The Future Is Nickel In Indonesia

I think this the issue of familiarity and comfort. Because when these projects start only the Chinese know, only the Chinese understand the risks. But as one, two, three, four projects have been successful the Indonesian companies – especially the Indonesian who own the mines – of course they want to take a bigger a role. You will see this is going to be the trend.

AT: There's been talk of restructuring existing partnerships to get Chinese ownership below these thresholds?

SHS: I think it's going to be mostly new investments. The ones that are already in operation that's going to depend on a B2B (business to business) basis.

I think one thing that you need to remember is that in the market now – you can check all these nickel buyers all these MHP buyers – there's no IRA premium. The nickel that you sell to the US, Europe, China, South Korea, Japan, it's the same price.

AT: You say there's no IRA premium. But, America is still a big market with a lot of growth potential. Are you still working towards a Critical Mineral Agreement with the US, which could help make Indonesian nickel eligible for IRA subsidies?

SHS: It's [a Critical Mineral Agreement] very important. We'll see what happens with the election. We just finished our election. And, now we're still during the transition in the US with the election in November and maybe the new Cabinet will be set up in February. So we'll see. We need to wait.

But, I think what's important for us is the CMA is part of our diversification strategy. Now the US, we know Indonesia nickel is flowing into the US. Even without the IRA, still we can sell to the US.

AT: How does it still get in?

SHS: There's a lot of requirements in the IRA like the car price can't exceed $80,000. So, for premium cars, trucks, for commercial cars, they're going to use this nickel.

So, let's see what's going to happen with this CMA. We still, of course, expect we can get this CMA, but this also really depends on the US election.

AT: Can Indonesia reduce dependence on foreign expertise?

SHS: The problem in Indonesia is that before we focused on mining engineers. Meanwhile, smelters and HPALs are about metallurgy and material sciences. Do you know how many graduates we have every year in this area? It's only 350.

So, this is the area we need to encourage. We opened several new faculties specifically for metallurgy and material sciences to increase the number of graduates. So that's first.

The second thing is we send people with undergraduate degrees to get a master's degree in China. Now we have four batches already sent to China. Once they are graduated, they can come back and operate all these HPAL factories.

The third step we already did. About a month ago, we inaugurated the first HPAL hydrometallurgy lab in ITB Bandung. This HPAL lab is donated by one of these Chinese companies. It's worth about $30 to $35 million. I think this the biggest hydrometallurgy lab, the biggest HPAL lab, in the world. Even bigger than what China has.

So, in Indonesia we can study this technology. I'm very confident that in the next two-three years we can introduce patents for this nickel processing technology.

SHS: With forced labor, obviously, we are quite surprised with the announcement. I don't think we got consultation from the US about this. You see how many people are working in IMIP right? Can you do forced labor with so many people?

AT: With Chinese workers on the site, we've had reports of confiscated passports, limited ability to leave the industrial sites, use of debt for control.

SHS: Yes, of course, for these Chinese workers we don't know how is the arrangement. But, I guess if you see the Chinese working over there, I think it's good, has good conditions. I've checked the dormitory and everything.

But, for the Indonesians. Can you employ so many people doing forced labor? It's impossible. There are more than six labor unions there. So I think there's proof these claims are not correct.

And then you see the wealth impact as well. So, I think several months ago the ILO (International Labor Organization) sent a mission. And, we discussed with them what are their findings. And they said there is no issue on ... getting lower wages and everything. They did not find this in Morowali. What they gave us input on is the urban planning. And we need that. That's the issue we need to handle.

Because we didn't think when we started this Morowali (Industrial Park) we would have lots of people working over there. You see Morowali, before this IMIP, maybe there were only a few motorcycles. If you go to Weda Bay, the conditions are much better. The company built more housing, dormitories, inside to absorb the workers. So this is the feedback we got from the ILO, nothing about this forced labor and everything.

Because so many people, it attracts thousands of people. You have labor unions. You have free speech and everything over there. So I think forced labor is not a big issue. So that's first.

The second is on the ESG (environmental, social and governance) you mentioned. So, two things that we are now implementing.

