However, the plan for 17 additional smelters to be completed by 2023 looks set to fail due to various constraints. First, the companies’ financial problems, mainly due to the operation of a nickel smelter using blast furnace technology greatly influenced by the price of raw materials (especially coke, accounting for 40 percent of the total production cost; it has increased from an average of US$100 per ton in 2015 to US$250-350 at the end of 2022). This was the reason for PT Cahaya Modern Metal Industry to shut down operations.
Second, difficulties in nickel ore purification. Refining nickel ore is a very expensive matter; thus, its economic feasibility will largely depend on extracting nickel ore content in the nearest location. Often the smelter design does not pay attention to how raw materials are available around the plant. Flawed planning means the smelter has to be rebuilt and this is very costly and inefficient. This was what happened to PT Indoferro and PT Bintang Timur Steel. From the start, they were built according to the instructions of their investors, rather than designed to refine available nickel ore.
Investigative audit must be launched
The government must carry out investigative audits to get to the bottom of the illegal nickel exports, not only against the exporters but also supervisory institutions to find out who is responsible. Indonesia should soon become a major player in the global battery industry. Nickel, as a raw material in the manufacture of EV batteries, is a gateway to the energy of the future, so accelerating the downstreaming of mineral resources is a must. Illegal nickel exports could be the tip of an iceberg. The amount of nickel or other commodities exported illegally could in fact be much greater than the current findings.
Investigation and interrogation of the unscrupulous players needs to be carried out thoroughly. This matter must not be trivialized because the state’s authority is at stake. The government must optimize and protect natural resources, as mandated by Article 33 of the 1945 Constitution. Control of strategic commodities, including nickel ore, is an aspect of national security, especially given the increasingly uncertain global geopolitical environment and dynamics: control of energy and mineral resources has become an increasingly critical matter.
Poor management and inadequate supervision
Poor governance of the downstreaming policy has harmed state finances and impaired the national economy. Improving the governance of the mining industry is an absolute requirement that must be carried out immediately, in line with the government’s vision to develop the downstream mining industry. Indonesia is one of the countries that suffers the most from rampant smuggling of mining commodities.
In the 2008-17 period, the average amount of suspicious cash flows in the mining sector reached US$43 billion, which means that Indonesia has potentially lost around Rp610.09 trillion in tax revenue and other incomes. One example is the violation of nickel ore exports which led to the illegal export of nickel in the past. Under the Susilo Bambang Yudhoyono (SBY) administration, Indonesia banned nickel ore exports, in 2014. Two years later, in 2016, China’s General Administration of Customs (GACC) reported nickel ore exports from Indonesia worth US$4 million. The data was not recorded by BPS. This leak is estimated to have cost the state Rp2.8 billion.
A similar case occurred in 2020. BPS did not record exports of nickel ore (HS 2604), but GACC noted that there were imports of 3.4 million tons of nickel ore from Indonesia, worth US$193.6 million (Rp2.8 trillion). It is hard to believe that this was simply a mistake in record-keeping on the part of Indonesian customs and its Chinese counterpart.
There is also issue with the supervision process by surveyors. The problem with content measurement becomes as source of manipulation. Poor governance provides incentives for surveyors, producers and exporters to game the system. The difference in measuring nickel ore content between upstream miners and downstream smelter operators is a loophole that can be exploited by surveyors. Smelter entrepreneurs often set lower content levels than upstream players.
The nickel downstreaming policy vigorously pursued by the government currently only benefits illegal exporters and smelter entrepreneurs in other countries, especially China. Downstreaming has not been accompanied by industrialization in the country which can strengthen the national industrial structure from upstream to downstream. For example, 100 percent of Indonesia’s ferro-nickel and nickel pig iron exports in 2022 went to China. Instead of using them to support and strengthen the domestic industrial structure, they were instead exported to support industrialization in China.
The downstreaming policy is also undermined by the government’s policy in permitting the use of unskilled foreign workers from China, which include security guards, drivers, cooks, longshoremen and warehouse managers. This shows that the policy governance is indeed poor.