IFRI

PAPERS

MAY
2024

The Prospects of Indonesia’s

Nickel Boom Amidst a Systemic
Challenge from Coal Center for Energy
and Climate

Thibault MICHEL
The French Institute of International Relations (Ifri) is a research center
and a forum for debate on major international political and economic
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ISBN: 979-10-373-0864-1
© All rights reserved, Ifri, 2024
Cover: © Kaisamurda/Shutterstock.com

How to quote this publication:

Thibault Michel, “The Prospects of Indonesia’s Nickel Boom Amidst a Systemic
Challenge from Coal”, Ifri Papers, Ifri, May 2024.

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Author

Thibault Michel has been a Research Fellow at Ifri’s Center for

Energy and Climate since January 2024. Before joining Ifri, he worked as a
business intelligence and geopolitical analyst at RTE, the French electricity
transmission system operator (TSO), notably on electricity
interconnections. He has also worked on security and company protection
issues at L’Oréal.
Thibault holds a Master’s degree from Sciences Po Strasbourg in
European affairs and geopolitics, as well as a degree in geoeconomics from
IRIS SUP’. He has also studied history and conducted historical research at
the Grenoble Alpes University.
Executive summary

Indonesia is a country that is booming economically and demographically.

This not only matters for regional political and energy security, but also
increasingly, for the world’s energy transitions, due to Indonesia’s large
metal reserves, as well as its equally important coal consumption in
industry and for power generation.
Over the last 20 years, Indonesia’s economy has been characterized by
very dynamic growth, massive increases in its electricity demand, and coal
consumption and exports. Hence, its greenhouse gas (GHG) emissions are
on a steady growth trajectory, although the country has committed to
lowering them by 32% (unconditional) or 41% (conditional) by 2030.
With its Organisation for Economic Cooperation and
Development (OECD) membership application, occurring in the context of
global energy transition requirements and geopolitical confrontations,
Indonesia is today at a crossroads.
Indonesia has 42% of the world’s nickel reserves, as well as substantial
reserves of copper, gold, tin, and, notably, coal. This wealth in natural
resources has given the mining industry crucial importance in Indonesia’s
economic growth and has recently taken an even more prominent place:
Indonesia has managed to become the world’s largest nickel producer
within just a few years, as its share in global nickel extraction grew from 5%
in 2015 to 50% in 2023. The country is also the world’s third copper ore
exporter.
Coal and energy transition minerals have progressively replaced oil
and gas in Indonesian exports. Between 2011 and 2023, oil and gas exports
fell by nearly two-thirds and their share in the national exports decreased
from 20% to 6%. In 2023, export revenues from copper were larger than
those of oil and equal to gas earnings.
Yet, having major mineral deposits and mining activities is no longer
considered sufficient by the Indonesian government. So far, the mineral
industry’s growth has relied hugely on Chinese investments and on low-
added-value activities, especially in pyrometallurgy processing.
Diversification of trade partners and expansion into new, entire value
chains is, therefore, a key objective for the Indonesian government.
Indonesia is seeking to boost trade with the United States (US), the
European Union (EU) and even the Eurasian Economic Union. However,
negotiations over respective agreements are currently encountering hurdles
due to American legislation (the Inflation Reduction Act and Foreign
Entities of Concern status), which could seriously threaten Indonesian
exports of battery mineral components to the US market while they also
face hurdles to entering the EU due to environmental regulations.
The second part of Indonesia’s strategy focuses on the development of
new industrial segments of value chains: refining facilities,
hydrometallurgical processing plants, battery factories, etc. To develop
these activities, the Indonesian government is using two main tools: the
divestment of foreign companies in local firms and export bans on crude
ore exports. Such bans have been introduced for nickel in 2020 and for
bauxite in 2023, while they are expected for copper in 2024 and perhaps
even later for tin.
Indonesia is today also confronted with the negative repercussions of
mining activities on its soil, including protests over the lack of safety in its
mines and smelters, citizens’ expropriations, the presence of indigenous
tribes on mining sites, and, above all, damage to the environment.
Such damage also has its roots in the substantial amounts of energy
used to feed smelters, which mostly rely on the use of coal. Decarbonizing
Indonesia’s economy has thus become a central challenge for the country,
where the consequences of climate change are already palpable on the
archipelago’s soil, with extreme weather events and the sinking of the
capital city – Jakarta – as sea levels rise.
To carry out the tremendous transformation towards net-zero
emissions while ensuring steady and sustainable development, the country
has signed a Just Energy Transition Partnership and prepared
decarbonization scenarios within this framework. Key priorities in the
coming years include renewable energy deployment, grid development and
an early phase-out of coal.
Deploying renewable energy sources as well as large and resilient grids
is made more difficult by the country’s geography. The archipelago includes
17,000 islands, some of them being undeveloped, hard to access and far
away from each other. Furthermore, the levelized costs of solar and wind
power are currently high in Indonesia compared with other developing
countries, while public subsidies for coal do not favor low carbon
generation sources.
If the two first points are thus very challenging, the last one appears to
be the hardest, considering the Indonesian economy’s tremendous
dependency on coal. Concerns are therefore rising about Indonesia’s ability
and even willingness to pursue a genuine, albeit differentiated
decarbonization pathway.
There are also many questions regarding Indonesia’s mineral trade
strategy. New bans on crude ore exports are expected to come into force,
while new mining and mineral processing operations are under
development across the archipelago, as quantities of nickel produced in the
country are at historic highs.
This extraordinary increase in nickel production, concomitant with a
global economic slowdown, has resulted in a sharp fall in nickel prices, with
nickel losing half of its value between January 2023 and February 2024. As
a result, many producers are finding themselves in danger, especially in
Australia or New Caledonia.
While there could be a deliberate strategy to flood the markets and
neutralize competition, notably by Chinese companies that control 75% of
the global nickel supply (mainly from Indonesia but also from the
Philippines), the country faces serious dilemmas. Indonesia’s oil and gas
production is diminishing, and it increasingly relies on nickel exports and
higher nickel prices for its economic stability, with coal also remaining very
important. Indonesia’s resource nationalism and industrial strategy, which
include attracting foreign investments, notably via its OECD membership
pledge, require a credible pathway to reduce the carbon footprint of its
electricity generation.
Among the pathways towards both decarbonization and the
development of industrial battery value chains, three steps could be
considered:
1. Deploying renewable energy sources, especially solar photovoltaic
(PV) power and offshore wind farms, as well as progressively
transferring subsidies from coal to renewable energy sources.
2. Developing a clean battery industry based on high environmental,
social and governance (ESG) criteria and on the wealth of
Indonesia’s subsoil, which includes most of the metals used in
battery manufacturing.
3. Protecting climate and biodiversity by favoring innovative solutions
for mining waste management and upholding high ESG standards.
Table of contents

INTRODUCTION .................................................................................... 7

INDONESIA: A MINERAL GIANT ........................................................ 11

INDONESIA’S MAIN OBJECTIVE:

DIVERSIFICATION IN ALL ITS FORMS .............................................. 16

China’s omnipresence in Indonesia’s mining industry ........................ 16

Developing new value chains ................................................................ 18

Developing links with new partners ..................................................... 22

THE CHALLENGES OF MINING ........................................................... 25

Clouds on the horizon ............................................................................ 25

Solving the equation of Indonesia’s energy transition ....................... 29

INDONESIA’S STRATEGY FOR THE EXPLOITATION OF MINERALS

REMAINS HARD TO READ ................................................................... 36

Indonesia’s strategy is not restricted to nickel.................................... 36

Indonesia’s nickel ambitions: the biggest question mark .................. 37

Introduction

Indonesia is a fast-growing economy that needs large infrastructural

investment. Over the last decade, Indonesia has launched a series of large-
scale projects, especially under President Joko Widodo’s mandates: railway
infrastructures, industrial facilities, or hydropower plants, with the
9 gigawatts (GW) Kayan Cascade Project, etc. This dam project, located on
Kalimantan Island, is expected to supply electricity for President Widodo’s
main initiative – the creation of a new capital city called Nusantara. These
development projects are crucial to ensure the continuation of Indonesia’s
fast economic development. The archipelago can indeed be considered an
emerging country, with a gross domestic product (GDP) and a GDP
per capita that have been respectively multiplied by 7 and 5 since 2000
(see Figure 1).
Figure 1. Indonesia’s GDP and GDP per capita
(2000-2023)

Source: Ifri, based on data from the International Monetary Fund (IMF).
 The country is also characterized by a dynamic demography. Even if its
population growth has started to slow down, especially in recent years, the
country is still gaining around 1.5 million people each year. At the
beginning of 2024, Indonesia’s population was estimated at 279.8 million
people1 and is expected to reach 317 million by 2050.2
Indonesia has established strong economic links with international
partners, especially with China. Its other main trade partners include the
United States (US), Japan, the European Union (EU), as well as regional
partners like Singapore and Malaysia (see Figure 2). The share of
agricultural products – led by palm oil – in Indonesia’s exports remains
important, at 28.3% in 2021. Fuels and mining products account for a
further 26.5%.3

Figure 2. Indonesia’s main trade partners in 2023

Source: Ifri, based on data from the Indonesian Ministry of Commerce, available at:
https://satudata.kemendag.go.id.

