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The world of the future will experience many changes in energy use. This is due to a massive shift in a number of technologies. The increase in electricity consumption in the future is one of them. One form of this revolution is the use of electric vehicles which are slowly shifting away from the use of fossil fuel vehicles. This shift is marked by the increasing use of nickel as a vital component of energy sources for Battery Electric Vehicles (“ BEV ”) as in line with predictions that in 2030 there will be around 269,000,000 (two hundred sixty-nine million) units of electric powered-based vehicles worldwide.
Based on data from the 2021 edition of the U.S. Geological Survey Mineral Commodity Summaries, nickel reserves were estimated at 94,000,000 (ninety-four million) metric tons, and 22.4% (twenty-two point four percent) of the reserves were in Indonesia with a total area of nickel mining in Indonesia reaching up to 815,700 ha (eight hundred fifteen thousand seven hundred hectares). This data has brought Indonesia as the world’s largest store of nickel.
The Government of the Republic of Indonesia, as the biggest nickel producer in the world, has taken a stance emphasizing the importance of increasing value-added nickel through its policy of banning nickel ore exports. Thus, Indonesia has the opportunity to realize an increase in the downstream nickel industry by creating the most important component of electric vehicles i.e., batteries as a source of energy storage for electric vehicles such as lithium batteries, electric batteries, and electric vehicle batteries.
A. The First Electric Vehicle Battery Factory in Indonesia and Southeast Asia
Laterite nickel ores (limonite and saprolite) are a common commodity in the nickel industry in Indonesia. The amount of these raw materials in Indonesia is very abundant. This condition is the reason for the development of the electric vehicle battery industry with the types of Nickel Cobalt Aluminum oxides (“ NCA ”) and Nickel Manganese Cobalt oxides (“ NMC ”). In 2021 ago, President Joko Widodo laid the groundbreaking for the construction of an electric vehicle battery factory which will be managed by PT HKML Battery Indonesia in Karawang, West Java, with a development investment value of US$1,100,000,000 (one billion one hundred million United States Dollars) or around Rp. 15,950,000,000,000 (fifteen trillion nine hundred fifty billion Rupiahs).
The construction of this factory is the current government’s target to start a shift in the economic structure that has been commodity-based towards downstream industrialization to create a strong industrial country based on the development of technological innovation. This factory is the result of the Hyundai Consortium consisting of Hyundai Motor Company, KIA Corporation, Hyundai Mobis, and LG Energy Solution in collaboration with PT Industri Battery Indonesia or Indonesia Battery Corporation (“ IBC ”) as the holding of four State-Owned Enterprises (“ BUMN ”), namely State Electricity Company ( Perusahaan Listrik Negara , “ PLN ” ) (Persero), PT Pertamina, Mining Industry Indonesia (“ MIND ID ”), and PT Aneka Tambang Tbk. (“ Antam ”).
IBC opens collaboration opportunities for downstream sector projects based on profitability. This collaboration includes market access capabilities and funding to develop mineral production from the company’s reserves. In addition, IBC also participates in nickel downstream efforts by building a ferronickel smelter in East Halmahera called Haltim. This smelter has a production capacity of 13,500 (thirteen thousand five hundred) tons of nickel in ferronickel (TNI) per year.
It should be noted that the construction of this factory is a continuation of the signing of a Memorandum of Understanding (MoU) with LG Energy Solution in Seoul, South Korea on December 18 th , 2020. The MoU contains cooperation on giant and strategic investment projects in the electric vehicle battery cell industry which is integrated with mining, smelting (smelters), refining and precursor and cathode industries. This battery cell factory is planned to have a production capacity of 10 GwH (Ten Gigawatt Hour), which will later supply electric vehicles produced by Hyundai and targets the production of electric vehicle batteries to begin in May 2022.
B. Regulations for the Development of BEV in Indonesia
Domestic Component Level
The downstream industrialization of nickel as reflected through the construction of the Electric Vehicle Battery Factory is a mandate from the current regulation, Presidential Regulation Number 55 of 2019 on the Acceleration of the Battery-Based Electric Motor Vehicle Program for Road Transportation (“ PR 55/2019 ”). Under PR 55/2019, the main focuses and goals of the Government of the Republic of Indonesia are to improve energy efficiency, energy security, and energy conservation in the transportation sector, and to realize clean energy, clean and environmentally friendly air quality as well as to strengthen Indonesia’s commitment to reduce greenhouse gas emissions.
