Changes in Indonesia's nickel industry policy

The demand for electric vehicles is driving domestic and foreign direct investment in Indonesia's mineral industry.

In history, Indonesia has achieved limited success in industrial policies. Now this situation may be changing. The recent interventionism policy for the nickel industry shows that it has achieved initial success in developing the downstream links of the value chain. These industrial policies were so successful that the government disregarded the opposition of its major trading partners and planned to target other minerals in a similar way.

When Joko Widodo began his first presidential term in 2014, policymakers were still working to implement a new law on mineral and coal mining passed in 2009. The law aims to expand the additional benefits of mining by requiring mining companies to process raw ore and forcing foreign investors to reduce their stakes in mining companies operating in Indonesia.

This ultimately led to the implementation of a comprehensive export ban on nickel ore in 2020. The government is confident in implementing policies in the nickel industry, as it is estimated that Indonesia accounts for 37% of global nickel production and 22% of global reserves. In addition, the government transferred its shares in mining companies to the state-owned holding company MIND ID, which subsequently became the main shareholder of some of Indonesia's largest mining companies, namely Freeport Indonesia and Vale Indonesia, taking the lead in implementing the nationalization plan.

The timing of nickel industry policies is good. For over a decade, global demand for nickel has been steadily increasing. Then there is the electric vehicle (EV) craze. The policies to address climate change in the late 2010s marked the beginning of the global era of electric vehicles. The continued prosperity of electric vehicles means that even if China's economy slows down, global nickel demand will continue to grow.

There are many statistical data indicating the success of policies in the nickel industry. Indonesia's nickel ore production is showing an upward trend, with all being sold and processed domestically in 2021, and the export volume of nickel containing metals is growing rapidly. Foreign direct investment (FDI) in the metal industry has surpassed that in the mining industry. Under the leadership of Chinese investors such as Qingshan Holdings Group, most of the investment in the metal industry has already flowed into the nickel industry.

The investment in the metal industry is mainly focused on converting Indonesia's laterite nickel ore into nickel pig iron through high-temperature metallurgical treatment, which is then used for stainless steel production. Looking ahead, several companies are planning to convert ore into intermediate products that can be used to manufacture battery cathodes through hydrometallurgical treatment.

It is also worth noting that Korean companies have become major investors in downstream areas of Indonesia's electric vehicle value chain, such as cathode, battery, and automotive production. In 2022, Hyundai Motor Group opened its first factory in Indonesia, the first in Southeast Asia. Multinational companies LG and SK have also announced large-scale investment plans in the country.

In order to accelerate the development of the electric vehicle ecosystem, the Indonesian government established a joint venture, Indonesia Battery Corporation, in 2021. The company is divided equally among four state-owned enterprises, namely MIND ID, its nickel production subsidiary Antam, oil and gas company Pertamina, and power company PLN. These leaders located in an important part of the Indonesian electric vehicle value chain are responsible for promoting the development of the Indonesian electric vehicle market and providing partnerships and certainty for foreign investors.

The industrial policy of Indonesia's nickel industry has shown initial results. However, determining net income will require more time. For example, the process of nickel appreciation is often capital intensive, so it may not create many domestic employment opportunities. There are significant environmental issues with handling nickel used in batteries. In addition, the long-term outcome will depend on how Indonesia manages geopolitical trends.