1. Data from the United Nations Population Fund, available at: www.unfpa.org.
2. “Projections par pays”, Institut national d’études démographiques, available at: www.ined.fr.
3. “Trade profiles”, World Trade Organization, available at: www.wto.org.
 Indonesia’s economy has been reshaped over the last decades. At the
beginning of the 1990s, oil and natural gas played a major role in the
Indonesia’ economic output. However, the importance of gas and above all
oil has decreased significantly, in favor of the mining industry and
especially coal, which is booming (see Figure 3).

Figure 3. Indonesia’s oil, natural gas and coal production

and exports (1990-2022)

Source: Ifri, based on data from the US Energy Information Administration, available at:
www.eia.gov.

Nevertheless, while economic growth has been substantial, its benefits

remain unequally spread across the archipelago. Indonesia’s population
and economic activity are mainly located in the Western part of the country,
on the islands of Java and Sumatra. In 2022, they accounted for 77% of the
country’s population and 78% of its GDP.4 By contrast, Papua, the poorest
region of Indonesia, represented only 1.83% of GDP.

4. Just Energy Transition Partnership Indonesia. Comprehensive Investment and Policy Plan 2023,
National Energy Transition Task Force Working Group, November 21, 2023, p. 27, available at:
https://jetp-id.org.
 In 2022, Indonesia ranked only 112th globally in the Human
Development Index.5 Continuing the archipelago’s economic growth and
improving the livelihood of Indonesian citizens will thus be the main task of
the administration that will succeed Joko Widodo (publicly known as
“Jokowi”), whose mandate ends in October 2024. Indonesia’s citizens did
indeed go to the polls in February 2024 for a general election that
designated Prabowo Subianto as president, elected with 58.6% of the
popular vote, even though his party only came third in the legislative polls.
To develop the national economy further, three fields are key:
attracting investment into infrastructure; starting credibly to reduce the
carbon footprint of the electricity sector; and managing the archipelago’s
subsoil resource development and the most crucial one – nickel ore.
This paper intends to highlight and illustrate the importance acquired
by the mining industry, especially for nickel ore, within the Indonesian
economy. Beyond this first assessment, it aims to analyze the major
challenges associated with the mining industry’s development in the
archipelago: diversification of trade partners and industrial processes;
mining’s environmental and social repercussions; the transformation of the
electricity mix and decarbonization challenge. Lastly, it examines the
prospects of the future development of mineral production.

5. Human Development Report 2023/2024, United Nations Development Program, 2024, available at:
www.undp.org.
Indonesia: a mineral giant

Indonesia truly has a rich and diversified mineral subsoil. Its territory
includes major mineral reserves of bauxite, manganese, gold, copper, tin,
cobalt and, above all, nickel (see Figure 4). All these minerals are essential
to the global energy transition: tin is largely used in electronics, and copper
and aluminum are used in electrical circuits, while manganese, cobalt, and
nickel are key to the production of batteries.
Figure 4. Primary commodities in Indonesia, based on mining
concessions issued

Source: Ifri, based on data from the Ministry of Energy and Mineral Resources of Indonesia,
available at: https://momi.minerba.esdm.go.id.
 Indonesia is already taking advantage of this wealth, especially its
nickel potential. With 1.8 million tonnes produced in 2023, the archipelago
provides 50% of global nickel production and holds 42% of the world’s
reserves (see Table 1). Nickel extraction in the country was only 130,000
tonnes in 2015. In 2018, Indonesia overtook the Philippines as the world's
biggest nickel producer with an annual domestic production of 600,000
tonnes, an output that has tripled by 2023, reaching 1,800,000 tonnes. To
sum up, in 8 years, Indonesia’s share in global nickel extraction grew from
5% to 50% in 2023.6 The country is also developing its other mineral
production, with, for instance, cobalt extraction that was multiplied by eight
between 2021 and 2023.
Table 1. Indonesia’s mining production and reserves

Metal/product Bauxite Cobalt Copper Gold Nickel Tin

Estimated
production in 20,000,000 17,000 840,000 110 1,800,000 52,000
2023 (tonnes)

Share of global
5%7 7% 4% 4% 50% 18%
production

Rank among
6th 2nd 7th 8th 1st 3rd
world producers

Reserves as
estimated in 2023 1,000,000,000 500,000 24,000,000 2,600 55,000,000 800,0008
(tonnes)

Share of global
3% 5% 2% 4% 42% 19%
reserves

Source: Ifri, based on Mineral Commodity Summaries 2024, U.S. Geological Survey, U.S.
Department of the Interior, January 31, 2024, available at: https://pubs.usgs.gov.

Note: “Indonesian production” refers to mine production.

This growth entails the development of large-scale mining parks

spread all over the country, but most specifically on the islands of Sulawesi
and Maluku for nickel (see Figure 5). The most emblematic of these mines
is the Indonesian Morowali Industrial Park (IMIP), located on Sulawesi

6. Mineral Commodity Summaries, U.S. Geological Survey, U.S. Department of the Interior, available
at: www.usgs.gov.
7. The data presented in the Mineral Commodity Summaries 2024 excludes US bauxite production in
the total global production of bauxite.
8. The estimates of Indonesian tin reserves are from the Mineral Commodity Summaries of 2023.
Indonesian figures were “not available” in the 2024 Summaries.
Island, created in October 2013. In ten years, the former fishing town of
Bahodopi has become a complete city, with a deepwater port and an
airfield, hosting 66,000 workers employed by the park.9
Figure 5. Main nickel industrial parks in Indonesia

Source: Ifri, based on data from companies and on “The Nickel Pickle”, MineralPrices.com, May 8,
2023, available at: https://mineralprices.com.

Over time, the mining industry has acquired a central role in the
Indonesian economy, especially in recent years. Indeed, according to a
report by PwC, its share in GDP grew from 4.3% in 2020 to 9.2% in 2022,
while its share in exports increased from 12% to 22% in the same period
(see Figure 6).

9. B. Pedroletti, “En Indonésie, ruée vers le nickel, or noir du futur”, Le Monde, November 11, 2022.
 Figure 6. Contribution of the mining industry
to the Indonesian economy

Source: Ifri, based on data from PwC, “Mining in Indonesia. Investment, Taxation and Regulatory
Guide”, PwC, September 2023, 13th Edition, pp.17-18, available at: www.pwc.com.

As shown in Figure 7, copper generated USD 8 billion in export

revenues for Indonesia in 2023, i.e., as much as gas and more than oil.
According to the International Energy Agency (IEA), revenues from nickel,
copper and tin production in Indonesia could be worth USD 40 billion in
2050.10 The benefits from minerals could be even higher should Indonesia's
share in the global market increase or their prices become higher.
Currently, copper and gold prices are increasing, and it could be the same
for tin, whose market may tighten in the coming years.11
However, Indonesia’s mineral wealth does not rely only on energy
transition metals. Coal plays a huge role in the archipelago’s mining
industry as well. As shown in Figure 4, some of the Indonesian islands hold
major coal deposits, such as Sumatra and, above all, Kalimantan. The latter
accounts for 90% of Indonesia’s coal production, which represented 35% of
East Kalimantan province’s GDP in 2019.12
In 2023, 70% of Indonesian coal was exported, making Indonesia the
top thermal coal exporter in the world, with 44% of global exports, followed
by Australia (17%) and Russia (16%). In 2023, thermal coal exports from

10. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, IEA, September 2022, p. 175, available at: https://iea.blob.core.windows.net.
11. Ibid., p. 174.
12. Ibid., p. 162.
Indonesia surpassed 500 million tonnes, a level never reached by any
country before.13

Figure 7. Indonesia exports value by-product in 2023

Source: Ifri, based on data from the Central Bureau of Statistics of Indonesia, “Statistical
Yearbook of Indonesia 2024”, available at: www.bps.go.id.

