IFC to provide green financing to Indonesian steel producer

The International Finance Corporation (IFC), one of the World Bank Group’s institutions, has signed an agreement with Indonesian steelmaker PT Gunung Raja Paksi Tbk to support its transition to low-carbon steel production and help it gain access to markets for these products. This is reported by Reuters.

As part of its first investment in the Asian steel sector in more than a decade, IFC will allocate $60 million to modernize GRP’s electric arc furnace and improve the company’s energy efficiency, as well as explore ways to finance the decommissioning of the steelmaker’s blast furnace. The institution will also help the company improve the efficiency of EAF’s current operations and identify products and sectors that are willing to pay a green premium for steel.

According to IFC, the investment in the largest private local steel producer in Indonesia could be the first of many projects aimed at combating carbon emissions in the steel industry that cause climate change.

According to Antonio Della Pelle, IFC’s senior operations director, the institution plans to implement similar projects and drive sector-wide decarbonization through the use of electric arc furnace technology.

Kimin Tanoto, GRP’s CEO, said the company plans to invest up to $600 million in modernizing its plant and positioning itself as a leading regional producer of green steel.

GRP has already decided to write off the newly constructed blast furnace, which has not been used, and hopes to apply for carbon credits when the unit is decommissioned. Della Pelle noted that IFC is also considering various options to support the closure, including blended or sustainability-related financing.

The Southeast Asian Iron and Steel Institute (SEAISI) estimates that steel demand in the region will grow by 3.7% y/y – to 76.5 million tons in 2024.