Substantial capacity: A worker walks the yard in an alumina smelter facility in Bintan. The new regulation forms a key part of Indonesia’s broader strategy to accelerate downstream development in the nickel sector. — Reuters
JAKARTA: The government’s move to effectively restrict new smelter projects has drawn industry concern over the scope of the smelter moratorium, specifically, whether it applies to companies that secured their business licences before the new rules took effect.
Enacted in June through Government Regulation (PP) No. 28/2025 on risk-based business licensing, the rules form a key part of Indonesia’s broader strategy to accelerate downstream development in the nickel sector by shifting focus from producing intermediate metals to manufacturing higher-value finished goods.
The moratorium is being enforced administratively through the Online Single Submission (OSS) licensing platform.
As per Appendix 1F of the regulation, the system is configured to prevent new smelter projects focused on producing intermediate nickel products, namely, ferronickel, nickel pig iron, nickel matte and mixed hydroxide precipitate.
To secure a licence, companies must formally declare that their operations will not output these specific materials.
While intended to advance the domestic nickel industry, the moratorium has sparked debate over its potential to disrupt existing investments and create legal uncertainty.
Indonesian Mining Association (IMA) executive director Hendra Sinadia pointed to a disconnect between the regulation’s future-facing design and current on-the-ground realities.
He noted that several companies holding industrial business permits (IUI) had initiated construction of nickel-processing and refining facilities, committing substantial funds, long before the new regulation came into force.
“This development process has been underway for quite some time and has involved significant investments,” Hendra said.
This has prompted the IMA, via its affiliate Indonesian Nickel Industry Forum or Fini, to formally communicate the concerns of IUI-holders whose smelter projects are well underway.
“The companies we have responded to are requesting the government grant an exception to the provisions of PP 28/2025.”
He said that the requested exemption should take into account the companies’ production readiness and construction milestones already achieved.
Hendra stressed that this appeal is not intended to hinder the government’s downstream agenda, but to safeguard ongoing productivity and ensure a conducive investment climate.
“This request is solely to maintain the productivity of the downstream nickel mineral industry and create a conducive and equitable investment climate,” he said.
He argued that pioneers who had invested under the previous policy framework require regulatory certainty.
The industry now awaits the government’s response. While the policy’s objective to curb new market entrants implies an exemption for existing licence holders, authorities are administratively enforcing the ban via the OSS.
“This approach lacks a formal foundation within the country’s mining legislation,” according to a Shanghai Metals Market report issued on Nov 6.
The resulting gap between administrative practice and statutory law has created a legal grey area, fuelling regulatory uncertainty and raising concerns over inconsistent implementation and unequal treatment of industry players, the same analysis argued.
The new policy is set to raise the investment threshold for new entrants, leveraging market forces to create a more selective and potentially resilient industry.
Under the new PP, incoming companies are expected to focus on end products, such as nickel sulphate or stainless steel, rather than intermediate materials.
“This strategic shift, however, comes with a significant financial hurdle,” Ahmad Zuhdi Dwi Kusuma, associate principal at Energy Shift Institute, said.
Facilities to produce these end products typically require much higher capital expenditure than simpler smelting operations for intermediate goods.
Tri Winarno, the Energy and Mineral Resources Ministry’s minerals and coal director-general, said the policy aims to shift focus towards finished goods for greater domestic value addition.
“We hope limiting the construction of new smelters producing intermediate products will encourage more optimal downstreaming,” Tri said in Jakarta last week.
He added that the goal was not to halt investment but to steer the industry beyond semi-finished goods.
Despite concerns over regulatory certainty, Hendra acknowledged that the government’s objective is to move beyond shipping intermediate goods and establish Indonesia as a global hub for advanced manufacturing.
The underlying logic is to redirect investment from the saturated intermediate products segment, where Indonesia has built substantial capacity, towards the next stage of factories that transform these materials into high-value finished goods, such as stainless steel and electric vehicle batteries, thereby producing more economic value domestically.
The Indonesian Nickel Miners Association expressed support for the moratorium on new nickel smelters, calling it a necessary response to excess industrial capacity.
Secretary-general Meidy Katrin Lengkey said the move addressed a global nickel surplus, where 2025 production is expected to outstrip demand.
Indonesia’s significant contribution to this oversupply has pressured global prices. Global production in 2025 is projected at 3.81 million tonnes against demand of only 3.6 million tonnes.
Indonesia and China now contribute 75% of global supply, a situation that has led to Indonesia being labelled the “culprit” behind declining global nickel prices.
“Having established ourselves as a key player in the global battery market, we must now advance to producing higher-value goods that deliver greater economic and societal benefits,” she said.
Mining expert Djoko Widajatno expressed optimism that the new rules would bolster the nickel industry’s competitiveness. — The Jakarta Post/ANN
