This week Indonesia’s Co-ordinating Minister for Maritime Affairs and Investment fronted up to the Tesla rep on a business delegation in Jakarta, led by US Commerce Secretary Wilbur Ross.
“Tesla came to China to buy materials for the production of lithium batteries but the raw material for the batteries came from Indonesia. So I said to Tesla ‘Why don’t you invest in us too?'” recounted Minister Luhut Binsar Pandjaitan, often known as Luhut.
This is Indonesia’s audacious nickel strategy in a nutshell. The country is the largest exporter of nickel and, never shy of economic nationalism, it figures that if it stops shipping mineral ore to other countries, it will be able to convince end buyers to come to Indonesia.
It’s all in the timing. The bulk of Indonesia’s nickel shipments go to China to make stainless steel. But in the not too distant future it will be the electric-vehicle industry that is the biggest user, because nickel is a crucial element in developing batteries that can store more power and run cars for longer.
So Indonesia figures it can be a major player in what will be one of the key industries in coming decades – if it plays its resource card right.
The strategy may be clear but the timeline keeps shifting. On October 28 a temporary ban on exports was suddenly declared, ahead of a permanent ban that was slated for 2022 but earlier this year was shifted to January 2020. That change helped send worldwide nickel prices to a five-year high, with other producers in the Philippines, Australia and Russia among those benefiting.
The Indonesian government says the temporary ban was triggered by suspicions some exporters were breaking the rules that limit exports to low-grade ores. Exporters say the sudden stop is ruining both their business and Indonesia’s reputation.
Meidy Katrin Lengkey from the Indonesian Nickel Mining Association (APNI) said 20 nickel export ore vessels were still stuck in ports. Every day the ban is in place each of these ships costs the companies involved 300 million-500 million Indonesian rupiah ($31,000-$51,000). Exporters that had been rushing to ship as much product as possible before January have been brought undone by what Meidy described as the arbitrary rule changes.
“It’s strange when written rules are contradicted by oral rulings. Business needs certainty. Foreign parties have also been left with a negative impression because of this lack of clarity from the government,” she told AFR Weekend.
Nickel companies may win a temporary reprieve with a meeting on Monday that could see restrictions lifted. But, notwithstanding Indonesia’s history of announcing, lifting, bringing forward and then delaying export controls, it seems a much longer-term ban is inevitable.
The Jokowi government has big economic goals to reach in its just-begun, second five-year term and one key element is its pursuit of what it describes as “integrated industries”. It wants to step up from resource exports to using these resources to produce high-value products that will help tilt GDP away from consumption and trade and investment, and give its population, half of whom are aged under 30, better-paid and higher-skilled jobs.
There is activity under way. According to the Indonesian government, $US9 billion ($13 billion) has already been tipped into downstream nickel projects centred around the islands of Sulawesi and Halmahera. Work began this year on what will be a $4 billion lithium battery project in Morowali on Sulawesi with investment from South Korea, Japan and China, though Indonesia did not reveal which companies are involved.
There is no doubting the scale of the ambition. But some question just how achievable it is, especially since other countries in the region have a head start in advanced manufacturing and a better track record in attracting foreign investment.
“In my opinion there is limited scope for this plan, for Indonesia to become Asia’s electric vehicle hub, to become a reality,” says Sabrin Chowdhury, senior commodities analyst at Fitch Solutions.
She points out that to step up to the higher-grade nickel ore needed for lithium batteries, Indonesia needs to invest in many processing plants and says the archipelagic nation’s infrastructure “is not supportive of such high-tech facilities”.
In addition, foreign investors will be wary of Indonesia’s pattern of forced divestment, something Australian mining companies are familiar with. And it is still going on; on October 14, Vale Indonesia, the country’s largest integrated producer of nickel ore and metal, announced an agreement to divest 20 per cent of its shares to a company representing the Indonesian government.
But Luhut, whose power and influence was boosted a few weeks ago when investment was added to his co-ordinating ministerial portfolio, is unwavering. He will, it seems, leave no stone unturned and no electric vehicle company alone until he realises his grand ambition for lithium batteries, as outlined to reporters earlier this year.
“We will control the world market,” he said.