Indonesia’s US$1.67 billion China-backed dam is in limbo. Why?

The US$1.67 billion Batang Toru hydroelectric project, a China-backed initiative in Indonesia, has been thrown into uncertainty after its developer's permit was abruptly revoked amid a sweeping crackdown on forest violations. North Sumatera Hydro Energy (NSHE), the company behind the ambitious dam in North Sumatra, was one of 28 firms targeted in the move on January 20, leaving energy regulators in the dark and spooking investors in the renewables sector.

The revocations stemmed from allegations of forest damage, following an expedited audit conducted by the Forest Area Regulation Task Force. The task force examined operations in forest areas across Aceh, North Sumatra, and West Sumatra provinces, uncovering what authorities described as illegal activities by the affected companies.

President Prabowo Subianto announced the decision during a public statement, revealing that it came out of a cabinet meeting he led via Zoom from London just two days prior. “Two days ago, I led a cabinet meeting by Zoom from London, and we decided to revoke the licences of 28 corporations that had licences over 1.01 million hectares because we found them violating laws. They were building plantations on protected forests,” Prabowo said.

NSHE's inclusion in the list has placed the Batang Toru project, a major hydropower endeavor valued at US$1.67 billion, in limbo. The abrupt action highlights the Indonesian government's intensified scrutiny on land use in protected forest zones, affecting not only hydroelectric developments but also broader plantation activities.

Prabowo framed the revocations as part of a historic push for environmental enforcement. “Combined with the 4 million hectares of plantations already confiscated, we have in fact enacted the boldest, the most daring forest law-enforcement effort in the history of Indonesia,” he declared, underscoring the scale of the initiative.

The surprise nature of the crackdown caught even energy regulators off guard, with no prior consultation, amplifying concerns among renewables investors. The move signals a zero-tolerance stance on forest encroachments, potentially reshaping the landscape for large-scale infrastructure projects in ecologically sensitive regions.