Indonesia's plans with China's Tsingshan face pressure to uphold green standards

A new industrial estate for metal smelting that Indonesia plans to build with China's steel and nickel giant Tsingshan Holding Group in Borneo will provide the country with much-needed investment to develop its electric vehicles (EV) battery industry, but environmentalists warned that the project needs to be managed carefully so as not to devastate the surrounding area and its communities.

Luhut Pandjaitan, Indonesia's coordinating minister for maritime affairs and investment, said last week that Southeast Asia's biggest economy was in talks with Tsingshan and Australia's Fortescue Metals Group to build a new industrial estate to host smelters for iron ore, nickel ore and copper - minerals critical to serving global demand for new technologies.

The smelters would be near an 11,000 megawatt-hydropower plant in North Kalimantan province, which is currently being built by Power Construction Corp of China (PowerChina) and Indonesia's Kayan Hydro Energy. The first phase of the hydropower plant project is expected to be completed by 2025. 

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But Australian-listed miner Fortescue Metals - one of China's biggest and most important iron ore suppliers - clarified it was not partnering with Tsingshan to build the new industrial estate, in particular a smelting factory. Rather, through its subsidiary Fortescue Future Industries, it would assist the Indonesian government with building more green energy projects that harness the country's hydropower and geothermal resources.

In line with an agreement both sides signed last year, Fortescue Future Industries said it would conduct feasibility studies to develop more carbon-free green projects. The company will also build 25GW geothermal plants and 60GW hydropower plants in places such as Papua, North and East Kalimantan provinces. 

These projects would in turn support more local businesses and their supply chains and exports, the company said.

"FFI aims to take a global leadership position in the green energy and green products industry, powering economies and creating jobs as we transition away from fossil fuels," Fortescue Future Industries chief executive Julie Shuttleworth told This Week in Asia. 

Scott Ye, director at PT Indonesia Weda Bay Industrial Park, one of the country's nickel mining hubs, said the plan to build the Kalimantan metal estate is still "under discussion".

The nickel ore mined from the park, as well as from another nickel hub, Morowali Industrial Park, is now largely for stainless steel slabs, but Indonesia expects it to be used in lithium-ion battery production by 2024. 

Building the smelters near a hydropower plant meant Tsingshan, the world's top producer of nickel and stainless steel, could achieve its goal of being a net-zero carbon emission operation, thus meeting the demand of global EV makers, who have environmentally-conscious consumers.

Tsingshan last month announced that it would build 2,000 megawatts of solar and wind plants in Indonesia in the next three to five years. Currently, nickel smelters in the country rely heavily on coal-fired power.

"There is a lot of demand [for green nickel], from either Chinese [EV] companies, or other countries' companies. But there's also a lot of pressure from the government, for example China, [to reduce] the carbon dioxide emission," Ye said during a webinar hosted by the Jakarta Foreign Correspondents Club. 

Tesla chief executive Elon Musk said last year that the company would give a "giant contract" to battery makers that could provide it with green nickel, and Indonesia has set its sights on wooing Tesla to the country as it seeks to be an EV battery hub for the region.

The race for nickel has taken on a life of its own thanks to the EV market but also as the US and other countries look to secure their own supply chain of the critical metal, eliminating dependency on one supplier.

Chrisnawan Anditya, director of new and renewable energy at Indonesia's ministry of energy and mineral resources, said the government hoped the new industrial estate would help woo investors and create local jobs.

Indonesia possesses the world's largest nickel reserves that are expected to last for more than 30 years, and was the biggest nickel producer until it slapped a ban on nickel ore exports last year to develop a full supply chain. It is expecting investment in nickel processing to double to US$35 billion by 2033, led by Chinese stainless steel producers and battery makers.

Other challenges that Indonesia faces include the lack of capital, skills and technology needed to develop the battery-grade nickel sector, said Lin Che Wei, founder of Jakarta-based research firm Independent Research and Advisory Indonesia.

Jakarta has tapped battery giants such as South Korea's LG Chem and China's Contemporary Amperex Technology Co Ltd (CATL) to invest and develop technology and human capital in the nickel mining sector. 

Said Lin: "Our nickel competitive advantage won't last forever. Currently nickel has low sustainability, but constant innovation in batteries is expected to [help the EV industry] develop a new alternative that makes nickel a less relevant commodity, so time is of the essence if Indonesia wants to capitalise on its advantages."

Lin also noted resistance from environmentalists as a challenge for the sector. Green groups have long protested against the country's patchy record in mining and say the plan for the metal smelters and hydropower plant must not have negative effects on the local communities and the forest. 

"In Northeast Kalimantan, there are traditional communities, there's a lot of steep forest lands and natural parks, there are a lot of other assets that need to be taken care of and managed carefully," said Michael Brady, principal scientist at the Center for International Forestry Research. "Government regulation and law enforcement on project development will be absolutely critical, so we need to keep an eye open for the environment and social assessment reports."

The Indonesian Forum for Environment estimated the Kayan hydropower plant would sink two villages and a primary forest around the 576km river. Around 20 villages currently sit along the river, the NGO said. 

Melky Nahar, campaign manager at environmental activism group Mining Advocacy Network (Jatam), said the government risks replicating the environmental and societal damage from nickel hubs in other islands in Borneo.

In Halmahera island, where the Weda Bay Park is, "seawater has turned muddy brown", while in Morowali, in Sulawesi island, "the villagers' houses are uninhabitable as so much dust was in the air and respiratory disease among villagers was on the rise" due to coal-fired smelters and plants, he said. 

"There are traditional communities who live along the Kayan river, and they use the river water for many things including to irrigate their farms. Relocating these communities is not an easy task as they could also risk losing their culture and living spaces," Melky said.

This article originally appeared on the South China Morning Post (SCMP).

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