More than 21 months have passed since a Memorandum of Understanding (MOU) was signed in November 2022 between Asian Development Bank (ADB), Indonesia Investment Authority (INA), Indonesian state-owned electricity company (PLN), and Cirebon Electric Power (CEP) regarding the utilization of ADB’s Energy Transition Mechanism (ETM) for the early retirement of the Cirebon Coal-Fired Power Plant Unit 1 (Cirebon Unit 1: 660 MW). During this period, the specific framework for the early retirement of the Cirebon Unit 1 using the ETM has been discussed in closed conditions among the four parties who signed the MOU. Opportunities for civil society, including local residents who have expressed concern about the project, to be informed and meaningfully participate in the decision-making process remain extremely limited. Will the early retirement of coal-fired power plants using the ETM be appropriately carried out in the future? This paper clarifies issues by examining the process and public information on the utilization of ETM for Cirebon Unit 1.
1. Issues with the framework and decision-making process related to the utilization of ETM for Cirebon Unit 1
“Preliminary Just Transition Assessment” (PJTA) related to the Cirebon Energy Transition Mechanism Pilot Project (ADB Project Number 56294-001) published by ADB on its website at the end of February 2024 made more detailed information about the framework public. The PJTA presented an “Energy Transition Mechanism Activity Timeline” (2024–2035), which predetermined shortening the originally planned Power Purchase Agreement (PPA) duration from August 2042 to December 2035, shortening it by 6 years and 8 months.
The timeline also indicates that the Indonesian government is supposed to analyze the option of repurposing the Cirebon Unit 1 between 2029 and 2031. Civil society has pointed out that this “repurposing” option could involve the use of co-firing technologies with biomass, ammonia, or hydrogen which are criticized as “false climate solutions” due to their lack of meaningful greenhouse gas (GHG) reduction, as well as the economic and technical uncertainties they entail. However, the PJTA’s timeline defers the decision-making on these discussions and analyses, effectively postponing any conclusions on this matter.
Furthermore, according to the PJTA, the ADB is supposed to provide lower-cost ETM funding (a combination of commercial loan, concessional finance, and grant) that will enable the PPA period for Cirebon Unit 1 to be shortened. This funding is supposed to be used for (i) refinancing of the existing debt and (ii) a one-off special dividend distribution to the Sponsors to cover foregone dividend cash flow due to PPA tenor shortening and ETM transaction costs. This means that the ETM funds will be used so that the future profits of CEP and its sponsors, Marubeni, Korea Midland Power, Samtan, and Indika Energy, will not get lost.
It is not an exaggeration to say that one of the biggest issues with the overall framework and decision-making process is that the basic framework and timeline for using the ETM for Cirebon Unit 1 were already provided at the time information was released by the ADB. This is because there was no opportunity for any meaningful participation of residents and civil society in the decision-making process of shortening 6 years and 8 months, leaving open the possibility of repurposing the power plant with the false solutions for climate change measures later, and bailing out the big companies. In response to this situation, some local community organizations and non-government organizations (NGOs) have begun to take an attitude to reject the currently ongoing mechanism and process. If there is no improvement in transparency, information disclosure, and the participation opportunities for residents and civil society in the ETM process, it is seriously questionable whether the early retirement of Cirebon Unit 1 will be carried out appropriately from the perspectives of the climate crisis, environment, society, and human rights.
2. Issues with ADB’s environmental audit regarding the use of ETM for Cirebon Unit 1
In the “Environmental and Social Compliance Audit Report – Draft Report” (Environmental Audit Report) published by ADB at the end of February 2024 on its website, concerning the Cirebon Energy Transition Mechanism Pilot Project (ADB Project Number 56294-001), an assessment was conducted on the compliance status of the existing Cirebon Unit 1 with the 10 Principles of the Equator Principles (EP) and the Performance Standards (PSs) 1-8 of the International Finance Corporation (IFC). The report provides commentary and findings for each requirement. Additionally, for 36 items that were assessed as insufficient in compliance with the IFC PSs, corrective actions were proposed.
In this environmental audit, both the document review and site visits conducted to assess the impacts of Cirebon Unit 1 were heavily reliant on information provided by the project operators and government agencies. It can be noted that there has been limited information from local residents, who have been affected by the environment and social impacts of Cirebon Unit 1, and civil society. This particularly suggests that various impacts on livelihoods, and lack of appropriate compensation as well as livelihood restoration measures may not have been accurately and adequately recognized. In fact, during this environmental audit, compliance with environmental and social requirements related to impacts on livelihoods, and lack of appropriate compensation as well as livelihood restoration measures were not properly determined or corrective actions were not adequately developed.
1) Insufficient information gathering and lack of meaningful early participation opportunities for residents and civil society in the environmental audit
Of the 741 documents used in the document review for the environmental audit, only 6 documents appear to have been written by residents affected by Cirebon Unit 1 or by NGOs which provide support to them. Additionally, during the site visits conducted for the environmental audit, three focus group discussions (FGDs) were held with residents, as well as meetings with local NGO and community groups. However, if the selection or invitation of participants was conducted through the project operator or village heads, there is a possibility that the information related to the project’s environmental and social impacts, compensation, and livelihood restoration measures would reflect the perspectives of the project company or government agencies rather than critical viewpoints. Furthermore, since all these meetings were held at CEP’s Vocational Training Center or within corporate social responsibility (CSR) complex, it is necessary to examine whether the environment and conditions were adequate to allow participants to speak freely without feeling undue pressure.
2) Inadequate environmental audit regarding impacts on livelihoods and compensation/ livelihood restoration measures
In this environmental audit, despite the reality of insufficient compliance with the requirements of the EP and IFC’s PS, there are items where appropriate analysis is lacking. There are 20 items where compliance analysis was insufficient or inadequate with regards to PS 1 “Assessment and Management of Environmental and Social Risks and Impacts,” PS 4 “Community Health, Safety, and Security,” PS 5 “Land Acquisition and Involuntary Resettlement,” and PS 6 “Biodiversity Conservation and Sustainable Management of Living Natural Resources” concerning the impacts on livelihoods and compensation/ livelihood restoration measures. Among them, 16 items failed to develop any corrective action, despite the reality of insufficient compliance, due to the lack of appropriate analysis of the compliance status. One of the factors contributing to this insufficient analysis of compliance status and the lack of necessary corrective actions is considered to be insufficient information gathering and the lack of perspectives from residents and civil society, as described in the above.
3. Recommendations to the ADB
It is essential to scrap the predetermined framework and timeline concerning the use of ETM for Cirebon Unit 1, which were agreed upon solely by the four parties. Following this, discussions must ensure meaningful participation from a broad range of stakeholders, including residents, who have been affected by the construction and operation of Cirebon Unit 1, and civil society. Additionally, the environmental audit should be conducted again with a Bahasa Indonesian version developed and made public, ensuring early and meaningful participation of the affected residents and civil society. Otherwise, the past and ongoing social and environmental impacts that the local community has suffered for nearly 17 years since the construction of Cirebon Unit 1 began in 2007 will remain unaddressed, even within the “energy transition” process.
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