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Indonesia wants to stop exporting minerals, make value-added products


Indonesia’s resource sector is being revitalized. President Jokowi Widoso has pledged to increase the contribution of Indonesia’s resources sector to national GDP. This photo was taken October 20, 21 by an excavator loading coal onto a truck at a mine owned and operated in Kutai Kartanegara (East Kalimantan), Indonesia.

Dimas Ardian | Bloomberg | Getty Images

While Indonesia might be rich in natural resources, the mining sector is only a tiny part of Indonesia’s economy.

This is something that the country wants to address.

The Southeast Asian nation boasts of natural deposits including tin, nickel, cobalt and bauxite — some of which are important raw materials for electric vehicle production.

Even though there are large international exports, it is the coal and mineral sector that has been left behind. contributed only 5%The Extractive Industries Transparency Initiatives (EITI) estimates that Indonesia’s GDP will be approximately $1,0 billion in 2019.

To boost its economyIndonesia is interested in move away from exporting raw materials, Instead, focus on developing its downstream industries.

Processing raw materials into final products is called downstream. This provides added value. For instance, crude oil can be refined into petroleum, diesel and plastics.

President Jokowi Widodo has saidThe Indonesian government exports its raw materials. However, it’s better to use them in downstream industries or at home.

This plan includes the following: Indonesia banned the export of nickel oreIn January 2020, the government pledged that it would gradually cease exporting any other raw materials.

In late 2021, Widodo stated that he believes we could reap the many benefits of stopping nickel mine exports. We will therefore stop exporting raw materials for bauxite and gold ore next year.

The move downstream is expected to create jobs, increase profit margins for the sector, as well as cut down on carbon emissions.

William Simadiputra analyst, DBS Group Research, stated that “the impact is supposed be positive” since value-added items could reduce financial performance for coal miners at the risk from volatility of coal prices.

Going downstream can reduce your vulnerability to volatile commodity prices, as well as import dependence.

Widodo stated that Indonesians would eventually benefit.

President said, “Subsequently… it will create jobs… it will generate income tax for the country and new business opportunities such as domestic businesses that will export nickel miner.”

Accropping the value chain

Indonesia is focusing on three sectors that are key to downstreaming: the mining, mineral, fuel, and agroindustry.

According to Indonesia’s Investment Coordinating Board, BKPM, the country has the largest nickel reserve in the world and possesses 21 million tons of nickel.

Indonesia hopes to transform raw nickel into higher end products like lithium batteries for electric cars — a move the investment board said will eventually bring economic growth.

Widodo announced in the late 2020, “The government is conducting research into lithium-ion batteries innovations. It is anticipated that we will be able to produce lithium battery within two or three years.”

The world’s most populous country is Indonesia fourth-largest coal producer, and the top thermal coal exporter globally.

According to Simadiputra who stated that coal mining companies get royalties when these projects are successful, the Southeast Asian country is pushing for downstream coal projects.

Shirley Zhang, analyst at Wood Mackenzie said coal mining was vital to Indonesia.

“Not only does it help ease the current global energy crisis, the country — a key exporter of thermal coal — also benefits from the high seaborne coal prices,” she told CNBC.

It also provides energy security to support the country’s economic growth.

In 2020, Indonesia produced 564 Million Tonnes of coal. according to the IEA. The country exported 405 million tonnes of coal in the same period — or 31.2 % of world’s coal exports that year.

Zhang stated that thermal coal is an important driver for Indonesia’s economy. He also said that coal power is also a major contributor to the nation’s 26% GDP.

Reducing dependence on LPG imports

Indonesia — the fourth largest LPG importer in Asia — plans to “reduce dependence on costly LPG imports which took up Rupiah 50.6 trillion ($3.6 billion) in subsidies,” according to S&P Global.

Bukit Asam is an Indonesian state-owned miner of coal. $2.3 billion coal gasification projectAir Products, a U.S. chemical and industrial gas company and state energy firm Pertamina.

The projectIt is anticipated that the plant will absorb six million tonnes of coal, and generate 1.4 million tonnes dimethyl-ether. This form of renewable fuel can replace propane and diesel.

Simadiputra claims that this will result in a 1,000,000 tonne reduction annually in LPG imports.

“Downstream activities will help to detach Indonesia from energy imports such as LPG. The analyst stated that lower imports of energy will positively affect Indonesia’s trade balance. This is especially in light of the rising energy prices.

Zhang, Wood Mackenzie said that the trend towards clean and renewable energy will also benefit this country in Southeast Asia.

She said that Indonesia could be a leading country in decarbonization.

For example, Indonesia could establish itself as a regional authority in decarbonization by demonstrating large-scale carbon capture utilization and storage, or CCUS — a technology that captures carbon dioxide from industrial users of fossil fuels and compresses it so that it can be transported or stored for other uses.

Zhang said that Indonesia was also an important resource for nickel and other raw materials used in electric vehicle production. Its production outlook will determine the speed and scale of international decarbonization in the transport sector.

Future challenges

Analysts say that some issues remain, and must be resolved before any value-added downstream efforts are accelerated.

The new biofuel dimethyl-ether has an extremely small market which means it is more expensive than fossil fuels.

Simadiputra said that the support from the central government to replace existing LPG with DME was crucial. This requires coordination and strong cooperation between multiple stakeholders.

Bukit Asam said that the partnership between Pertamina, Air Products and Bukit Asam “is a great start in our opinion,” noting that Pertamina Indonesia’s biggest LPG distributor.

Indonesia’s government plans to attract DME development through some incentives, Energy and Mineral Resources Minister Arifin Tasrif said, according to S&P Global.

Zhang said that government funding and policies are needed to ensure Indonesia’s resource sector is ready for a carbon-free future. Zhang said the government might provide funds for upskilling or retraining in technologies that reduce carbon emissions. 

However, this assumes that the world will still be on track to achieve its decarbonization goals of at most 43% reductionZhang said that greenhouse emission will be reduced by 30% by 2030. She also noted that security issues in energy have increased as a consequence of the War in Ukraine. This could affect plans to end coal-fired power plants.

This holds true especially for the developing nations as coal is still a cheap energy source for them.