INDONESIA REPORT
Indonesia is trying to reduce Chinese investment in new nickel mining and smelting operations in order to qualify for U.S. tax incentives. Under the Biden administration’s Inflation-Reduction Act (IRA), large tax incentives will apply after 2025. However, it does not apply to batteries sourced from “foreign entities of concern,” such as companies in which Chinese capital holds more than 25% of the shares, or to EVs that use nickel or other key minerals. Indonesia’s nickel industry will be hit hard by these conditions. This is because the country has been the world’s largest producer of nickel for the past four years, thanks to a large influx of Chinese capital into its mining and smelting operations.
According to three people familiar with the matter, the Indonesian government and the nickel industry are working on new investment projects in which Chinese companies will have a smaller stake. It is possible that the nickel supplied through these deals will be eligible for tax benefits under the IRA. However, in order for the Indonesian nickel industry to receive tax benefits, it will also need to negotiate a trade agreement with the United States. The Indonesian side is proposing an agreement limited to critical minerals.
According to a person familiar with the Indonesian government’s position, it is in talks with several investors to build a smelter in which Chinese companies would have less than a 25% stake.
Source: Financial Times Japanese Edition
PSR Analysis: This is not to say that Indonesia is pro-China or anti-China. They are in a state of strategic exploration from the perspective of how to gain greater national benefits. Chinese capital has already been invested in a large mine in Indonesia, which is effectively under Chinese control.
Although Japan and the U.S. are researching batteries that do not depend on nickel, they are still at the experimental level, and nickel will continue to be needed for the foreseeable future. This means that batteries for EVs will be difficult to obtain unless China has a stable supply of nickel. Excessive dependence on China is one of the reasons for some EV opponents, and competition to secure EV batteries is intensifying at the national level. PSR
Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research
