Constraints faced by existing downstream mining and smelting companies in Indonesia

There are a total of 23 domestic and foreign companies in Indonesia's $30.9 billion downstream mining investment pipeline. These companies are either in the construction phase or awaiting government permit approval. "We have to take advantage of this and speed up the issuance of licenses and facilities to speed up the realization," said Septian Hario Seto, deputy investment minister in charge of investment environment development at the Investment Ministry, at the opening of the Investment Cooperation Forum in Jakarta on Wednesday.

Downstream processing of nickel into iron, steel and battery raw material contributed significantly to the increased export value, Septian said. From January to October 2022, the export value of nickel derivatives will reach 28.3 billion US dollars. This figure exceeds the export value of nickel derivatives in 2021 (worth $22.7 billion). Steel exports, meanwhile, hit $23.16 billion this year through October 2022, up from $20.95 billion a year earlier. Similarly, exports of mixed hydroxide precipitates (MHP) as a battery raw material are also expected to grow from US$ 310 million in 2021 to US$ 1.74 billion.

Under the provisions of Law 3/2020 on Minerals and Coal Mining, the government requires mining companies to carry out downstream processing.

Additionally, the government will ban the export of mineral products that have not been domestically refined in 2023, as stipulated in Law 3/2020. Therefore, the government is encouraging the completion of mineral smelting projects before closing the export spigots. Unrefined mineral products can only be exported within three years of the enactment of the Minerba Law on June 10, 2020. This means that exports of unrefined mineral products are valid until June 10, 2023.

Currently, the government is encouraging an integrated EV battery ecosystem from upstream to downstream. As such, it requires many nickel smelters, such as MHP, that produce raw materials for EV batteries. However, the downstream development of the domestic mining industry faces many challenges. Commercial players must face challenges including licensing, funding, power supply and the arrival of foreign equipment and labor.

For permitting, smelter projects encounter issues from land, area spatial planning, building rights, business forms and deep sea mine tailings placement (DSTP). In terms of funding, the smelter project was constrained by environmental concerns related to the coal-fired power plant (PLTU) used for the facility's future operations. This is because financial institutions have withdrawn from financing projects using coal-fired power plants. At the same time, energy supply constraints are related to substation installation and basic electricity price.

According to the Ministry of Energy and Mineral Resources (ESDM), these challenges make the target of operating 53 smelters by 2023 likely out of reach. Currently, Irwandy said there are only 21 smelters operating in Indonesia. This year, only seven new smelters are operating, with a total of 28 smelters in operation by the end of 2022. By 2022, implement clean technologies in smelter operations to produce green metal products to support battery and electric vehicle ecosystems.

The government will include the smelter in the National Strategy Program (PSN) to address these constraints. In this way, administrative obstacles can be resolved more quickly. As for funding, the government will help companies building smelters obtain commercial loans at competitive rates.