A consortium of banks led by Japan Bank for International Cooperation (JBIC) has approved a $1.99 billion loan for a coal-fired power plant in Vietnam, despite claims that it breaches an international agreement on financing the dirtiest fossil fuels.

State-owned JBIC signed the loan agreement with private banks including Mizuho Bank, Sumitomo Mitsui Trust Bank, MUFG Bank, Oversea-Chinese Banking Corp (OCBC), DBS Bank and the Bank of China, the bank said in a statement late on Friday.

The loan is reported to breach the spirit of an agreement signed in 2015 by members of the Organisation of Economic Co-operation and Development (OECD), including Japan, to restrict state-backed financing for dirtier coal plants. However, a JBIC spokesperson claimed that “this project is still in line with the transitional arrangements of the OECD guidelines.”

Website The Asset commented: “For Vietnam to expand its economic output (it) it urgently needs to update its energy capacity, and this coal-fired power station will plug the supply gap”.

OCBC pledge

Although Japan’s banks and investors have started to restrict financing of coal-fired plants, projects are still being supported. Their stance has been criticised recently by non-government organisations, such as Friends of the Earth Australia affiliate Market Forces and climate change campaigning group 350.0rg via advertisements in the Financial Times.

Market Forces claims that the Van Phong 1 project will be nine times more polluting than the average Japanese coal plant, citing an environment and social impact assessment.

OCBC, which is Southeast Asia’s second-largest lender, has already announced that the Vietnam project will be the last traditional plant it finances as it increases funding for renewables. In addition to Van Phong 1, OCBC was a member of the consortium that funded Vietnam’s 1.2 gigawatt Nghi Son 2 power plant a year ago.

“We won’t do any new coal-fired power generation plants in any countries, except for the power projects that we are already in, or we have committed to,” OCBC’s chief executive Samuel Tsien pledged last month. “We hope that by doing this, we are encouraging the governments to do facilitating, arrangements for the countries to move from coal to renewable.”

He added that OCBC is already stepping up efforts to finance renewable energy projects, which the bank sees as a profitable business, and is currently funding more than 20 solar farms in Malaysia, as well as wind projects in Australia and Taiwan.

Tsien said that although the bank decided on the financing strategy in the past quarter, it hasn’t engaged in discussions on coal-fired power plants over the last two years. OCBC understands its financing policies can be “a counterweight against which we can encourage the countries to go for renewable energies”.

Against the trend

Less encouraging is the prediction by Vietnam’s trade ministry that coal will account for 53% of the power generated in the country by 2030. Vietnam’s coal imports in the first quarter of 2019 rose 150% from a year earlier to 9.4 million tonnes, according to the government’s customs data. Indonesia supplied 40% of the coal shipments, while 30% came from Australia and the balance from Russia and Malaysia.

A report issued in February by the Institute for Energy Economics & Financial Analysis stated that more than 100 major lenders have put restrictions in the past five years on mines that produce coal and power plants that burn it. Their decisions reflect the rising recognition of coal’s role in climate change, and the potential for the fuel and facilities that rely on it to become obsolete before investments in them are paid off.

Carbon Tracker, a London-based non-profit think tank funded by several groups and charities issued a study last October that predicted falling costs for renewable energy could see building new solar plants become cheaper than continuing to operate existing coal projects by 2027 in Vietnam, 2028 in Indonesia and 2029 in the Philippines.