With the aim of advancing decarbonization in Indonesia’s steel industry, the International Finance Corporation (IFC), the private lending arm of the World Bank, will provide a loan of up to US$60 million Indonesian rupiah-equivalent to leading Indonesian steel producer Gunung Raja Paksi (GRP).
The company plans to use the proceeds of the loan to expand its low-carbon flat steel production using electric arc furnace (EAF) technology, thereby reducing greenhouse gas (GHG) emissions and supporting the country’s climate goals.
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 with 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.
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, the IFC says, accounting for about 8% of global GHG emissions.
With global steel demand expected to exceed two billion tonnes 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.
Indonesia is one of the largest steel producers in Southeast Asia and the 15th largest producer globally. The country also imported 6.6 million tonnes 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 to 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.
In addition to the loan, the 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, the IFC, it says, 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.
“Through this partnership with IFC, GRP will continue to set new bars for decarbonizing steel production in Asia,” adds Kimin Tanoto, GRP’s chairman of its executive committee. “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.
“The steel industry is critical to the prosperity of Asia and the wider world, but the science is clear, we 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 at risk of becoming stranded. Sustainability has and always will be GRP’s guide forward.”