13. “Coal 2023. Analysis and Forecast to 2026,” IEA, December 2023, pp. 63-66.
Indonesia’s main objective:
diversification in all its forms

China’s omnipresence in Indonesia’s

mining industry
If the mining industry has been an efficient way to develop Indonesia, its
growth has so far relied substantially on Chinese investments. Since 2013,
China’s Belt and Road Initiative has played an important role in the
archipelago’s economy. China has, for instance, built the high-speed train
line that connects Jakarta to Bandung on Java Island, a line which was
inaugurated by Jokowi and Xi Jinping on October 2, 2023. Many other
projects have been awarded to Chinese firms, such as the hydropower plant
of Kayan Cascade. China is looking to develop even stronger links with
Indonesia, which could be a way to expand its influence in the Indo-Pacific
region. In July 2023, during the visit of President Jokowi to China,
President Xi Jinping expressed China’s willingness to “build high-level
strategic mutual trust” between the two countries and to implement a
regular dialogue between their Defense and Foreign Affairs ministers.14
The Middle Kingdom’s huge presence in Indonesia is illustrated by the
Chinese foreign direct investments (FDI) operated in the ASEAN countries
over the last decade. Between 2013 and 2022, China invested USD 220
billion in the ten countries of the ASEAN, with around USD 50 billion
(23%) in Indonesia (see Figure 8). Figure 9 indicates that these investments
were not made at a perfectly regular pace. After a very active period,
Chinese foreign direct investment (FDI) in the Association of Southeast
Asian Nations (ASEAN) countries and the Indonesian archipelago declined
within the context of the Covid-19 crisis. After reaching their lowest level in
ten years, Beijing’s FDI in the ASEAN then increased once again and are
currently approaching the levels they had before the health crisis.

14. “Xi Jinping Meets with Indonesian President Joko Widodo”, Ministry of Foreign Affairs of the
People’s Republic of China, July 27, 2023, available at: www.fmprc.gov.cn.
 Figure 8. Chinese investments in ASEAN countries between
2013 and 2022

Source: Ifri, based on data from ASEAN X Macro, China’s Belt & Road: “Small But Beautiful”,
Report from the Malaysian bank Maybank, March 17, 2023, p. 5, available at:
www.maybank.com.

Figure 9. Chinese investments in ASEAN countries evolution

over time (2013-2022)

Source: Ifri, based on data from ASEAN X Macro, China’s Belt & Road: “Small But Beautiful”,
op. cit.
 As mentioned above, the mining sector is no exception to the rule. At
least one Chinese company is represented in the four main nickel parks of the
archipelago (see Figure 5). The Tsingshan Holding Group, the world leader in
the steel industry, played a central role in the creation of IMIP and Weda Bay
industrial park, through the establishment of joint ventures, giving it a highly
dominant position in the production of Indonesian nickel ore.
This huge Chinese presence has raised issues within the Indonesian
mining sector, especially in the case of IMIP. First of all, the park houses a
large number of Chinese workers, which has become controversial. Indeed,
according to a Le Monde investigation, companies must pay a tax of USD
100 to the local government for each Chinese worker they employ.
Officially, IMIP includes no more than 10% of Chinese employees, and its
head of office explained that there were only 5,000 of them. Yet, according
to Indonesian workers' associations, this number is highly understated.
A former Indonesian trade unionist even explained that Chinese workers
were “hidden in the forest during official inspections.” In Kendari, another
park in Sulawesi, tensions were also present between Indonesian and
Chinese miners, the latter being accused, among other things, of trafficking
in identity cards.15 China’s popularity seems to have decreased since the
early Indonesian participation in the Belt and Road Initiative in 2013.
According to a poll conducted by the Australian Lowy Institute, 54% of
Indonesians considered that China’s growth had been good for Indonesia in
2011, while they were only 43% in 2021. Similarly, 50% of the archipelago’s
inhabitants thought that Indonesia should join with other countries to limit
China’s influence in 2011, compared with 60% in 2021.16

Developing new value chains

If foreign investments have been a way to develop the national economy,
they have for a long time consisted almost exclusively of seeking to export
raw materials. This phenomenon manifested from 1596 onwards, with the
arrival of Dutch colonists in the archipelago, who first searched for cloves
(native of Maluku) and later for oil deposits. Such high-scale hydrocarbon
deposits led to the invasion of the Dutch colony by the Japanese army
during the Second World War, demonstrating the same willingness to
exploit natural resources. Between 1967 and 1998, the Suharto dictatorship
widely opened the gates of Indonesia to foreign investors, especially
American firms. At the end of the 2000s, with the end of Suharto’s regime,
Indonesia’s policy on foreign investment shifted to a more protectionist
one, especially concerning mining. In trying to avoid a form of “Dutch
disease” or the “resource curse” of raw material rent phenomena, new
heads of states have implemented laws with two main objectives:

15. B. Pedroletti, “En Indonésie, ruée vers le nickel, or noir du futur”, op. cit.
16. “Indonesia Poll 2021”, Lowy Institute, available at: https://interactives.lowyinstitute.org.
 Developing investments in downstream mining industries, especially in
transformation facilities (smelters and refineries), to keep added value
within the archipelago.
Reinforcing local companies’ weight in the mining sector, mostly
through a process of disengaging foreign firms.17
The Indonesian strategy has aimed to create and develop local mining
industries, including extraction and transformation, to boost living
standards significantly. To this end, Indonesian governments have adopted
several mining laws. The first vector of this strategy relies on foreign
companies’ divestment. In 2010, the Indonesian Ministry of Energy and
Mineral Resources mandated foreign companies to sell a 20% stake in their
local mining firms to Indonesian shareholders after five years of operation.
In 2012, a new mining text was announced, obliging foreign companies to
sell 51% of their shares after ten years of exploitation.
This led to a confrontation between President Jokowi – elected in 2014
– and the American mining firm Freeport-McMoRan, which was operating
the copper, gold and silver mine of Grasberg in Papua. In 2017, a deal was
finally concluded in which Freeport would sell 51% of its shares and open
local foundries, and in exchange, it would receive an extension of its
exploitation permit.18
The second vector of the Indonesian strategy is based on raw material
export bans. The first ban on nickel ore exports was formulated in 2014, but
pressure from mining companies forced the government to withdraw its
project. The ban was re-established in 2017, in a reduced way, and
eventually strengthened in 2020. Through these bans, the Indonesian
government intended to put pressure on foreign companies, giving them no
choice but to develop refining firms and facilities inside the archipelago.
Otherwise, they would no longer be able to exploit the mineral wealth of
Indonesia’s subsoil. As mentioned above, such a ban was introduced for
nickel but was also set on bauxite exports in June 2023.
A similar ban is planned for copper and is expected to be set in June
2024, raising concerns among mining companies. On March 28, 2024, the
chief executive officer (CEO) and the Chairman of the Board of Freeport-
McMoran met President Jokowi in Jakarta to ask for the ban to be delayed.
Tony Wenas, Freeport-McMoran’s CEO, explained that with such a
decision, “state revenues will drop by around USD 2 billion.”19 According to

17. B. Courmont, “Le difficile contrôle des exploitations minières en Indonésie”, Géoéconomie, Choiseul
Institute, No. 75, March 2015, pp. 93-108.
18. B. Pedroletti, “En Indonésie, ruée vers le nickel, or noir du futur”, op. cit.
19. “Freeport Warns Copper Export Ban Could Cost Indonesia US$2 Billion in Lost Revenue”,
The Business Times, March 28, 2024.
some sources, including the IEA, Indonesia is thinking about establishing a
ban on tin exports as well.20
This strategy seems to have been successful, considering the current
presence and development of smelters across the archipelago (see
Figure 10). Once again, the major importance of nickel is illustrated by the
huge number of smelters in Sulawesi and North Maluku, as well as by the
fact that nickel concerns 82% of the current existing smelters (see Table 2).
Figure 10. Distribution of existing Indonesian smelters
and projects under development across the archipelago

Source: Ifri, based on data from the Ministry of Energy and Mineral Resources of Indonesia,
available at: https://momi.minerba.esdm.go.id.