One of the important provisions related to the electric vehicle industry under PR 55/2019 is related to Domestic Component Level ( Tingkat Komponen Dalam Negeri , “ TKDN ”). TKDN, under Article 1 paragraph (12) of PR 55/2019, is the amount of domestic content in goods, services, and a combination of goods and services. Related to the TKDN provision, under Article 8 of PR 55/2019, BEV industrial companies and BEV component industrial companies must use TKDN that are subject to the following criteria:
| Two or Three-Wheeled | Four or More Wheeled | ||
| Year | TKDN (%) | Year | TKDN (%) |
| 2019-2023 | 40 | 2019-2021 | 35 |
| 2024-2025 | 60 | 2022-2023 | 40 |
| 2026 onwards | 80 | 2024-2029 | 60 |
| 2030 onwards | 80 | ||
As the implementing regulation of PR 55/2019, the Minister of Industry of the Republic of Indonesia issued Ministerial Regulation Number 27 of 2020 on Specifications, Development Roadmaps, and Provisions for Calculation of Domestic Component Levels for Domestic Motorized Vehicles (Battery Electric Vehicle) (“ MIR 27/2020 ” ). MIR 27/2020 stipulates more details on TKDN obligation for BEV industries. Under Article 6 of MIR 27/2020, calculation of TKDN value is made based on the following composition:
| Component | Composition | Details |
| Main | 55% | Chassis, battery, drive train |
| Supporting | 15% | Steering system, brake system, suspension |
| Assembling | 10% | Assemble activity and domestic foreign utilization |
| Research | 20% | Research and development activity |
Incentives for BEV Industries
To accelerate BEV industries in Indonesia, the Government through PR 55/2019 has provided incentives in the form of fiscal and non-fiscal incentives. The following are the incentives provided by the Government pursuant to Articles 19 and 20 of PR 55/2019:
| Fiscal Incentives | Non-Fiscal Incentives |
| Import duty incentives on the import of BEV in a fully decomposed state (Completely Knock Down/CKD), BEV in an incompletely decomposed state (Incompletely Knock Down/IKD), or the main component for the certain amount and period; | exemption from restrictions on the use of certain roads; |
| sales tax incentives on luxury goods; | transfer of production rights to BEV-related technologies whose patent licenses have been held by the Central Government and/or Regional Government; and |
| incentives for exemption or reduction of central and local taxes; | security of industrial sector operational activities in the context of continuity or smoothness of logistics and/or production activities for certain industrial companies classified as national vital objects. |
| import duty incentives on the import of machinery, goods, and materials in the context of investment; | |
| suspension of import duty in the context of export; | |
| Import duty incentives are borne by the government on the import of raw materials and/or auxiliary materials used in the context of the production process; | |
| incentives for making General Electric Vehicle Charging Station ( Stasiun Pengisian Kendaraan Listrik Umum , “ SPKLU ”) equipment; | |
| export financing incentives; | |
| fiscal incentives for research, development, and technological and vocational innovation activities for BEV components industry; | |
| parking rates at locations determined by the Regional Government; | |
| reduction in the cost of charging electricity at SPKLU; | |
| support for SPKLU infrastructure development financing; | |
| professional competency certification for the human resources of BEV industries; and | |
| product certification and/or technical standards for BEV industry and BEV components industry. |
Furthermore, the parties entitled to obtain the above incentives are:
- industrial companies, universities, and/or research and development institutions conducting research activities, development, and technological innovation as well as BEV industrial vocations;
- industrial companies that prioritize the use of prototypes and/or components sourced from industrial companies and/or research and development institutions that carry out research, development, and technological innovation activities as well as domestic battery-based Electric Vehicle (“ EV ”) industrial vocations;
- industrial companies meeting the TKDN requirements that carry out domestic production of battery-based EV;
- industrial companies producing battery-based EV components;
- national branded industrial companies producing battery-based EV;
- companies providing battery swaps for electric motorcycles;
- industrial companies doing acceleration of production and prepare facilities and equipment infrastructure for the use of battery-based EV;
- companies carrying out battery waste management;
- companies providing SPKLU, and/or agencies or residences that use private electrical installation to charge battery-based EV;
- public transportation companies using battery-based EV; and
- individuals using battery-based EV.
Challenges Faced
The challenge in developing the electric vehicle industry as a form of nickel downstream industrialization is the need for smelter facilities for nickel processing, including smelter facilities for processing low-grade nickel ore. The Directorate General of Mineral and Coal (“ DGMC ”) of the Ministry of Energy and Mineral Resources of the Republic of Indonesia (“ MEMR ”) stated that the target for the increment of construction of smelter facilities in 2022 is from 23 (twenty-three) to 28 (twenty-eight), and it is expected that in 2024 there will be at least 53 (fifty-three) smelter facilities in Indonesia.
The Government of the Republic of Indonesia has issued regulations containing incentives for investors intending to do investment. These regulations are expected to attract investors in the downstream nickel industry. However, these regulations still require implementing regulations that will regulate in more details on how to develop and strengthen the domestic downstream nickel industry, and that is a big homework for the Government of the Republic of Indonesia.
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ADCO Law as a Law Firm in Jakarta has a broad mining legal practice conducted either on public or private lands in Indonesia. We assist our clients in the stages of mining exploration and development, in handling issues related to mining royalty and joint venture/partnership agreements. We also provide assistance to defend mining companies against administrative claims pursued by state agencies.
Should you have more queries regarding this matter, please do not hesitate to contact us.
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