Power row engulfs Asian Infrastructure Investment Bank

The government is fighting the Asian infrastructure bank over loan guidelines that only support renewable power.

When then treasurer Joe Hockey last year committed ­Australia to becoming a founding member of the Asian Infrastructure Investment Bank, he cited growing commodity exports as a prime reason for doing so.

The Turnbull government is fighting the Asian infrastructure bank to which it has pledged almost $5 billion over lending guidelines that support “socially acceptable” renewable power but shut out ­nuclear, coal and gas electricity generation, which are the backbone of Australia’s energy exports.

Treasury has objected to the preliminary guidelines, arguing that in the interests of helping people throughout Asia who don’t have electricity, coal should have a significant role in power generation. The Australian mining industry has also expressed ­serious concerns about the proposals, which it says will undermine the goal of developing infrastructure and growth in Asia because of a commitment to ­“social acceptability” of energy.

The guidelines for the Chinese-backed regional bank — set up to lend to countries such as Indonesia, Pakistan, Myanmar, Vietnam, India, Laos, Cambodia, Bangladesh and Thailand for ports, rail, roads and electricity generation — are aimed at boosting economic growth and providing power to 500 million people without electricity.

The fledging bank, which hopes to lend $100bn for projects, wants to “clean up Asian cities” and support “socially acceptable forms of energy”, policies that follow the US and European backed global banks’ opposition to funding nuclear, clean-coal and gas-fired projects.

Describing itself as a “green bank”, the Asian Infrastructure Investment Bank has proposed ­refusing to fund nuclear-power generation projects, virtually banning coal and oil-fired electricity generation, and considering gas-fired electricity generation plants only as a “transition”.

The bank says setting principles to decide finance for energy projects is not easy because “green” energy “may not be economically justified considering the assumptions traditionally used”. It also says the project selection should be “technology neutral” and based on the need for energy security, economic growth and greater access of the poor to ­energy but rules out nuclear and coal projects for finance.

When then treasurer Joe Hockey last year committed ­Australia to becoming a founding member of the bank — against the wishes of the US, which was wary of growing Chinese financial ­influence in the region — he cited growing commodity exports as a prime reason for doing so.

China-US tensions over financial influence in the Asia-Pacific region and security differences in the South China Sea are worsening and Australia fears the new bank will not help its exports as envisaged.

Australia committed $932 million in paid capital, with a pledge for $3.7bn on call, to help establish the Chinese-backed regional bank last year, after Tony Abbott and Mr Hockey decided to risk “choosing China over the US”.

Mr Hockey told parliament: “Membership of the bank will provide valuable trade and economic opportunities for Australia. Australian firms will benefit from improved infrastructure throughout the region, which will also help our commodity exporters. The bank will help build new and improved infrastructure, which in turn will drive increased demand for our commodities and for Australian services.”

Mr Hockey said the pledges for up to $4.7bn did not affect the budget bottom line because the paid capital was treated as a government asset.

At the time Australia and Japan were concerned that US and European Union influence on global development banks was preventing lending to developing Asian nations, who wanted to build ­nuclear or “clean-coal” power ­stations because of climate change considerations. Now the Australian government and the Minerals Council of Australia are concerned the proposed policy of ­favouring “socially acceptable” ­energy projects and the priority given to less economical renewable energy projects contradict the overriding interest of providing low-cost, secure energy to almost two billion people.

In a submission to the bank board, which meets in Beijing on Thursday to establish investment guidelines for energy projects in Asia, the minerals council said the proposal “fails to address the central role that adequate access to ­secure and affordable energy plays, and will continue to play, in providing economic opportunity and better living standards for hundreds of millions of people in East and South Asia”.

“(The proposal) rightly endorses the notion of technology neutrality but then proposes the exclusion of some energy technologies and explicit preferment of others,” it said.

Like Japan, which develops and sells high-energy, low-emissions coal-fired electricity generators to poorer countries, Australia wants the bank to finance energy growth in Asia, including coal use.

“The strategy should embrace all low emissions energy sources, not be narrowed by subjective judgments of social acceptability,’’ the minerals council said.

“The goal of economic development — and the legitimate aspirations of nearly 500 million people in Asia to energy access — must not be subordinated to ­climate change policy objectives.”