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Activist Pius Ginting looks at the impact of Chinese investments in Indonesia

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A typical home in Buntoi village, Central Kalimantan, Indonesia.
A typical home in Buntoi village, Central Kalimantan, Indonesia. The coal-fired electricity plant that powers the area is located across the river.  CC BY-NC-ND 2.0, CIFOR, via Flickr

Pius Ginting works for the Indonesian environmental organization Asosiasi Ekologi dan Emansipasi Rakyat (Action for Ecology and People’s Emancipation, AEER) based in Jakarta. AEER struggles for the improvement of natural resources management and helps build sustainable relationships of communities with their environment.

He was an active labour organizer during his university years and joined the democratic movement to end Suharto’s government in 1998. Since 2007, Pius is active as an environmental activist mainly on mining and energy issues. Liliane Danso-Dahmen, Regional Director of the Rosa-Luxemburg-Stiftung’s Manila Office, spoke with him about the impact of Chinese investments in Indonesia, where he lives and works.

From a political activists’ perspective, could you describe the historical development and current situation of Chinese investment in Indonesia?

Indonesia-China relations deteriorated in 1965 after the so-called “New Order” government of President Suharto accused Beijing of involvement in a failed uprising by a section of the military, which had allied itself with Communist groups in Indonesia. The relationship recovered significantly in 1990 in the post-New Order government. Abdurahman Wahid, the president who succeeded Suharto, flew to China for his first overseas visit as head of state.

Under his successor, Megawati Sukarnoputri, a trade contract was signed in 2002 to supply 2.5 million tons per year of liquefied natural gas (LNG) sourced from Tangguh in Papua to China’s Fujian province for 25 years. Since then, China became one of the major export destinations for Indonesian commodities after the European Union, Japan, and the United States. Main commodities include coal, nickel, copper and palm oil. China is also a source of cheap import products. Despite quality and safety issues, low-income consumers prefer these products, thus greatly affecting local industries like the textile industry.

Economic relations between Indonesia and China further improved through the ASEAN-China Free Trade Agreement, signed in 2002 and implemented since January 2010. However, increased trade with China has left devastating ecological footprints. Forests, rivers, and coastal zones in coal and nickel mining areas have been massively degraded, such as in Morowali district and Southeast Sulawesi province.

When did the Belt and Road Initiative come into play in bilateral relations?

As the Chinese government initiated its overseas investment program under the Going Out Policy (Go Global) that started in 2000, later renamed the Belt and Road Initiative (BRI), its economic relations transformed from being trade-oriented to investment-oriented. In this context, China and Indonesia began undertaking several important projects, such as the Jakarta-Bandung high-speed railway, which started construction in 2018. A year prior, a Memorandum of Understanding (MoU) was signed covering deals in oil and gas, coal, renewable energy and electricity.

On 11 April 11 2019, the Indonesian delegation to the 2nd BRI Summit, led by Coordinating Minister for Maritime Affairs Luhut Panjaitan, offered 15 investment projects and five cooperation contracts, namely: the development of a hydropower project in Kayan, North Kalimantan worth 2 billion US dollars, industrial development for the conversion of dimethyl ether coal to gas worth 700 million dollars, a joint-venture agreement for a hydropower plant in the Kayan River worth 17.8 billion dollars, a joint venture for power plant development and electricity distribution in Bali worth 1.6 billion dollars, and steel smelter development worth 1.2 billion dollars. Luhut said that the total investment value obtained was 23.3 billion dollars.

In the energy sector, Chinese support has become crucial in building coal power plants in the country. Under the first 10,000 Megawatts Fast Track Program in 2006, a shift was facilitated from oil-powered to coal-powered electricity generation after Indonesia’s oil fields depleted. China continued to play a major role in building coal power plants in Indonesia right until the COVID-19 pandemic.

By 2020, China had become the second-largest source of foreign direct investment in Indonesia with a value of 4.7 billion US dollars. However, China needs to make its investments better environmentally. Old players in nickel mining and smelting in Indonesia are using hydro power, but Chinese investors are using coal-fired plants to power mining and smelter operations, with far bigger production output. This obviously contributes to higher emissions of greenhouse gasses, creating climate injustice particularly to some sectors of local communities such as small fisherfolk and peasants.