Note: Figure 10 and Table 2 are based on the data presented on the website of the Indonesian
Ministry of Energy and Mineral Resources within an interactive map, which is consequently not
dated. It is thus difficult to know if the data in question are regularly updated and so precisely
accurate. The distinction between smelters “under development” or “active” and the data presented
must, therefore, be interpreted in an indicative approach rather than as a precise inventory of the
properties of Indonesian smelters.

20. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, op. cit., p. 174.
 Table 2. Number and capacities of smelters in Indonesia

Output capacity
Output capacity for
Number of for active Number of
smelters under
Commodity active smelters smelters under
development (tonnes
smelters (tonnes per development
per year)
year)

Nickel 14 3,045,810 16 2,522,263

Bauxite 1 300,000 9 10,986,000

Copper 2 325,000 2 722,000

Iron 1 36,367 3 3,903,245

Manganese 1 16,186 1 40,379

Lead 0 0 1 22,924

Zinc 0 0 1 29,319

Total 19 3,723,363 33 18,226,130

Source: Ifri, based on data from the Ministry of Energy and Mineral Resources of Indonesia,
available at: https://momi.minerba.esdm.go.id.

However, for Indonesia, the objective is today no longer only to lower

raw materials exports and to develop local smelting plants. Henceforth, the
aim is also to develop a specific type of refinery capacity in the archipelago.
Nickel itself cannot be found in the ground and extracted: nickel ore
contains nickel atoms combined with other elements, such as oxygen
(nickel oxide) and other minerals. Refinery processes are required to
increase the quantity of nickel atoms. Nickel products thus obtained are
then divided into two categories: class I and class II. Products containing
more than 99.98% nickel are considered to belong to class I, while those
containing less nickel than this threshold belong to class II.
Two processes can be used to refine nickel ore: pyrometallurgy and
hydrometallurgy. Pyrometallurgy, using a method called “rotary kiln-
electric furnace” (RKEF), leads to the production of ferronickel (class II),
which contains a low quantity of nickel and is mainly used to produce
stainless steel. Hydrometallurgy, using a method called “high-pressure acid
leaching” (HPAL), leads to a final product that is more highly concentrated
in nickel (class I). This product is used especially in producing cathodes and
nickel sulphate for batteries, particularly electric vehicle batteries. Today,
around 70% of the nickel produced around the world is used for stainless
steel, while 11% is used for battery manufacturing.21
Nickel made through hydrometallurgy produces more added value
than ferronickel, but a major share of Indonesian smelters was built to
conduct pyrometallurgy. Therefore, Indonesian officials are trying to
develop HPAL facilities, the first being constructed in 2021, by the Chinese
firm Lygend Resources & Technology, in Obi Island (North Maluku).22
Since January 2022, HPAL is also being operated in IMIP.23 The
Indonesian government is also supporting the establishment of electric
vehicle battery factories, such as the one planned in Karawang on Java
Island, which is expected to produce 30 million battery cells in 2024.24

Developing links with new partners

The diversification of Indonesia’s mining sector also relies on the search for
new partners. As explained above, China has been the most important
provider of FDI in the archipelago’s mining industry, and the Middle
Kingdom was importing huge quantities of Indonesian nickel ore before the
export ban of 2020. Therefore, Indonesia is not trying to completely turn
away from China but to continue its foreign policy, described as “free and
active”. New partners could be emerging countries, as suggested by
negotiations currently carried out with the Eurasian Economic Union,25 but
also with the US and the EU.
In May 2022, President Jokowi made a five-day visit to the US, during
which he met President Biden as well as Elon Musk, Tesla’s CEO, with the
aim of supporting the establishment of an electric vehicle factory in
Indonesia.26 In its National Energy Grand Strategy, the Indonesian
government has indeed committed the country to have 2 million electric
vehicles (EVs) and 13 million electric motorbikes by 2030. This would
correspond to, respectively, about 9% and 12% of the respective stocks in
2030, compared to well under 0.1% in 2021. To support the development of
EV batteries inside the archipelago, Jakarta has also supported the creation
of the Indonesia Battery Corporation, a partnership gathering four state-

21. “Coal 2023. Analysis and forecast to 2026”, op. cit., p. 34.
22. L. Guoping and D. Jia, “Chinese Nickel Miners in Indonesia Face Threat from Falling Prices”, Nikkei
Asia, December 5, 2023.
23. H. Fisher and B. Grossl, “Overcoming Mining Waste Issues Will Be Key to Indonesia’s Nickel
Ambitions”, Benchmark Mineral Intelligence, July 7, 2023.
24. “President Jokowi Inspects Electric Vehicle Battery Factory in Karawang”, Cabinet Secretariat of the
Republic of Indonesia, September 14, 2023, available at: https://setkab.go.id.
25. “EAEU and Indonesia Held Third Round of Negotiations on Free Trade Agreement”, Eurasiatic
Economic Union, December 15, 2023, available at: https://eec.eaeunion.org.
26. “Indonesia's Jokowi Meets Tesla’s Musk After Nickel Talks”, Reuters, May 15, 2022.
owned companies: Pertamima, Perusahaan Listrick Negara (PLN, the
national electricity company), Mind.Id., and ANTAM.27
In November 2023, President Jokowi and President Biden met again to
discuss a potential mineral partnership, according to Reuters.28 However,
negotiations between the two countries remain difficult. It is not yet clear
enough if batteries containing components extracted or manufactured in
Indonesia will be able to benefit from Biden’s Inflation Reduction Act (IRA)
tax credit program. In the field of EVs, this program mainly relies on a tax
credit of USD 7,000 for the purchase of an electric vehicle in the US, with
eligibility based on the provenance of the materials used. This tax credit is
divided into two parts, each of them amounting to USD 3,500. Part 1 relies
on battery components, for which 40% must come from North America.
Part 2 is based on the critical raw materials used, with 40% needing to
come from the US or a country with which the US has a free trade
agreement (FTA). The two thresholds will progressively be increased in the
years ahead.29 For Indonesia, it, therefore, appears crucial to sign an FTA
with the US.30
Nonetheless, this FTA could still be insufficient. The US also targets
what it calls “Foreign Entities of Concern” (FEOC). In December 2023, the
US Department of Energy proposed guidance describing these FEOCs as
entities “owned by, controlled by, or subject to the jurisdiction or direction
of a government of a foreign country that is a covered nation”, namely
China, Russia, Iran, and North Korea.31 As explained in Section 30D of the
US Internal Revenue Code, after December 31, 2023, any electric vehicle
whose battery components were “manufactured or assembled by a FEOC”
will not be able to benefit from the IRA tax credit part 1. Moreover, after
December 31, 2024, any electric vehicle whose battery contains critical
minerals that were “extracted, processed or recycled by a FEOC” will not be
able to benefit from the IRA tax credit part 2.32 So far, it remains uncertain
whether all the Chinese companies involved in Indonesia would be
considered FEOC and whether the joint ventures created with other
companies will be considered FEOC as well. However, such a situation
could be a hammer blow to Indonesia, as well as to foreign companies that
have developed joint ventures with Chinese firms in Indonesia (Vale,
Eramet, Ford, etc.). The US will likely maintain a certain ambiguity on who

27. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, op. cit., p. 43.
28. T. Hunnicutt and S. Holland, “Biden Meets with Indonesia President Ahead of Xi Summit”, Reuters,
November 14, 2023.
29. 10% will be added each year until 2027. At that time, the two thresholds will be 80% and will be
maintained at this level.
30. A. Mehdi and T. Moerenhout, “The IRA and the US Battery Supply Chain: One Year On”, Center on
Global Energy Policy, Columbia School of International and Public Affairs, September 20, 2023.
31. “Interpretation of Foreign Entity of Concern”, Federal Register. The Daily Journal of the United
States Government, December 1, 2023, available at: www.federalregister.gov.
32. US Internal Revenue Code, Title 26, §30D, available at: www.govinfo.gov.
will be considered as FEOC and act on a case-by-case basis to keep its
supply chains functioning in areas where it is the most dependent.
The US has also shown its disappointment about the increasing links
between China and Indonesia, especially since the US had invested
significantly to reinforce Indonesian cost guard defense capacities. These
investments were undertaken to protect the northern parts of the
archipelago from incursions by Chinese surveillance boats, especially
around Natuna Islands.
In the case of the EU, an FTA has been under negotiation since 2016,
and negotiations are unlikely to end successfully in a short time.
Indonesia’s export ban on nickel was denounced by the EU in 2021, which
brought this case to the World Trade Organisation. Moreover, the EU’s
regulation on deforestation (EUDR) has impacted Indonesia’s exports: five
of the seven products targeted by the EUDR are among Indonesia’s usual
export products (palm oil, coffee, cacao, wood and caoutchouc). Indonesia’s
global diversification strategy is thus encountering setbacks.
The challenges of mining

