far there have been no vital circumstances of greenwashing or reputational affect from funding fossil fuels by Malaysian banks.
There was a necessity for a standard understanding amongst banks and regulators on the purple strains that shouldn’t be crossed, for instance coal and deforestation, they mentioned.
The dangers of funding environmentally or socially problematic actions are recognized in frameworks comparable to Malaysia’s Worth-Primarily based Intermediation Financing and Funding Influence Evaluation Framework, which guides Malaysian banks on easy methods to make investments sustainably in keeping with Sharia ideas. Nevertheless, these are merely pointers somewhat than legally mandated prohibitions, the manager added.
Ng additionally questioned whether or not the ability Track Hau 2 will generate was really wanted, since appreciable wind and photo voltaic capability has come on-line in Hau Giang province over the previous decade, as Vietnam’s altering regulatory surroundings has more and more favoured renewables. China’s pledge to cease funding abroad coal vegetation in 2021 has additionally made it tougher for Vietnamese coal initiatives to entry overseas capital.
Vietnam is Southeast Asia’s main nation for renewables capability additions, though it stays a serious coal person to feed quickly rising vitality demand. Track Hau 2 is considered one of 16 coal vegetation beneath Vietnam’s Energy Improvement Plan 2021-2030, which goals to generate 30-gigawatts of further coal energy. Vietnam’s authorities initiatives energy consumption to develop 10-12 per cent yearly by to 2030, and coal has taken a document share of the nation’s vitality combine this 12 months.
In keeping with the non-profit Centre of Analysis on Power and Clear Air (CREA), as soon as operational Vietnam’s new coal vegetation will trigger 1,500 individuals to die prematurely from air air pollution yearly.
Track Hau 2 is an entirely owned subsidiary of Toyo Ink Berhad, a Malaysian ink firm. The plant is to be engineered and constructed by a consortium made up of Malaysian conglomerate Sunway and Vietnamese agency Energy Engineering Consulting Joint Inventory Firm 2.
Singaporean agency i-Energy Options will prepare capital for gear procurement. Building of the plant has not but began.
“Vietnam doesn’t wish to get a repute for backing out of offers, however there may be nonetheless time for all events to return collectively and take into consideration whether or not this undertaking is sensible,” Ng mentioned. “The deal may imply Vietnam shedding billions of {dollars} in the direction of its vitality transition [by scuppering JETP].”