What are the key features of Chinese investment projects and what are China’s interests in your country?

According to the Investment Coordinating Board (BKPM), most Chinese investment in the country goes to four sectors: smelting, electronic appliances, infrastructure, and the beverage industry. But let me be more general: China has always been interested in involving Indonesia in the BRI programme because it sees Indonesia as a potential market, with a population of around 260 million people as well as abundant natural resources.

Indonesia's territory is very strategic because it straddles international trade and shipping routes, and is a stopover point for export, import and trade activities. Judging from the country’s geographical location, which is mostly dominated by waters, Indonesia is well-placed to become the axis of global maritime affairs. Indonesia also has a quarter of the world’s nickel reserve, which is currently being proposed as material for electric vehicle battery and other low-carbon technology. The majority of investments in this material processing come from China.

What roles do government and the private sector play when looking at the Belt and Road Initiative in Indonesia?

Cooperation between Indonesia and China in the Belt and Road Initiative is carried out using a Business to Business (B2B) system, as well as through State-Owned Enterprises (BUMN). The Indonesian government actively engages with its Chinese counterparts to provide political support. At the same time, China offers to finance up to 90 percent of the cost requirements of a number of BRI projects. Jakarta sees BRI-related investments as a way to realize President Joko Widodo’s World Maritime Axis vision for Indonesia.

The Indonesian components of the BRI project are spread across five main corridors, namely: North Sumatra province, North Kalimantan province, Bali province, North Sulawesi province, and Java island. Kuala Tanjung port in North Sumatra is one of the most strategic ports in Indonesia as this is where state-owned smelting site, Inalum, operates. Inalum plans to expand its smelting operations in North Kalimantan in Borneo. Its aluminium and steel centre project with rich bauxite will take North Kalimantan’s smelting capacity up to 500,000 tons, double the size of Kuala Tanjung’s.

The North Sulawesi corridor, featuring a port project strategically located in Bitung, makes it an important gateway to the Asia Pacific region and an important regional port of connection for eastern Indonesia, especially Maluku and Papua. Bitung itself is the largest fishing port in Indonesia, which is surrounded by more than 415,000 hectares of agricultural lands yielding coconut, vegetables, essential oils, and spices. The North Sulawesi corridor focuses on ports and economic zones. Meanwhile, the Bali provincial corridor is aimed at developing tourism infrastructure in Bali.

In the Java island corridor, there is the Jakarta-Bandung high-speed railway with four stations built at a total cost of 6 billion US dollars. This project is expected to be able to absorb 40,000 jobs during construction and create an economic effect on related industries such as manufacturing, power generation, electronics, and logistics.

What is the social and ecological impact of these projects?

The development of various physical infrastructures under the BRI scheme certainly has a positive impact, including the facilitation and improvement of transportation routes across several Indonesian provinces. However, they also have a negative impact on social and environmental conditions.

One of the negative impacts of infrastructure development projects under the BRI scheme, funded by China Export Import Bank, is the loss of productive agricultural lands as a result of the construction of the Trans-Java toll road for the Solo-Kertosono section. The toll road passes through productive agricultural land, used particularly for food crop farming. Affected districts include Boyolali, Karanganyar, Sragen, Ngawi, Magetan, Madiun, and Nganjuk.

Paving over lands which were previously covered by forests, rice fields, and settlements will affect land use in the long term. Residents in areas around the construction site are concerned about air pollution. Social cohesion in affected communities has inevitably been disrupted. People whose land is affected by the construction of toll roads need to find new professions outside of agriculture.

Another negative impact of infrastructure projects under the BRI scheme is the construction of more coal-fired power plants. Communities in Pangkalan Susu, North Sumatra province, Teluk Sepang, and Bengkulu province point to the degradation of coastal areas due to the presence of coal-fired power plants in their respective areas.

At the location of the Sumsel 1 Mine-Mouth coal-fired power plant in South Sumatra, a number of residents’ lands were flooded due to water flows blocked by the coal power plant site. Meanwhile, the workers at that power plant are paid below the minimum wage and are not paid overtime pay as they should according to labour regulations.

