World Bank’s International Finance Corporation (IFC) has inked a deal to provide $60 million green financing to Indonesian steel producer Gunung Raja Paksi (GRP).
IFC said in a statement on Thursday that to advance decarbonization in Indonesia’s steel industry, it has announced a loan to GRP to help to boost low-carbon steel production in Indonesia, reducing greenhouse gas (GHG) emissions and supporting the country’s climate goals.
GRP plans to use to expand low-carbon flat steel production using electric arc furnace (EAF) technology.
The financing is expected to propel GRP’s capacity to recycle a variety of scrap metals and produce high-quality steel with significantly lower emissions, cutting emissions by more than half compared to the global average for steel production.
The project will also help Indonesia meet growing steel demand and reduce its reliance on high-carbon steel imports.
According to the statement, steel is a vital building material that has long been central to global infrastructure development and urbanization.
However, it is also a major GHG emitter, accounting for about eight percent of global GHG emissions.
With global steel demand expected to exceed two billion tons by 2040, driven significantly by growth in Asia, there is a pressing need to develop innovative approaches for reducing the carbon footprint of this hard-to-abate sector.
“Through this partnership with IFC, GRP will continue to set new bars for decarbonizing steel production in Asia,
“This first in a generation investment recognizes GRP’s early leadership as one of the very first, and still very few, operators of low- carbon steel mills in Asia,” said Kimin Tanoto, GRP’s Chairman of Executive Committee.
According to him, the steel industry is critical to the prosperity of Asia and the wider world, but the science is clear, they must rapidly decarbonize as a sector to withhold and grow this prosperity for future generations.
“If steel companies are not willing to embrace the green transition, their assets are risk becoming stranded. Sustainability has and always will be GRP’s guide forward,” he added.
In addition to the loan, IFC has signed an advisory engagement letter with GRP to develop and implement its decarbonization strategy and support GRP’s efforts to reduce GHG emissions in alignment with international best practices.
This includes exploring different financing options to support GRP’s decision to entirely decommission the company’s newly built but never operated blast furnace, as well as improving energy efficiency of the company’s EAF and assessing new downstream process options and technologies.
As part of the advisory engagement, IFC will also support GRP in identifying new market opportunities and exploring high-value steel products compatible with EAF production, thereby solidifying GRP’s leadership in national decarbonization efforts.
This will support Indonesia in achieving the goal of reaching net-zero emissions by 2060.
“Our partnership with GRP is a significant step in our commitment to supporting industrial decarbonization in Indonesia, and marks IFC’s first steel investment in Asia in over a decade,
“We are delighted to provide both investment and advisory assistance to support GRP in its journey to develop a commercially and environmentally sustainable business,” said Euan Marshall, IFC’s Country Manager for Indonesia and Timor-Leste.
It is noted that Indonesia is one of the largest steel producers in Southeast Asia and the fifteenth largest producer globally.
The country also imported 6.6 million tons of steel in 2021, most of which was made using blast furnace production.
With annual steel production in Indonesia expected to grow from 16 million tons in 2023 to 33-35 million tons by 2030, driven by the growing demands of expanding infrastructure, housing, and automotive sectors, efforts to decarbonize the sector are critical to achieving a low-carbon future, said the statement.
GRP is a member of Gunung Steel Group, one of the largest private steel companies in Indonesia.
Established in 1970 in Medan, North Sumatra, GRP started the business by producing hot steel, gradually producing beams and steel sheets.
GRP has the production capacity of 1,300,000 tons of high-quality low-carbon steel annually certified by local and international certification organizations.
IFC is the largest global development institution focused on the private sector in emerging markets.
The organization works in more than 100 countries, using its capital, expertise, and influence to create markets and opportunities in developing countries.
In fiscal year 2024, IFC committed a record $56 billion to private companies and financial institutions in developing countries, leveraging private sector solutions and mobilizing private capital to create a world free of poverty on a livable planet.
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