By: Ricko Nurmansyah (Researcher The PRAKARSA)
Nickel is one of the important minerals in the energy transition. Since the policy of restricting raw nickel exports, nickel production has shifted to its derivative products such as raw materials for stainless steel, to electric vehicle batteries.
Industrial activities that develop upstream products into downstream certainly have a positive economic impact. For example, increasing selling prices, the potential to open new jobs, to product diversification.
The economic impact has been evident in the last two years. The GRDP of nickel regions such as Central Sulawesi has increased to 15% in 2022.
In the development paradigm, economic growth indicates growing economic activity. This means that high economic growth will trigger a positive impact on a region.
Economic Contribution of Nickel Downstreaming
The large increase in investment will have an impact on state revenues. Data from the Directorate General of Mineral and Coal shows that tax revenues received by the state from this sector reached IDR 2,97 trillion in 2020.
Meanwhile, Non-Tax State Revenue (PNBP) in the form of royalties received by the state in 2020 reached IDR2,92 trillion. The value of the royalties increased by 4 times from the royalties received by the state in 2015 which were recorded at IDR531 billion.
In 2022, nickel PNBP shot up to IDR 4,18 trillion or an increase of around 43,15% from 2020. This increase was due to the increase in the Reference Mineral Price (HMA) for nickel in May 2022.
The increase in investment also had an impact on the growth of Central Sulawesi's GRDP, which increased significantly since 2021 by 11,7% and by 15,17% the following year. This is in line with the trend of PMA to the nickel sector.
The poverty rate and unemployment rate in Central Sulawesi have decreased, although not significantly.
Financing Flows and Nickel Downstream Track Record
Diversification of nickel products into nickel derivatives certainly requires investment. Research PRAKARSA (2024) found that the majority of nickel investment in Indonesia came from China. China's accumulated investment in 2012-2022 reached US$14,2 billion. Meanwhile, other countries such as Australia, Canada, South Korea and the United States, the investment value reached US$1,5 billion in the same period.
The forms of financing flows are also diverse. Some are corporate and project-based loans to bonds. Foreign investment originating from China was identified as coming in through corporate loans obtained by parent companies, such as Tsingshan and Huayou. These two companies then invested their capital in companies in IMIP and IWIP to carry out the merger process (smelting).
This smelting process requires the construction of a smelter and the smelter requires a power plant (Captive PLTU). In 2023, the total Captive PLTU for nickel smelters will reach 7,2 GW. This does not include 8 GW that is still under construction and 2 GW in the pre-construction stage.
This Captive PLTU has many environmental impacts, such as water and sea water pollution, air pollution, decreased agricultural land productivity, and health impacts.
In the transition track, this should not happen. The promised green transition is an effort to mitigate climate change, achieve net zero emissions targets, and create new jobs.
In the case of nickel downstreaming, it only fulfills the opening of new jobs. This means that there has been no shift in the development paradigm. This could endanger Indonesia both in terms of achieving the net zero target and the momentum to become a major player in critical minerals.
The reason is, the boom in nickel processed exports occurred in 2023 which caused nickel prices to fall. The processed nickel results are still at the ferronickel stage or stainless steel raw materials. This practice is still business as usual wrapped "Green" and makes Indonesia's nickel economic potential less than optimal.
The Importance of Policy and the Role of Central Banking
The success of the transition and downstreaming cannot be separated from policy factors and financing aspects. In the context of downstreaming, Indonesia has regulated the export of raw minerals, but has not regulated mining and downstreaming activities in accordance with the transition agenda.
This policy brings in investors and changes industry patterns, but does not bind investors and companies to sustainable business practices.
The policy related to downstreaming should also adopt the principles and objectives to achieve the net zero target. The existence of this policy is considered to provide a strong signal for investors and banks that have sustainable finance standards for investment in Indonesia.
That way, Indonesia does not have to depend on one big investor like China and aspects of sustainable development are also fulfilled.
***
Editor: Aria W. Yudhistira (katadata.co.id)
This article was previously published on katadata.co.id by title “Nickel and the Energy Transition: Between Hope and Reality".