Quick Take: Indonesia’s Concession Conundrum
IWIRC Indonesia
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[Note: My Quick Takes are my personal commentaries and do not represent IWIRC Indonesia. I have moved in February 2025 to Acrostics Asia.]
Three news items that came out of Indonesia recently all revolve around the same topic: concessions.
First, MUFG’s green loans to Indonesian tycoon Sukanto Tanoto’s Royal Golden Eagle (RGE) are facing scrutiny. The group’s palm oil as well as pulp and paper businesses received USD 4.9 billion in sustainability-linked loans (SLLs) and other sustainability finance since 2021, according to Rainforest Action Network (RAN).
MUFG is estimated to have contributed USD 630 million in credit and underwriting since 2016, acting as a key lead arranger and sustainability advisor, RAN said. However, the NGO alleged that deforestation persisted in RGE’s palm oil operations, with over 1,475 hectares cleared inside the concessions of Asian Agri and known suppliers to the group’s palm oil trading arm Apical. (For RGE and MUFG’s responses, check out this post).
The heart of the matter is that the yardsticks of what makes a green loan green are seen as a black box. Lenders can set all sorts of goals, but who’ll ensure that the borrowers comply with these targets? Saying “Trust us, it’s green” doesn’t cut it anymore.
The second news is the decision by Indonesia’s Supreme Court to overturn the environmental clearance for Dairi Prima Mineral’s zinc mine in North Sumatra. The project is feared to unleash more than a million tons of mining waste or tailings into nearby villages, according to Yale Environment 360.
Dairi Prima is 51%-owned by China Nonferrous Metal Industry’s Foreign Engineering & Construction (NFC China) and the rest by Bumi Resources Minerals (BRM). The latter is a unit of Bumi Resources, which is jointly controlled by Indonesian conglomerates Bakrie Group and Salim Group.
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Responding to a query from the Indonesian bourse, BRM said Dairi Prima will continue its mining activities “in line with existing permits.” It also plans to take further legal steps, claiming that some residents “fully support” the mine and that it will build an “environmentally friendly” waste management facility.
Carrying out business as usual while prolonging the legal wrangling is a common strategy in court disputes. Whether it’s the case here or not, the Dairi Prima saga seems far from over.
The third news is the trend of Muslim groups taking over coal mines in Indonesia: Muhammadiyah is set to receive concessions previously held by Adaro Energy or Bumi Resources unit Arutmin Indonesia, while the government has granted Nahdlatul Ulama the rights to manage a 26,000-hectare site in East Kalimantan that was run by another Bumi unit, Kaltim Prima Coal.
From a commercial perspective, how will these organizations secure the financing required for those mines and who will lend to them? If a lender tries to enforce the security of a defaulted loan, will this be labelled un-Islamic?
Enforcement is a real risk in Indonesia’s mining sector, if Standard Chartered’s soured USD 1 billion loan to Samin Tan’s Borneo Lumbung Energi & Metal was any indication.
In 2016, a local court overseeing the PKPU proceedings of Borneo Lumbung’s operating unit Asmin Koalindo Tuhup (AKT) threw out the bank’s claims of more than USD 628 million. AKT’s lawyer Hotman Paris successfully argued that it did not get approval from the Indonesian government to use the coal mine as collateral, thus invalidating the loan.
The lack of government approval didn’t seem to be a problem when AKT’s parent took the loan, not to mention that a bunch of loans to other Indonesian miners were similarly structured. Ironically, the Energy and Mineral Resources Ministry revoked AKT’s mining license in late 2017, citing its breach of regulations, and they were locked in a long dispute.
Concessions tend to be a minefield of controversies partly because of the strong nationalist sentiment attached (Indonesia’s 1945 Constitution states that natural resources belong to the state). There will likely be no dearth of court fights over the rights to these assets.
Author and editor
6 个月Good article, Eveline. the third item in it, about religious organisations being rewarded coal concession, sounds very worrying. Does these mass organisations have any mining expertise? pretty good chance they'll hire private firms in the business, who could easily exploit the arrangement and get the bulk of the profits.