Clouds on the horizon

Work and safety conditions

Locally, Indonesia’s mining sector is raising issues as well. First, miners’
working conditions are often criticized, and accidents are frequent. In
December 2023, a major incident happened in IMIP: an explosion occurred
in a smelter, killing 10 Indonesian and 8 Chinese workers, and injuring 30
more. This incident caused an outcry in the country, especially since
workers were not wearing fireproof clothing, according to the Indonesian
newspaper Koran Tempo, even though they were in close contact with
molten materials. The newspaper also explained that the smelter included
no emergency exit and that safety managers from China did not speak
Indonesian. Three days later, hundreds of workers protested for better work
and safety conditions near IMIP.33
Chinese workers are also subject to harsh working conditions, as
denounced by the NGO China Labor Watch, in a study of November 2022.
The report presents a document from IMIP, listing the rules and fines to
which Chinese workers are subject within the park, such as CNY1,000
(USD137) for “sleeping during work at construction sites,” or CNY10,000
(USD1,371) for “leaving factories or working areas without permission”.34

Expropriations and the concerns

of indigenous tribes
Large-scale industrial projects also lead to the expropriation of local people.
In Rempang Island, in the western part of Indonesia, the expulsion of
around 1,000 inhabitants is planned as part of the development of a
Chinese giga-factory called “Rampang Eco-City.” On 8 September 2023,
Rempang island citizens protested against this situation and got support
from NGOs and even national newspapers, such as The Jakarta Post.35 This
question is highly problematic in the country since the archipelago has
numerous indigenous communities, especially in Maluku, Sulawesi, or
Papua. Indeed, these areas are often very wild and hard to access, with

33. “Les travailleurs du nickel en Indonésie dénoncent leurs conditions de travail”, L’Usine Nouvelle,
December 27, 2023.
34. “Trapped: The Belt and Road Initiative’s Chinese Workers”, China Labour Watch, November 2022,
pp. 159-161, available at: https://chinalabor.wpenginepowered.com.
35. B. Pedroletti, “Indonésie : l’îlot de Rempang résiste aux ambitions chinoises”, op. cit.
steep mountains and some territories or islands that have been isolated for
centuries. Deforestation to establish mines is threatening indigenous
peoples’ ways of life.
In Maluku, another project is raising concerns at the already giant
nickel production site of Weda Bay. Since 2018, the development of Weda
Bay Industrial Park has led to substantial transformations in local
landscapes, as illustrated by Figure 11. An initiative led by the French firm
Eramet and Germany’s BASF, called “Sonic Bay”, plans to build a new
nickel refinery in the area, raising concerns among NGOs and
environmentalists.36 Indeed, an indigenous tribe lives there: the Hongana
Manyawa, which is one of the last Indonesian tribes of hunter-gatherers,
with an estimated 3,000 members. In October 2023, an employee from a
forestry company, moving into the forest with his bulldozer, filmed his
encounter with two members of this tribe and posted it on social networks.
These two tribesmen belong to the “uncontacted” part of the tribe, which
avoids any contact with the outside world, and their records are extremely
rare. It is only the third known video showing these men, and the fact that
this encounter occurred highlights the expansion of industrial activities in
wild natural areas.37
Figure 11. Weda Bay area in 2018 (top) and 2024 (bottom)

36. P. Mouterde, “Un projet du groupe minier français Eramet en Indonésie inquiète les associations”,
Le Monde, March 2, 2024.
37. T. Chaigne, “Indonésie : une vidéo rare montre des autochtones ‘non-contactés’ face à un bulldozer,
une rencontre ‘traumatisante’”, France 24, November 20, 2023.
Source: Sentinel Hub EO Browser, Sentinel 2, available at: https://apps.sentinel-hub.com.

Note: The top satellite image is dated May 1, 2018, and the bottom one is February 4,
2024.

Environmental repercussions
Finally, mining’s environmental damage is publicly known, especially
through the release of chemicals or the use of coal to produce electricity in
the case of Indonesia. Waste management is crucial, and nickel companies
are working on methods to alleviate the environmental impact of their
activities, such as dry stack tailings or the use of iron waste to produce
stainless steel. Yet, while environmental standards are theoretically
controlled by local and federal governments, it appears that their action is
delayed due to several factors, including the important number of operators
mining in the same area, corruption and illegal operations.38 Mining
tailings runoff into the sea and change the color of water from blue to
brown, blocking the sunlight at the surface and preventing it from reaching
coral reefs and their marine biodiversity. Yet, Indonesia is known
worldwide for its coral ecosystems.
On the other hand, the development of mining industrial parks has
also been a way to allow improvements in the livelihood of local citizens,
providing access to electricity, treated water and education. The provision
of nutritious food and vitamins has also been facilitated due to the new
commercial routes opened, resulting in a decrease in infant mortality.

38. H. Fisher and B. Grossl, “Overcoming Mining Waste Issues Will Be Key to Indonesia’s Nickel
Ambitions”, op. cit.
 Another major source of pollution from the mining industry is its
energy-intensive character. As explained above, Indonesia uses coal to
power its economy and its electricity system based on its huge reserves.
However, as anywhere else in the world, such use of coal is not without
repercussions on the climate, and these consequences are already visible in
the case of Indonesia. Indeed, according to a study from the World Bank
and the Asian Development Bank, Indonesia is ranked among the top three
countries most exposed to climate change and is the 5 th country with the
largest population living in lower-elevation coastal zones.39 Jakarta, the
capital city, is slowly sinking under the sea level, and frequent floods are
occurring.
If these floods have always existed, their occurrences have increased
strongly. Furthermore, with the rising sea levels, the water flooding Jakarta
is often no longer made of freshwater but also contains salt water as the sea
invades the city. This happened in 2007, when 1.5 meters of salt water
flooded into the Northern neighborhoods, leading to the death of
76 people.40 Today, the Northern parts of Jakarta only resist floods by the
sea due to the construction of a coastal wall in 2002, a wall that nonetheless
did not prevent the flood of 2007. Extreme weather events are increasing:
floods, as mentioned above, but also cyclones, sea storms or heatwaves. The
monsoon patterns are changing strongly. Shorter wet seasons are
henceforth the norm in the Western part of the archipelago, while
tremendous rainfalls engender more landslides, especially in areas of steep
mountains and hills, such as Sulawesi and Maluku.41
Jakarta’s air is also heavily polluted. In September 2023, the city was
forced to reduce the production of one of its coal power plants due to CO 2
emissions and the high degree of pollution within the capital.42 In 2021,
around 150,000 people died prematurely from exposure to ambient air
pollution in Indonesia and 100,000 from breathing polluted indoor air.43
While Indonesia had the 5th highest GDP per capita in the ASEAN in 2022,
the country was only in 8th place (of 10) concerning life expectancy, ahead
only of Laos and Myanmar (see Table 3).

39. “Climate Risk Profile: Indonesia”, The World Bank Group and Asian Development Bank, 2021,
available at: www.adb.org.
40. O. Sevin, “L’aménagement sans cesse repoussé de la baie de Jakarta”, Bulletin de l’association de
géographes français, Vol. 98, No. 1, 2021, pp. 118-136, available at : http://journals.openedition.org.
41. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia”, op. cit., pp. 49-50.
42. “Asphyxiée par la pollution, l'Indonésie réduit la production d'une de ses centrales à charbon”,
La Tribune, September 6, 2023.
43. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, op. cit., p. 203.
 Table 3. A comparison between GDP per capita
and life expectancy for ASEAN members

GDP per capita in Rank among Women's life Men's life Rank among
Country 2022 (thousand ASEAN expectancy in expectancy in ASEAN

USD) countries 2022 (age) 2022 (age) countries

Singapore 82.81 1st 85.2 80.7 1st

Brunei 37.85 2nd 78.3 74.5 2nd

Darussalam

Malaysia 12.47 3rd 75.8 71.3 4th

Thailand 7.07 4th 80.7 73.6 3rd

Indonesia 4.8 5th 73.8 69.9 8th

Vietnam 4.09 6th 76.4 71.1 6th

Philippines 3.62 7th 77.5 71.3 5th

Laos 2.05 8th 69 66 9th

Cambodia 1.8 9th 75.5 71.2 7th

Myanmar 1.23 10th 71.3 62.8 10th

Source: Ifri, based on data from the IMF and the ASEAN, available at: https://asean.org.

