The Asian Infrastructure Investment Bank (AIIB) has approved a loan for an irrigation project in Indonesia, along with its first loan in Turkey, for a project to improve gas supply.
The Turkish loan is co-financed by the World Bank and is worth US$600mn. It will see the capacity of an underground gas storage facility raised from 1.2 billion cubic metres (bcm) to 5.4bcm.
The AIIB’s chief investment officer DJ Pandian says it will form “an integral component of Turkey’s energy strategy”.
In Indonesia, meanwhile, the Beijing-based lender has extended a US$250mn loan, also co-financed by the World Bank. The funds will be used to strengthen a West Javan irrigation system designed to make water distribution more efficient and climate-resilient.
Both Indonesia and Turkey are founder members of the AIIB, which has been billed as a Chinese-led rival to the World Bank, but for whom collaboration with the World Bank is becoming a regular occurrence.
The deals come on the heels of the AIIB’s third annual meeting in Mumbai, but also on the back of a scathing report which criticised its indirect funding of fossil fuels in Bangladesh and Myanmar.
The report, co-authored by Bank Information Centre Europe and Inclusive Development International, two lobby groups, accused the China-backed multilateral bank of using “loopholes” to channel funds into projects that were against its environmental principles.
It found that since its inception at the start of 2016, the AIIB has invested almost US$1bn in fossil fuel generation, more than half its direct investments in the energy sector. It says the AIIB used financial intermediaries to invest in a kiln for a cement plant in Myanmar that increases the amount of coal burnt each year almost threefold.
The intermediary is the IFC Emerging Asia Fund (EAF), to which the AIIB allegedly “outsources funding decisions”.
EAF also provided US$175.5mn to Summit Power International, a Singapore-based company which operates heavy oil and LNG-based power plants in Bangladesh. The AIIB has not declared any of the funding, the report’s authors claim.
“Classified as a high-risk project, some of the potential issues identified with the project are land acquisition, impacts on air and water, and the geographical spread of projects, including associated facilities such as gas pipelines and transmission lines,” the report says of some of the projects in the Summit Power portfolio.
When it was founded in January 2016, a month after the Paris Agreement was founded, the AIIB’s president Jin Liqun vowed to make it “lean clean and green”.
However, it was roundly criticised in June 2017 when it issued a draft energy strategy that suggested it may finance coal projects.
“Carbon efficient oil and coal-fired power plants would be considered if they replace existing less efficient capacity or are essential to the reliability and integrity of the system, or if no viable or affordable alternative exists in specific cases, particularly in low income countries,” reads the document, which was written after lengthy public consultations.