Chinese investments in Coal based power projects boomerang

China is losing billions of dollars as it shelves coal-fired power projects in countries that are members of its Belt and Road Initiative (BRI) project. The communist country will make a lot of brownie points by contributing to keep the 1.5-degree goal of the Paris Agreement on climate change within reach, but at the cost of leaving Chinese investors and governments of several countries in the lurch.

Chinese President Xi Jinping addressed the United Nations General Assembly a few days ago promising that his country will not build any new coal-fired power projects abroad. IN reality, most of the Chinese-funded projects have closed down or been shelved because of growing opposition from the people in BRI countries or ineffective and unprofessional project implementation.

The world’s largest emitter of greenhouse gases is China. By launching similar power projects in BRI member countries for over a decade, China single-handedly threatened the Paris Agreement goal.

The implications of China drawing down its coal initiatives in projects in BRI countries are beginning to be assessed. China’s own expansionist initiatives, of which the BRFI is the spearhead, will undoubtedly take a hit as well.

The Green Belt and Road Initiative Center (GBRIC), which analyzes the BRI-coal project links, says that China had “announced or planned $160 billion worth of coal-fired plants globally between 2014 and 2020”.

Within the country, China consumes the maximum amount of coal to run its power plants. China consumed more coal than all other countries in the world put together in 2020. It accounted for 58 per cent of the country’s energy demand in 2020, according to the National Bureau of Statistics.

It thus has two objectives to meet, if Xi’s commitment is genuine: He will have to stop funding projects abroad, he will have to find alternate sources of energy at home too. Previously, China had promised to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060. By current standards, it is nowhere near achieving that goal because of its internal and external coal-based commitments.

Take for instance the case of Pakistan. Eight of the 10 biggest coal-based BRFI power projects are in Pakistan, within the controversial China-Pakistan Economic Corridor. The combined capacity of the ten biggest projects is 20.97GW out of which Pakistan’s share is 9.57GW, roughly 45 per cent.

More than 70 per cent of all coal plants built today rely on Chinese funding. Chinese funding in coal-based power plants in 140 BRI countries totalled nearly $20 billion in the first six months of 2021. The amount is nearly a third lower from last year on account of Covid-19. With China now deciding to make its investments environmentally sustainable, the investing Chinese companies have drawn up plans to cut down on funding. The Industrial and Commercial Bank of China, for example, “dumped plans to fund a $3 billion coal-fired power plant in Zimbabwe in June”, according to a report. However, the reduction in funding is not translating into increased focus on green energy projects. In fact, “BRI funding for green energy dropped by 90 per cent in the first half from a year earlier”, a report said.

China is also facing opposition from people and environmental activists in BRI countries. In 2020, over a score of NGOs came together in Turkey to protest Chinese banks investing in a coal-fired power plant in their country.

Unprecedented protests against Chinese funding in Kenya led to the mothballing of the proposed Lamu plant. The iCBC was unable to deliver even a penny of the $1.2 billion funding. In Egypt, a 6.6 GW plant was cancelled last year. Bangladesh is requesting the Chinese investors to put money into renewable energy sources instead of coal-based plants.

The Green Belt and Road Initiative Center, in its latest report, says that “between 2014 and 2020, about $160 billion of Chinese-backed coal-fired power plants were being planned or announced outside of China”. While Chinese money flows like water in BRI countries, not many projects actually take off. The report points out that “more than $65 billion of Chinese-backed coal-fired power plants have been either shelved, mothballed or cancelled since 2014, with more projects seeing delays in construction”.

Of the 52 Chinese-backed coal-fired power projects announced since 2014, only one has gone into operation — the 1.3 GW Payra Patuakhali coal power station in Kalapara, Bangladesh, in 2020. “At the same time, 25 of the projects announced since 2014 had been shelved and eight ended up cancelled.”

The data reveals a significant development. It may not be completely out of respect for a clean environment that President Xi promised to cut funding for coal-based power projects. The investments had already begun to shrink because of internal opposition within the BRI countries. In 2020, according to official reports, no new Chinese-backed coal-fired power plant was announced at all. Rather, the situation is that BRI countries like Pakistan and Bangladesh have announced to phase-out new coal investments.

Chinese financial institutions which have done the maximum investing in BRI countries are the real victims as the Chinese government backs out of its commitment to the power plants. It is said that currently these institutions have financed about $50 billion in coal-based plants with a total installed capacity of 53.1GW.

The GBRIC report says: “Among the companies most affected by distressed projects are China Datang, which had been engaged in distressed projects worth USD10 billion (China Datang would not be the sole investor in these projects) and Power China, which had been engaged in distressed projects with a value of USD13.4 billion. In comparison, ICBC Industrial and Commercial Bank of China was involved in distressed projects worth about USD5 billion.” 

The plight of BRI countries is beginning to unravel. Many power plants have not taken off despite Chinese funding. They have either been written off or cancelled or shelved. The list of such includes Zimbabwe, Russia, Cambodia, Egypt, Botswana, Vietnam, Nigeria, Ghana, Romania, Tanzania, Indonesia, Bangladesh, Mongolia, Oman, Malawi, Bosnia and Herzegovina, Mozambique, Sudan, Zambia, Sri Lanka, Greece, Pakistan. 

Zimbabwe leads this list. It had proudly announced several big projects with Chinese funding worth $15.4 billion, but all of them got shelved or cancelled in the last few years. Even in Russia, projects worth $12.5 billion were shelved. In Cambodia projects worth $10 billion never saw the light of the day.

The GBRIC report has recommended to the Chinese investors the following in order to : Continue to reduce new coal-related investments in the BRI including coal-mining: “Cooperate with international sponsors and host countries to accelerate phase-out of existing coal: evaluate net-present value of existing coal-fired power plants and consider applying for special funding (e.g., from international donors or in debt-for-climate swaps) to pay for early retirement of coal-fleets that have a higher net-present value than comparable green investments.”

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