Note: For the life expectancy rate, the ranking is based on an average between
women and men.

Solving the equation of Indonesia’s

energy transition
Poor environmental performance could be an obstacle to Indonesia’s trade
with the EU and, to a lesser extent, with the US. In its Enhanced Nationally
Determined Contribution (NDC), Indonesia has pledged to reduce its
greenhouse gas (GHG) emissions by 32% (unconditional) and 43%
(conditional) by 2030, relative to a business-as-usual baseline.44 Within the
scope of its national strategies, the country has committed to reaching
carbon neutrality by 2060. Indonesia also signed a “Just Energy Transition
Partnership” (JETP) with Western countries at the end of 2022 during the

44. Enhanced Nationally Determined Contribution, Republic of Indonesia, 2022, available at:
https://unfccc.int. “Unconditional” refers to the target reachable by Indonesia without foreign support,
while “conditional” refers to the target reachable with foreign support.
G20 summit in Bali.45 Following this signature, a Comprehensive
Investment and Policy Plan (CIPP) was prepared and published in
November 2023 by the National Energy Transition Task Force Working
Group. The plan aims to allow Indonesia to reach net zero emissions for its
power sector by 2050 and selects several areas as the main objectives and
actions to carry out the related ambitious transformation:
The deployment of various renewable energy sources, including the
development of a diversified supply chain in this field.
The construction of strong electricity grids and transmission lines
throughout the archipelago.
Early coal-fired power plant retirement and the management of a coal
phase-out.46

Reshaping the electricity mix: from 87%

fossil fuels to renewables
To reduce Indonesia’s GHG emissions, the CIPP intends first to transform
Indonesia’s electricity system. Overall, electricity generation and installed
capacity must increase strongly. Generation is expected to grow from
308.2 TWh in 2022 to 1,482 TWh in 2050, while the installed capacity
needs to increase from 63 GW to 519 GW within the same time frame.47
Alongside increasing the electricity generation and installed capacity in
the country, the other major challenge will be to transform the electricity
mix, which currently relies heavily on fossil fuels. According to the data
from the CIPP, 87% of electricity generation in the country relied on fossil
fuels in 2022, with 67% coming from coal (see Figures 12 and 13).
Renewables accounted for 13% of the power generated, mainly from
hydropower (7.3%) and geothermal power (5.4%). The agenda presented by
the CIPP thus looks audacious. Developing an electricity mix made of 92%
of renewables and only 2.6% of fossil fuels in 2050 appears to be a very
ambitious target.

45. These countries are members of the International Partners Group (IPG), and in the case of the
Indonesian JETP bring together the US, Japan, Canada, Denmark, the EU, France, Germany, Italy,
Norway and the United Kingdom. The agreement is expected to mobilize USD 20 billion in public and
private investments to support a just energy transition in Indonesia. Such an agreement was also signed
with South Africa in 2021 and Senegal in 2023.
46. Just Energy Transition Partnership Indonesia. Comprehensive Investment and Policy Plan 2023,
op. cit., p. 74.
47. Ibid., p. 45.
 Figure 12. Power generation trend according to the CIPP
pathway

Source: Ifri, based on data from Just Energy Transition Partnership Indonesia. Comprehensive
Investment and Policy Plan 2023, op. cit., p. 45, available at: https://jetp-id.org.

Figure 13. Installed capacity trend according to the CIPP

pathway

Source: Ifri, based on data from the Just Energy Transition Partnership Indonesia. Comprehensive
Investment and Policy Plan 2023, op. cit., available at: https://jetp-id.org.

To succeed in such a transformation, solar photovoltaic (PV) power

will play a key role, expected to account for 26% of electricity generation by
2050 and more than 50% of the installed capacity. Among other
renewables, the development of hydropower and bioenergy will be essential
as well, accounting for 21% and 17.5% of the generation by 2050,
respectively. For their part, onshore and offshore wind are planned to
account for 10% of the generation and 44 GW of installed capacity by then.
 Indonesia indeed has major potential to develop more renewable
energy sources. According to the IEA, 1,500 GW of utility-scale solar PV
could be installed in Indonesia as well as 500 GW of onshore wind power.
Hydropower and geothermal potentials are respectively estimated at 70 GW
and 24-40 GW.48 Nevertheless, the levelized costs of energy (LCOE) for
utility-scale solar PV and onshore wind in Indonesia remain relatively high
in comparison with other emerging countries, such as Brazil, South Africa,
and India.49
Furthermore, while the archipelago as a whole truly has important
potential for solar and wind power, this potential is not equally shared
between the different islands. More than three-quarters of the 1,500 GW
solar PV potential is indeed concentrated in Sumatra and Kalimantan
(82%), while Java-Bali and Sulawesi account for only 7.2% of this potential.
It is similar for wind power, with 59% for Sumatra and Kalimantan and
only 18.4% for Java-Bali and Sulawesi. Yet, by 2030, more than 70% of the
Indonesian electricity demand is set to come from Java-Bali, and the
energy-intensive nickel smelters of Sulawesi, currently coal-powered, are
likely to need imports from other regions in the future if they are to use
clean electricity. Indeed, according to the IEA, Java-Bali is expected to
import 350 TWh of electricity annually by 2050, coming from the other
islands of the country (Sumatra, Kalimantan, Maluku, etc.).50

Establishing a dense and resilient grid

in an archipelago of 17,000 islands
A key obstacle, however, is that currently, none of Indonesia’s major islands
are connected with each other. Indonesia does not have one electricity
system, but 52. This situation is due to Indonesia’s geography, with the
difficulty of connecting the 17,000 islands of the archipelago, spread over
tremendous distances. The northwestern point of Indonesia, in Sumatra,
and its southeastern point, in Papua, are 5,300 km apart: i.e., the distance
between New York City and Brest (on the tip of Britanny in France) on the
other side of the Atlantic Ocean. To interconnect the Indonesian islands
and allow the electricity trade expected as part of the decarbonation path,
the IEA estimates that the installed capacity of the inter-regional electricity
grids in Indonesia should be around 70 GW by 2050.51 A first connection is
expected to be operational in 2029 between Java and Sumatra, using high
voltage direct current (HVDC) technology. According to the CIPP, since this
HVDC project will be the first of its kind in Indonesia, and to avoid
technical implementation shortcomings, “it will be crucial for PLN to

48. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, op. cit., p. 183.
49. Ibid., p. 195.
50. Ibid., pp. 182-189.
51. Ibid., p.188.
engage well-experienced international firms, especially a utility abroad that
has experience in the successful design, construction, and operation of
HVDC facilities.”52
However, the weaknesses of the archipelago’s grid do not concern only
inter-regional connections. A lot needs to be done inside the different
Indonesian regions as well. As of today, the country’s transmission grid is
mainly made up of 150 kilovolts (kV) lines, with a limited number of 275 kV
and 500 kV lines, concentrated in Java-Bali and Sumatra. Once again,
Indonesia’s geography is a major challenge for the construction of strong
networks. Some of the archipelago’s islands, such as Sulawesi or Maluku,
have slender and winding profiles, entailing the development of long
transmission lines. Such backbone networks are more vulnerable than
networks designed in a “spider-web model” since a single line is responsible
for almost all of the electricity system’s proper functioning. Some islands
with more circular profiles, like Kalimantan, are, for their part, covered by
highly dense forests or steep relief areas, making the deployment of long
transmission lines difficult as well. Finally, extreme weather events, which
are more frequent with climate change, have huge impacts on the energy
infrastructure and on grids. Tropical cyclones damaged the transmission
lines in 2019 and 2021; heavy rainfall or flooding may lead to the shutdown
of power plants, while heatwaves can result in blackouts due to a high peak
of electricity demand, as happened on Lombok Island in 2019.53
To further develop and strengthen the national electricity grid, the
CIPP focuses on five main projects (see Figure 14):
The Sumatra backbone and Sumatra-Batam-Bintan interconnection
(500 kV and 275 kV);
The Java-Sumatra HVDC Interconnector;
The Sulawesi backbone (275 kV);
The Northeast Kalimantan backbone (500 kV);
Grid modernization and digitalization with Smart Grid technologies.54
In its report, the CIPP estimates the required annual investments for
the development of an efficient and resilient grid by 2050 to be
USD 3 billion annually, with cumulative investments reaching
USD 50 billion by 2040.55