What role have non-governmental organizations and civil society played, and what kinds of responses and interventions have they done?

Non-government organizations (NGOs) have expressed criticism of the Indonesian government. They are putting pressure on Jakarta to fulfil its commitment to achieve the climate goals stated in the Paris Agreement, by transitioning the country’s energy sector from a high-carbon fossil-fuel based system to a low-carbon renewable energy system.

A number of NGOs such as my own organization, AEER, or others like Jatam (Mining Advocacy Network), Walhi (Forum for the Environment), Trend Asia, Greenpeace Indonesia, Auriga, 350.org Indonesia, ICEL (Indonesian Center for Environmental Law), as well as several local NGOs built the Break Free from Coal coalition in 2018 to voice criticism of Indonesian policies in the electricity and mining sectors which mainstream the use of coal for fuel. We all urged President Joko Widodo to revise the 35,000-megawatt power plant programme, especially for coal-fired power plants, by taking into account the environmental, health, social, and economic impacts of these projects.

In addition, NGOs also warn the Indonesian government of its involvement in the BRI program for its potential to lead Indonesia into a debt trap. Indonesia’s debt to China has continued to increase especially in the last few years. The latest data released by Bank Indonesia in April 2019 shows that foreign debt to China as of February 2019 amounts to 17.7 billion US dollars. This amount consists of government debt of 1.6 billion and private and state-owned companies’ debt of 16 billion dollars.

What needs to be done in terms of moving towards a socio-ecological transformation, a just energy transition, climate justice, a more equal society, and greater access to social rights?

It is clear that climate change is a multi-dimensional and complex global challenge that demands radical and systemic social change to overcome it. There has never been a greater threat to the existence and sustainability of human civilization on Earth than the one we face today.

Models of economic development that we use need to be re-examined from root to tip. If we do not carry out a major transformation, then a lifestyle oriented towards consumption and environmental destruction (ecocide) in the name of modernity and progress will destroy the Earth and its inhabitants in the not-too-distant future. The economy may benefit in the short- to medium term. But in the long run, as we can see in many parts of Indonesia such as in Bangka Island and Gebe Island in North Molucca, the ecosystem has not returned to its healthy condition after mining activities.

At the 2015 climate change meeting in Paris, President Joko Widodo affirmed Indonesia’s commitment to reduce greenhouse gas emissions by 29 percent on its own, and by 41 percent with international support until 2030. At the end of 2016 Indonesia submitted a Nationally Determined Contribution document (NDC) to the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC). In the document, Indonesia again stated that it would reduce Indonesia’s emissions in the energy sector by 11 percent.

The Intergovernmental Panel on Climate Change (IPCC) report, published in 2018, urges all countries to take urgent and ambitious steps to keep the rise in the Earth’s average temperature below 1.5 degrees. However, it seems that Indonesia will find it difficult to meet IPCC demands, because the country’s carbon output is projected to double from 201 million tons of CO2 in 2015 to 383 million tons of CO2 in 2024.

What should the Indonesian government do?

In the efforts towards a socio-ecological transformation, a just energy transition, climate justice, a more equal society, and greater access to social rights, it is urgent to immediately take important steps: Jakarta must immediately create a roadmap for transitioning from dirty coal energy to renewable energy. The first stage is to issue a coal mining moratorium policy. The moratorium must be accompanied by a review of permits and environmental audits for all coal mining companies, law enforcement on corporate crimes, environmental restoration and people's rights, especially those affected by coal. China can play a role by investing in renewable energy and technology.

There must be a demand for financing the energy revolution instead of investing in dirty energy. Industrial countries must contribute by paying climate debt to poor and developing countries. This payment should be made as part of past climate debt payments, due to the extraction of natural resources by industrialized countries.

China also can play a role investing or cooperating in developing renewable energy in Indonesia, but with strong guidelines that projects will not forcefully evict communities.

We need to save the last remaining forests controlled and managed by local communities, especially indigenous peoples, through local wisdom, as part of a policy that protects these forest lands from extractive industries, such as coal and nickel mining. These communities need development, but hyper-exploitation of natural resources often creates even bigger problems for them. A reduction in material consumption elsewhere in the world can result in a better and more sustainable life for the locals.