Indonesia's huge China-backed 'green' industrial estate raises deforestation, environment fears

When Indonesian President Joko Widodo officiated the groundbreaking ceremony last month on what has been touted as the world's largest green industrial estate, he said it would spur the country's "economic transformation" from raw material exporter to a significant player in the global supply chain.

But concerns have been raised about the China-backed project's green credentials, as rainforest will have to be cut down and biodiversity threatened to build the five hydroelectric dams that are required to power it. Hundreds of villagers' homes and livelihoods are also under threat, according to activists.

PT Kalimantan Industrial Park Indonesia (KIPI), a consortium of companies from Indonesia, China and the United Arab Emirates, is behind the US$132 billion project in North Kalimantan, which Widodo said will initially sit on 16,400 hectares of land on the island of Borneo but could be extended in future to almost twice that size. Leading the consortium is Garibaldi Thohir, CEO of coal mining giant Adaro Energy, owner of much of the land the project will be built on, and one of Indonesia's richest people.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

The five dams - developed by the Power Construction Corporation of China and PT Kayan Hydro Energy for a total cost of US$18 billion as part of Beijing's Belt and Road Initiative to grow global trade - are already under construction on the Kayan River, some 200km away from Tanah Kuning, the coastal area where the industrial estate is being built. Once fully operational, the dams are expected to have a generating capacity of nine gigawatts, and the first is slated to come online in 2025. Solar energy and natural gas will also be used to power the industrial estate, the government has said.

Planned as a manufacturing hub for solar panels, electric car batteries, industrial silicon, electronic aluminium, steel, petrochemicals, and other semi-finished or finished goods, the industrial estate should start operations by 2024 and be completed by 2029, according to government forecasts. Luhut Pandjaitan, Indonesia's coordinating minister for maritime affairs and investment, said at least 10 Chinese investors had committed to backing the project, after pouring "tens of billions of dollars" into downstream nickel production in the country in recent years.

Widodo has estimated that at least 100,000 workers will be employed in the project's construction, with more required once the industrial estate is fully operational "5-10 years from now".

"A leap in Indonesia's economic transformation starts here," he said at the groundbreaking ceremony in December. "Almost everything manufactured at North Kalimantan will be in the form of finished goods, which create much added value for our country."

Thohir, the consortium chief, vowed at the ceremony to offset some of the development's environmental costs by restoring around 5,000 hectares of mangrove forest in North Kalimantan.

"The development of this area will not only put Indonesia at the forefront of green product manufacture but also create jobs," he said.

Southeast Asia's largest economy has much to gain from the huge new industrial estate being built in North Kalimantan, but the environmental and societal costs of the project have also sparked controversy - with activists zeroing-in on the five dams across the Kayan River in particular.

Kevin O'Rourke, analyst and author of the Reformasi Weekly newsletter on Indonesia's politics and economy for foreign investors, said "the use of hydro power is invariably controversial, as its impact on local ecosystems can be severe".

"In addition to changes to the river system and its surrounding landscape, the project would involve infrastructure development that would in turn trigger secondary impacts from settlements and additional resource-exploitation activities," he wrote in the newsletter last month.

"The president and top cabinet-level officials have already issued enthusiastic endorsements of the [dams' development], well before any results have emanated from the [environmental impact assessment] evaluation - or even publicly available disclosures about basic details."

Such endorsements are likely to give "new impetus" to the project's developers, he said, who will be encouraged to continue building without publicly revealing the results of their environmental impact assessment.

Yohana Tiko, director of the Indonesian Forum for the Environment's East Kalimantan branch, said the massive hydropower project on the Kayan River will submerge the villages of Long Lejuh and Long Peleban, and force at least 160 households to relocate.

"The villagers are at risk of losing their cultural identity," she said. "And it's not impossible that they will be relocated to non-productive land, which could lead to an exodus [from the area to other parts of the country]."

Primary rainforest alongside the river will be cut down to build the dams, Yohana said, threatening biodiversity and contributing to increased greenhouse gas emissions. The construction of a port at Tanah Kuning also threatened local fishermen's livelihoods, she said.

"We have been urging the government to review the development of hydropower projects, including conducting a special strategic environmental assessment to review the developments' ecosystem, social, economic, cultural, and disaster prevention impacts," she said.

Yohana argued that the industrial estate's future tenants could not in good conscience label their products as sustainable if local people and the environment had suffered during its development.

"If there is no balance between the environment, the people, and the development, they cannot label [their products] as sustainable," she said.

Infrastructure development in Indonesia has long been marred by projects that skirt the proper environmental assessment process as the authorities look the other way. In November, Environment and Forestry Minister Siti Nurbaya Bakar drew flak for attacking the pledge to stop deforestation that Jakarta had backed at that month's COP26 climate summit, saying on Twitter that development "must not stop in the name of carbon emissions or in the name of deforestation".

O'Rourke, the political and economic analyst, said the controversies surrounding the project and its eco-credentials "could jeopardise financing - while undercutting the original rationale for investing in the production of certifiably green products in Tanah Kuning".

Other analysts said the Indonesian government's vision of an industrial estate powered by renewable energy should be applauded, even if the project may not be entirely green in its first few years of operations.

"This is a good first step. We hope that in the future there will be new technology that could improve our adoption of renewable energy, so that the industrial estate will be comprehensively green," said Mohammad Faisal, executive director at the Jakarta-based Centre of Reform on Economics think tank.

The government's choice to build the estate in North Kalimantan will "expedite the industrialisation" of areas outside Java island, he said, boosting the nation's economy and reducing inequality. Currently, about 56 per cent of Indonesia's 270 million people live on Java, which accounts for some 58 per cent of the country's gross domestic product - more than all the other major islands combined.

Fabby Tumiwa, executive director at the Institute for Essential Services Reform think tank, was similarly optimistic that in future the park can be powered entirely by solar panels.

"Maybe the industrial estate will not be entirely green, particularly in the supply chain ... as raw material shipment will likely still use fossil fuel," he said. "But the park will [eventually] sit on 30,000 hectares of land, so I believe solar panels can be installed there and used to power the entire park."

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.