52. Just Energy Transition Partnership Indonesia. Comprehensive Investment and Policy Plan 2023,
op. cit., p. 83.
53. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, op. cit., p. 49.
54. Just Energy Transition Partnership Indonesia. Comprehensive Investment and Policy Plan 2023,
op. cit., pp. 77-83.
55. Ibid., p. 74.
 Figure 14. Electricity grids in Western Indonesia in 2023

Source: Ifri, based on data from Just Energy Transition Partnership Indonesia. Comprehensive
Investment and Policy Plan 2023, op. cit., pp. 79-82, available at: https://jetp-id.org.

The possibilities for phasing out coal

According to the CIPP, the last stage of Indonesia’s decarbonization relies
on a coal phase-out, with the early retirement of coal-fired power plants.
This part appears to be the most difficult.
Indeed, as mentioned above, the role of coal in the Indonesian
economy is central. In its Coal Transition Exposure Index, measuring the
degree of dependence on coal in national economies, the IEA gave
Indonesia a score of 5.76, putting it at the top of its ranking.56 In 2022, the
country accounted for 49% of ASEAN’s coal consumption while
representing only 41% of the bloc’s population.57 The electricity generation
through coal is favored by a domestic market obligation policy, according to
which domestic coal miners must supply 25% of their annual production to
PLN. Furthermore, this coal is sold at USD 70 per tonne, which is well

56. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, op. cit., pp. 159-160.
57. “Coal 2023. Analysis and Forecast to 2026”, op. cit., p. 33.
below current international prices.58 Therefore, current electricity tariffs do
not support wind and solar and are incentives to generate power through
fossil fuels, especially coal.
Jakarta’s recent decisions raise questions about its willingness to
decarbonize its economy, as well as about the realism of this policy. Indeed,
according to Reuters, on February 20, 2024, Indonesia launched a revised
“taxonomy”, also called the green investment rulebook.59 This rulebook
categorizes investments made in Indonesia using a traffic light system:
Green: investments considered aligned with efforts to meet Indonesia’s
decarbonization goals.
Yellow: investments in sectors considered to support the transition to a
low-carbon economy.
Red: investments in sectors that are considered harming the
environment.
Investments in coal-fired power plants are classified in the yellow
category as long as they meet certain criteria (being built before 2031, shut
down by 2050 and reducing their GHG emissions by 35% within ten years
of operation). This analysis relies on the fact that the energy produced
through the coal plants will be used to extract and transform critical
minerals, which will then contribute to the energy transition. In its Coal
Report of 2023, the IEA also identifies five new coal mining export projects
in Indonesia.60 It should, therefore, be noted that these projects are less
numerous than the ones developed in Canada (12) or Australia (23), for
instance.
Nevertheless, one can legitimately wonder about the realism of the
decarbonization pathway presented and the willingness to convert it into
actions. As the IEA has put it: “Despite Indonesia’s aims to transition to
clean energy and reduce coal usage, underlined by the USD 20 billion
package in the Just Energy Transition Package (JETP), it is about to
construct multiple coal-fired power facilities tailored for industrial
purposes. These captive coal plants, whose primary objective is to feed
nickel, cobalt and aluminum smelters, account for 13 GW of the total 18 GW
in the pipeline”.61

58. “An Energy Sector Roadmap to Net Zero Emissions in Indonesia. International Agency Special
Report”, op. cit., p. 45.
59. “Indonesia’s New Green Investment Rulebook Includes Coal Power Plants”, Reuters, February 20,
2024.
60. “Coal 2023. Analysis and Forecast to 2026”, op. cit., pp. 120-123.
61. Ibid., p. 33.
Indonesia’s strategy for
the exploitation of minerals
remains hard to read

Alongside the difficult task of transforming its energy mix, Indonesia faces
another challenge on its horizon, namely the definition of its mining and
metallurgical strategy in a world where the metals present in the
archipelago’s subsoil are becoming more important every day.
While Indonesia has a major asset with its nickel resources, the
country also intends to develop or reinforce the production of other
minerals, with the development of numerous mines and smelters designed
for aluminum, manganese or cobalt.

Indonesia’s strategy is not restricted

to nickel
As with nickel, minerals containing cobalt do not contain only cobalt atoms.
These atoms are indeed mixed with a lot of other elements. Nonetheless,
while nickel is the 5th most common element on earth, with around 75 to
80 grams per tonne (g/t) of Earth’s crust, cobalt is a scarcer element, with
only around 23 to 25 g/t. Cobalt is thus almost always never extracted as a
primary product in a mine and is generally a by-product of copper or nickel
mining. Therefore, while 73% of the world’s cobalt was extracted from
copper mines in the Democratic Republic of Congo (DRC) in 2023, this
situation could change if the cobalt present in Indonesia’s nickel deposits
were to be refined.62
To do this, Indonesia needs to develop HPAL smelters on its territory,
which were recently built to transform nickel ore (as explained above). The
use of these refinery plants has enabled Indonesia to increase its cobalt
production as well, making it the second largest producer in the world (even
if far below the DRC), although Indonesian production was almost non-
existent in 2020. According to forecasts, the proportion of cobalt mined as a
by-product of nickel extraction could grow from 25% across the world in
2023 to 41% in 2030,63 especially due to new supplies coming from

62. It is important to note that this decrease in the share of the DRC in global cobalt extraction results
from an increase in production outside of the DRC, not from a reduction in the DRC’s cobalt output.
63. “Two-fifths of Cobalt Could Come from Nickel Mines by 2030”, Benchmark Mineral Intelligence,
September 15, 2023.
Indonesia. According to the Cobalt Institute, Indonesia has the potential to
multiply its 2022 cobalt production (9,600 tonnes) tenfold by 2030.
Indeed, the use of HPAL on Indonesian nickel ores leads to the
formation of mixed hydroxide precipitate (MHP), which mainly contains
nickel but also cobalt and manganese hydroxides. This MHP thus holds all
the elements used to produce the cathodes (one of the two electrodes) of
NMC batteries. These batteries, indeed, take their name from the fact that
their cathodes are made of nickel, manganese and cobalt. Their chemistry
has evolved, using less cobalt and manganese than before: roughly 25% of
EV batteries manufactured today use the NMC technology, with a
proportion of around 70%-20% of nickel, 20%-10% of manganese and 10%
of cobalt.64 These shares correspond to the output shares of the MHP
produced in Indonesia. This could, therefore, constitute a major advantage
for Indonesian mineral production compared to that in the DRC, with all
three elements (nickel, manganese and cobalt) gathered in the same place.
By exploiting this strength, Indonesia could develop a strong cathode
industry.
Alongside cobalt, Indonesia is also developing an important number of
smelters designed to refine bauxite, copper or zinc, as shown in Figure 10
and Table 2 above. Will there be a surge in Indonesia’s production of these
metals as well?

Indonesia’s nickel ambitions:

the biggest question mark
Nickel output has already seen a surge. Since 2021, Indonesia has strongly
increased its nickel production, reaching levels no country had ever
achieved in the past (see Figure 15). In 2023, the Indonesian nickel mine
production was estimated at 1,800,000 tonnes (up 73% compared to 2021),
covering half of global production. This production increase has led to
falling nickel prices.

64. “Critical Minerals Market Review 2023”, IEA, December 2023, p.38,
https://iea.blob.core.windows.net. During the past 7 years, the chemistry of NMC batteries has evolved,
from NMC 333, also called NMC 111 (33% Ni, 33% Mn, 33% Co), to NMC 532 (50% Ni, 30% Mn, 20%
Co) or NMC 622 (60% Ni, 20% Mn, 20% Co), and eventually to NMC 721 (70% Ni, 20% Mn, 10% Co) or
NMC 811 (80% Ni, 10% Mn, 10% Co).
 Figure 15. Global nickel production (2000-2023)

Source: Mineral Commodity Summaries. op. cit., available at: https://pubs.usgs.gov.

