AIIB loans $250m for Beijing coal-to-gas conversion

The Asian Infrastructure Investment Bank announced on Monday a $250 million loan for a natural gas project in Beijing, the bank's first such investment in China, to help cut coal use and improve air quality in the capital area.

The loan, also the AIIB's first corporate financing deal, will be extended to Beijing Gas Group Co to carry out coal-to-gas conversion projects that will enable rural households to use gas instead of coal for cooking and heating. The project will involve construction of natural gas distribution networks, pipelines and household connection facilities, the Beijing-based multilateral financial institution said in a statement.

Scheduled to be completed in 2021, the project will help China reduce coal use by about 650,000 metric tons annually through connecting about 216,750 households in approximately 510 rural villages to the natural gas distribution network, according to the AIIB.

China has been fighting pollution by adopting stricter environmental rules including coal-to-gas conversion plans to reduce emissions.

Jin Liqun, AIIB president, said the bank's first investment in China fits its mission of supporting members' green, sustainable development.

"China's commitment to reducing its reliance on coal will change lives and improve the environment, and that is why we are investing in a project aligned with that ambitious plan," Jin said in a statement.

Jin added that it will help China introduce sustainable infrastructure that will reduce greenhouse gas emissions and help stimulate one of the most important economic hubs in Asia.

The energy project funded by the AIIB could mean that the multilateral financial institution will offer more financing for environment-related infrastructure projects in China, an important member of the AIIB, said Zeng Gang, a financial researcher at Chinese Academy of Social Sciences.

"Green financing in China will clearly be an important target for the AIIB," Zeng said. "It is reasonable that the AIIB is the provider of long-term financing with relatively low cost for such infrastructure projects, especially when Chinese commercial banks are facing greater liquidity pressure."

Li Li, energy research director at ICIS China, an energy consulting firm, said AIIB financing should be welcomed, but the nation should also boost investment in seasonal gas storage facilities, diversify import channels and improve the pricing mechanism to address potential shortages.