Correction word, 5 July 2024: An earlier model of the article said that the Tune Hau 2 undertaking can proceed after securing a US$980 million mortgage from the Export-Import Financial institution of Malaysia (Exim Financial institution). That is incorrect. Exim Financial institution has since responded to Eco-Enterprise’s queries on 4 July to make clear that this mortgage is just not from the financial institution. Singapore-based engineering service supplier i-Energy Options Pte Ltd will likely be offering the total sum of the US$980 million mortgage. The headline of the article and elements of paragraphs 1-12 have been edited to mirror Exim Malaysia’s replies. A follow-up article on the total press assertion from Exim Financial institution on 2 July will be discovered right here. We apologise for the error.
In the identical week that Malaysia declared it will retire its complete fleet of coal-fired energy stations over the following 20 years to curb climate-wrecking greenhouse fuel emissions, one of many nation’s main improvement banks is going through scrutiny for being concerned in financing preparations for a brand new coal plant in Vietnam.
The two,120-megawatt Tune Hau 2 undertaking in southern Vietnam, its development delayed for over a decade because it struggled to draw financing, just lately secured a US$980 million mortgage. The Export-Import Financial institution of Malaysia (Exim Financial institution), a improvement financial institution owned by the Malaysian authorities, had been concerned within the tools financing preparations for the mortgage to be offered by Singapore-based engineering service supplier i-Energy Options Pte Ltd.
The financial institution can also be the mandated lead arranger for a fund elevating train of as much as US$2.68 billion, one of many largest of its type to be raised by a Malaysian financial institution for an abroad undertaking. It’s unclear if the financial institution will likely be placing up any share of the mortgage, though in response to media queries, Exim Financial institution has stated that the appointment as lead arranger “shall not be construed as a financing dedication or obligation on the a part of Exim Financial institution.”
The deal to fund the coal plant in Hau Giang province has drawn criticism for undermining Malaysia’s local weather commitments and jeopardising Vietnam’s US$15 billion Simply Vitality Transition Partnership (JETP) local weather assist package deal.
Vietnam dedicated to wean itself off coal as a part of its JETP settlement with wealthy international locations in 2022. This settlement included a promise by Vietnam to restrict its coal-powered era 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 Tune Hau 2.
Christina Ng, managing director and co-founder, Vitality Shift Institute
Tune Hau 2’s development may torpedo the funding deal, stated Christina Ng, the managing director and co-founder of Vitality Shift Institute, an Australia-based power suppose tank.
Apart from 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 yr, when international locations agreed to start transitioning away from fossil fuels.
Malaysia’s minister for power transition and water transmission had additionally pledged on Tuesday to halve Malaysia’s coal fleet by 2035 and retire all of its crops by 2044.
Its involvement in bankrolling Tune Hau 2 confirmed inconsistency within the Malaysian authorities’s strategy to power investments and financing at residence and abroad, “particularly given the sensitivity round fossil gas financing which has garnered heightened scrutiny around the globe,” Ng instructed Eco-Enterprise.
Whereas most Malaysian industrial banks have insurance policies in place that exclude coal after stress from environmental teams to scrub up their lending portfolios, improvement banks corresponding to Exim Financial institution, which is wholly-owned by Malaysia’s finance ministry, haven’t been uncovered to the identical stage of scrutiny, Ng stated.
“As a monetary arm of the Malaysian authorities, Exim Financial institution ought to have seen the contradiction in its involvement of Tune 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 a superb search for a rustic that’s courting international capital,” Ng stated.
“Any monetary establishment ought to rethink whether or not it must be concerned on this deal, no matter whether or not it has a coal exclusion coverage. Their repute is on the road,” Ng stated.
A Malaysian financial institution government talking on situation of anonymity, stated Malaysia’s involvement within the Tune Hau 2 undertaking must be a “get up name” for Malaysia’s monetary regulators, as up to now there have been no important circumstances of greenwashing or reputational influence from funding fossil fuels by Malaysian banks.
There was a necessity for a typical understanding amongst banks and regulators on the pink traces that shouldn’t be crossed, for instance coal and deforestation, they stated.
The dangers of funding environmentally or socially problematic actions are recognized in frameworks corresponding to Malaysia’s Worth-Primarily based Intermediation Financing and Funding Influence Evaluation Framework, which guides Malaysian banks on learn how to make investments sustainably consistent with Sharia rules. Nevertheless, these are merely tips relatively than legally mandated prohibitions, the manager added.
Ng additionally questioned whether or not the facility Tune 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 setting has more and more favoured renewables. China’s pledge to cease funding abroad coal crops in 2021 has additionally made it tougher for Vietnamese coal tasks to entry international capital.
Vietnam is Southeast Asia’s main nation for renewables capability additions, though it stays a serious coal person to feed quickly rising power demand. Tune Hau 2 is one among 16 coal crops beneath Vietnam’s Energy Improvement Plan 2021-2030, which goals to generate 30-gigawatts of extra coal energy. Vietnam’s authorities tasks energy consumption to develop 10-12 per cent yearly via to 2030, and coal has taken a document share of the nation’s power combine this yr.
In accordance with the non-profit Centre of Analysis on Vitality and Clear Air (CREA), as soon as operational Vietnam’s new coal crops will trigger 1,500 folks to die prematurely from air air pollution yearly.
Tune 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 organize capital for tools procurement. Building of the plant has not but began.
“Vietnam doesn’t need to get a repute for backing out of offers, however there may be nonetheless time for all events to come back collectively and take into consideration whether or not this undertaking is smart,” Ng stated. “The deal may imply Vietnam dropping billions of {dollars} in direction of its power transition [by scuppering JETP].”