Since January 2023, these prices have fallen sharply, the “devil’s
metal” losing half of its value. For several nickel producers, and especially
for western producers (Canadian, Australian, New Caledonian, etc.), low
nickel prices are highly problematic since they are subject to higher
environmental standards and, therefore, costs. Furthermore, these costs
cannot be compensated by keeping prices higher since the nickel price is
regulated by the London Metal Exchange (LME). Australian and New
Caledonian nickel industries are thus facing major difficulties. Several
Australian nickel mines and smelters have been shut down since the
beginning of the year, and the Australian government, urged by its mining
companies, has called on the LME to rethink its nickel assessments,
working, for instance, on a “clean nickel” price, with higher environmental,
social and governance (ESG) standards. Australia has been backed by the
US on this point.65

65. M. Cranston, “London Exchange Rejects Bid to Have ‘Green’ Nickel Recognised”, Australian
Financial Review, March 6, 2023.
 Yet, so far, this request has not been successful. At the beginning of
March 2024, the LME rejected the Australian proposition, stating that a
market for “green nickel” was “not yet large enough to support vibrant
trading” and that “further industry consensus and agreed industry
standards will be needed in order to provide the data necessary for
consumers to be able to make fully informed purchasing decisions.”66
The bad consequences of falling prices are not restricted to Australia.
About 1,200 km to the East, mines in Neo-Caledonia are also encountering
severe difficulties. The three mining companies of the French archipelago
are going through a very tough period, leading Paris to design a so-called
“Pacte Nickel” deal. Aiming to rescue the nickel industry, the agreement
involves the French State, the Neo-Caledonian government, and the nickel
companies. It provides, among other things, permission for crude ore
export and a ten-year investment program from France to provide clean
energy to the companies. The latter will have to convert their smelters to
hydrometallurgy processes, and their supply will primarily go to the
European market.67 The deal has not, however, yet been voted on by the
Neo-Caledonian Congress.
Maintaining high production levels to keep nickel prices low could be a
deliberate strategy on the part of Indonesia and/or some of the nickel
companies established in the archipelago. “We don’t see any reason why we
should not expand production of nickel for battery materials”, Septian
Hario Seto, Indonesian deputy coordinating minister for investment and
mining, stated on April 1.68 According to forecasts, Indonesian production is
likely to continue its growth until 2030, reaching 4 million tonnes at that
point, and will account for almost 70% of global nickel production by
2035.69 Could Indonesia develop a similar strategy to that of the
Organisation of the Petroleum Exporting Countries (OPEC) in 2014?
Keeping its production high, Indonesia could indeed try to flood the market
and stifle Western producers, making them go bankrupt.
Even if the country already controls a large share of the world’s nickel
supply, its government has indeed already shown its willingness to create a
“cartel” that would control global supplies of this battery metal.70 Yet this
could also be a dangerous game. Low nickel prices are an issue for
Indonesia as well. Indeed, an important correlation exists between the

66. “Discovering the Low Carbon Premium for the Nickel Market”, London Metal Exchange, March 5,
2024.
67. S. Riahi, M. Noukouan and F. Tromeur, “Que contient le pacte sur le nickel calédonien en attente de
signature ?”, La 1ère, March 20, 2024.
68. A. Anantha Lakshmi, “Indonesia to Accelerate Nickel Production Despite Low Prices”, The Financial
Times, March 28, 2024.
69. “Struggling Nickel Miners Press for Alternative Pricing Mechanisms”, Benchmark Mineral
Intelligence, February 27, 2024.
70. É. Goetz, “L'Indonésie réfléchit à créer une Opep des métaux pour batteries”, Les Échos,
November 3, 2022.
nickel price and Indonesia’s GDP growth (see Figure 16). In 2011, a big
decrease in nickel prices was concomitant with a slowdown in Indonesian
economic growth. In the same way, Indonesia’s last period of economic
growth (2016-2023) occurred in the context of increasing nickel prices, and
in 2023, growth started to slow down as well. 71
The overall nickel market is forecast to be in oversupply until 2027, but
specifically regarding nickel sulfate (used to produce batteries), a supply
deficit is set to occur from 2025 onwards and could make prices increase.
Nonetheless, such a supply deficit will depend on how the EV industry and
EV sales develop around the world.72

Figure 16. Correlation between nickel price and Indonesian

GDP growth

Source: Ifri based on data from the IMF and Trading Economics, available at:
https://tradingeconomics.com.

71. Since March 2024, the price of nickel has started to increase again, mainly due to the announcement
of sanctions on Russian metals from the US and the United Kingdom. This announcement has resulted
in a rise in copper, aluminum and nickel prices. However, this growth in prices is likely to be
circumstantial, particularly if new nickel surpluses continue to come from other parts of the world, such
as Indonesia.
72. Forecast presented by Benchmark Mineral Intelligence on a webinar: “Sustainable Nickel Prices:
A New Benchmark for the Industry”, April 18, 2024.
 Furthermore, Jakarta’s strategy of developing battery factories inside
the archipelago could become a weakness. It seems that export markets will
be harder to penetrate. As explained above, it is rather uncertain if batteries
containing Indonesian minerals will be eligible for IRA tax credits.
Furthermore, should an FTA not be signed eventually between the US and
Indonesia, then US EV battery producers could try to prioritize the
development of lithium iron phosphate batteries (LFP) that contain
minerals for which they are less dependent or for which they are dependent
on countries much more closely allied to the US (Australia, Canada, Chile,
etc.).73 At the same time, the EU is raising its environmental, social and
governance norms and working on a battery passport, while China’s
strength in the electric vehicle industry is blatant.
Getting into Western markets could become an increasingly arduous
task for Indonesian batteries if their manufacturing ESG standards are not
revised, especially with regard to electricity generation.
Advancing towards both decarbonization and the development of a
battery industry could include the following steps:
1. Boosting the development of renewable energy sources:

Deploying renewables, especially solar PV, for mines and

smelters to reduce the use of coal, for instance, through
incentives.
Developing offshore wind farms, particularly in the Java and
Banda seas as well as in the Karimata straight. This could be
done through the construction of hybrid networks, powering
several islands of the archipelago and thus reducing the need for
extensive submarine transmission interconnections. These
networks are indeed called “hybrid” since they combine
generation and transmission assets, thus optimizing
investments.
Transferring electricity incentives from coal to renewables in
order to make their LCOE decrease.

2. Developing a sustainable battery industry:

Fostering working and security conditions for miners and

metallurgists.
Developing ESG standards for mines and smelters and
correlating the exploitation of the country’s subsoil with respect
to these norms, for instance, relying on a system of export bans.

73. LFP batteries nonetheless present several weaknesses: lower energy density, poor cold weather
performance or poor economics of recycling due to low value of recovered material, which leads to
landfilling.
 Such a system has been put in place to force industrials to build
smelters and has shown its strength. Foreign investors did not
flee the country; rather the opposite. Indonesia currently holds
such a stranglehold on nickel that it will be hard to operate in
the future without the country, whether or not it applies high
ESG standards.
Developing a “green cathode industry”, exploiting the fact that
all three NMC components are present in Indonesia at the same
place. This would mean lower logistical costs for cathode
producers, as well as less GHG emissions from shipping.
Furthermore, Indonesia does not only hold reserves of these
three metals but also of copper, aluminum, iron, and phosphate
and is even prospecting for graphite deposits.74 These minerals
could create a crucial comparative advantage for the
development of an Indonesian battery industry, even maybe an
EV industry.

3. Protecting climate and biodiversity:

Favoring innovative solutions for waste management, especially

the reforestation of former mining zones or the deployment of
solar panels in these areas.
Establishing a national independent commission in charge of
assessing and upholding ESG criteria, as well as security
standards and indigenous tribes’ rights. To avoid local
corruption, it would be preferable that this commission operates
nationally, with members not living in the areas they are
assessing, in order to limit local political influences on its work.

74. “Indonesian REE, Lithium, And Graphite Potency”, Indonesia Geological Agency, Ministry of Energy
and Mineral Resources, August 3, 2023, available at: https://geologi.esdm.go.id.
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