The Japan Bank for International Cooperation (JBIC) has confirmed it will provide project financing to the Vung Ang II coal project in Vietnam, despite pressure from climate activist and investor groups to reverse course and drop the deal. Alongside the Export-Import Bank of Korea (Kexim) and a group of private lenders, the Japanese export credit agency (ECA) will provide nearly US$1.8bn in loans for the project. Funds will go towards a limited liability company set up in Vietnam, which has received investment from Tokyo-based trading company Mitsubishi Corporation as well as other entities, and which is tasked with constructing and operating the coal-fired plant.
Electricity generated by the project will be sold to Vietnam Electricity (EVN), the state-owned power utility company, for 25 years. JBIC says it will contribute as much as US$636mn to the project, and that the financing will help the Vietnamese government to swiftly develop power sources in the country and provide a “stable supply of electricity” for decades to come.
The move has drawn condemnation from climate change activist groups that have long expressed concern about JBIC’s interest in the project, and are now calling for JBIC, Kexim and the other lenders to withdraw from the deal. In a joint statement published on December 29, five NGOs – which include the Kiko Network and Friends of the Earth Japan – say that JBIC has failed to address “many criticisms, including the project’s inconsistency with climate change measures and [an] inadequate environmental impact assessment”. The public backing of coal projects goes against commitments made under the 2015 Paris agreement by Japan and most other countries to keep gas emissions below 2°C above pre-industrial levels, the statement reads.
According to analysis from research firm Climate Analytics, coal needs to be phased out by 2040 if such targets are to be met. For the time being, however, the commodity remains a major source of electricity for countries around the world, with a March 2020 investigation from UK-based research and media company Carbon Brief showing that coal generates nearly 40% of the world’s electricity, and that the number of countries using coal power has risen from 66 in 2000 to 80 today.
Meanwhile the NGOs, in their statement, say that JBIC’s decision to back the Vung Ang II project undermines and contradicts Japan’s recent promises to accelerate decarbonisation efforts at home and abroad.
The Japanese government made a specific promise to curtail backing for foreign coal projects last year, announcing in July that it would tighten its lending criteria for overseas coal-fired power plants. As part of that policy revision, it said it will not provide financial support for any host country that does not have a decarbonisation policy. However, it stopped short of promising a total ban, and said it would back projects if they use highly efficient technologies, and plants that it has already committed to will still go ahead – GTR reported at the time that Vung Ang II was one of these.
In October, Prime Minister Yoshihide Suga pledged to speed up Japan’s move towards renewables domestically, and has set a carbon neutral target for 2050. Just days later, South Korea – the other country backing the Vung Ang II deal – followed suit and also announced a goal for net-zero emissions by that year.
Having been proposed over a decade ago, the Vung Ang II project is slated to finish construction by 2024. The private financial institutions reportedly backing the agreement alongside JBIC and Kexim include Sumitomo Mitsui Banking Corporation, MUFG Bank, Mizuho Bank and Sumitomo Mitsui Trust Bank, according to the statement from the NGOs.
Pressure had been growing on the financiers and sponsors of the project to pull out in the months leading up to the official signing, with a group of influential investors raising concerns in a letter published late last year. The letter was sent by Nordea Asset Management on behalf of 20 investor groups with assets worth US$3.6tn to various companies and organisations asking them to withdraw from the project, citing “high climate-related, financial and reputational risks”. It pointed to the Paris climate agreement as a key reason for withdrawal.
The investors also noted that the Vung Ang II project was questionable from a “financial point of view”, referencing research that suggests that the cost of constructing new renewable projects will be lower than operating costs of existing coal-fired power generation in Vietnam by as early as 2022. The letter further stated that independent analysis conducted by Environmental Law Alliance Worldwide (ELAW) found that key aspects of the project’s 2018 Environmental Impact Assessment (EIA) did not meet internationally accepted standards for evaluating the potential environmental impact.
“Key findings of the ELAW analysis concerned the use of weaker emission standards by the EIA than those applied internationally, as well as the conclusion that the EIA, in violation with international standards, failed to consider alternatives to coal power in its assessment,” it added.
JBIC does not make reference to any of these concerns in its press statement, though the ECA says it has been working with Vietnam on its energy policy transition towards decarbonisation – and, based on such engagement, decided to lend support to the project.