China withdraws finance offer for $3 billion coal-fired power plant in Zimbabwe

Environmental concerns

The Sengwa coal fired power station project in Zimbabwe was being developed by RioEnergy, a unit of RioZim. Last year the Industrial and Commercial Bank of China (ICBC) was reported to have signed a formal notice of interest in funding the plant, to be constructed by China Gezhouba Group, while associated transmission lines would be built by Power Construction of China.

However, it is understood that ICBC has decided that it will not proceed. According to news media reports, on 18 June 2021 the bank advised a coalition of 32 environmental groups that opposed the project that it would not fund the 2,800-megawatt Sengwa coal project in northern Zimbabwe. ICBC is understood to have said the decision was made due to “environmental problems.”

An analyst for the Centre for Research on Energy and Clean Air, Lauri Myllyvirta, said the decision was “highly significant, obviously for Zimbabwe but also for Chinese overseas energy financing.”

Coal power station, as illustration (iStock)

As China Environment News reported on 2 May 2021, China had also recently announced a coal investment phase-out in energy projects in Bangladesh. In February 2021, China’s embassy in Bangladesh advised the local Ministry of Finance that “the Chinese side shall no longer consider projects with high pollution and high energy consumption, such as coal mining [and] coal-fired power stations”. [See Green BRI Centre link at end of article.]

In President Xi Jinping’s address to the World Leaders Summit on Climate via video link in April this year, he said “China will strictly control coal-fired power generation projects.” He added that China will also strictly limit the increase in coal consumption over the 14th Five-Year Plan (2021-25) period and gradually reduce it in the 15th Five-Year Plan (2026-30) period.

Commenting at the time of Xi Jinping’s leaders address, Zou Ji president of Energy Foundation China, said the pledge means that coal consumption will possibly peak during the 14th Five-Year Plan period. “This is a very important signal for weighing investment in coal and coal-fired power plants,” he said. The pledge puts an end to the long argument over whether it’s still necessary to invest in such projects”, Zou said, adding that “it would be very risky to make new investments in the sector.

An analysis by the independent Green BRI Centre, based in Beijing, showed that more than half of Chinese backed coal-fired power plants outside of China announced since 2014 had been cancelled, mothballed or shelved – a story which was covered widely. The Zimbabwe case shows again that financing coal becomes more and more difficult and Chinese financial institutions increasingly back away from overseas coal-fired power plants. [See Green BRI Centre link at end of article.]

These actions show that China is serious about its climate commitments, and it is increasingly tougher for the Belt and Road Initiative to finance environmentally damaging projects like coal power plants and metal smelters.

The project developer, RioEnergy was believed to be seeking alternative financiers. However, with China now taking a much stronger position on the environmental sustainability of Belt and Road Initiative projects, and the decline in the demand for and profitability of coal, alternative finance may be difficult to arrange.

Sengwa was initially owned by London-based miner Rio Tinto Group, the one-time parent of RioZim. It was set aside as Zimbabwe’s relations with the UK, its former colonial ruler, deteriorated. After the project was revived in 2016, General Electric and a unit of Blackstone Group didn’t pursue initial inquiries.

Finance for coal rapidly diminishing

The backing of ICBC was seen by RioEnergy as a fresh start in a plan to develop the plant and end recurrent power outages in Zimbabwe. Climate activists say the company will struggle to find another lender. When China made the decision to disengage with coal fired projects in Bangladesh, it suggested that the Bangladesh side select new projects, which should be smaller in scale and meet
standard requirements, including more robust feasibility study and environmental protection plans.

“Opportunities to fund coal power are rapidly diminishing, given the climate and other impacts of coal,” said Robyn Hugo, director of climate change engagement at Just Share, a Cape Town-based shareholder activist group. This sentiment echoed the view of Zou Ji of Energy Foundation China, when he said “It would be very risky to make new investments” in the coal sector.

Han Chen, an analyst with the Natural Resources Defense Council NGO said “China’s commitment to carbon neutrality is a market signal that its future domestic investments will prioritise clean energy. This is a wake-up call for policymakers in BRI nations, who should respond by bolstering their low-carbon policies and clean energy targets.” She further noted that “China’s own recent draft guidelines for its green bonds catalogue excluded ‘clean coal’ from eligibility for inclusion for investment – a sign of what’s to come.”

ICBC is the world’s largest bank with $4.9 trillion USD in total assets according to the latest 2021 data, and its market capitalization totals $231 billion – over 1.5 times larger than J P Morgan and HSBC. The Bank was founded in 1984 and has more than 450,000 employees. Its headquarters are located in Beijing and over 70% of the bank is owned by the Chinese Government.

Sources:

ECNS, 2021-04-27 and 2021-04-22 http://www.ecns.cn/news/2021-04-27/detail-ihakufzf0697592.shtml

Green BRI Centre, 27-04-21 https://green-bri.org/coal-phase-out-in-the-belt-and-road-initiative-bri-an-analysis-of-chinese-backed-coal-power-from-2014-2020/

Eco-business, 03-11-2020 https://www.eco-business.com/opinion/will-chinas-carbon-neutrality-pledge-green-bri-investments/

News24 South Africa, 30-06-2021 https://www.news24.com/fin24/companies/mining/biggest-china-bank-ditches-r43bn-zim-coal-power-plant-20210630