The first one is actually regarding traceability of nickel. So you remember on July 22, Pak Luhut, Ibu Sri Mulyani, several other ministers launched the Simbara System. This is the traceability system we developed.

We already implemented it in coal. So that you know for every ton of the commodity that you produce – so every ton of coal we produce we know who is the producer, who is the buyer, what is the name of the vessel that transports this coal, when is the shipment date, are they paying the royalty.

So if there is any regulation violation made by the company, we can block the company so their shipment cannot leave Indonesia. Practically we ban the mining company making the violation from selling the product. And this system cannot be manually overridden so you have to resolve this issue if you want to take off the blocking system.

So it will be implemented the same for nickel and tin. We are not only including the mining company but also the smelter. So we can see the material balance. How much nickel ore that you produce, how much nickel ore you consume, how many products, what kind of product... So it's the same thing. Before, if the nickel company made a violation, we can block the system so there is no buyer of the nickel ore.

Number two, is that 75% of the nickel reserve in Indonesia is controlled by not more than 10 companies. Weda Bay Nickel, Vale Indonesia, Aneka Tambang, Harita, Cheria, and then you have Merdeka Battery Materials. So, all these companies now we encourage them to actually participate in independent international ESG certification.

The IRMA, the RCMM, RMI and everything. So they have to ensure that their ESG practice is meeting the standards accepted internationally. With all these smelters, the buyer is actually doing their own due diligence to make sure the nickel is actually acceptable.

AT: What about unsafe working conditions? In addition to the explosion that killed 21 workers last year, we've had other fatal accidents since.

SHS: Well, I think first we take very firm action. You see during the accident late last year when many people died because of the accident in this smelter. You know what happened, we take action not using labor law.

We used a criminal prosecution to bring three Chinese people, who are the managers and the head of the smelting operation to court. For them to face more severe punishment. Because if we are using the labor law the punishment is light. So I think this is very important to set the precedent.

Yes, we understand there is a problem with health and safety in this area. So one thing is we are already in discussions with the Chinese government for them to send their experts to ensure the practice is... Because this is basically a Chinese technology. If you send maybe a Western consultant they might not fully understand how this is going to work and fit together. So we asked the Chinese government to send their people to help us on reviewing these practices.

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First of all, I think in terms of the casualties even in the US I think they have this many people die. But, what for us is important is this smelter – especially on RKEF – is purely developed by the Chinese. So that's why I think we need to hire and get the help from the people who actually understand this thing.

AT: Having talked to workers in the industry, I think they would be skeptical. In their opinion the company's only priority is production. And – rightly or wrongly – they often see this as working culture imported from China.

SHS: You know if that kind of thing... Why we decided to talk to the Chinese government? Because, you know, of course, the Chinese government doesn't want their reputation to have a problem internationally because of all of these incidents.

So yeah, let's see. Of course, you can be skeptical. But, I think if the Chinese government steps in reviewing and helping us with this, I'm carefully optimistic. I think we can fix the problem.

What we found out in this last accident, which made several people die late last year. Because, they are bypassing several standard operating procedures. This is why we decide to take this to criminal prosecution because this is something we don't take likely. So let's see, lah.

AT: There's been reporting that poverty levels have risen in provinces with major nickel processing sites.

SHS: If you see on the provincial level aggregate in terms of the poverty and everything, there might be a slight rise, especially after Covid. You have to be careful. If you take the data after Covid all Indonesia sees poverty increasing. So I have the data until 2023 showing the numbers [poverty statistics] are starting to decline.

So, if you see in Morowali specifically, in Central Halmahera, you see clearly the poverty rate is declining. But, if you take the provincial level data, I don't think that will be representative.

I've given these statistics to so many journalists because they tend to see aggregates from different statistics. But if you see clearly in IMIP, Morowali, Central Halmahera, and Konawe you see the poverty rate and Gini ratio, it's clearly showing a decline.

[Data from Indonesia's Central Statistical Body shows poverty rates have declined since 2015 in the three regencies named. However, rates have risen somewhat in Konawe since 2022.]

AT: A new president (Prabowo Subianto) will be sworn in on October 20. He has promised to continue the nickel policy. But are you confident the new government will have the expertise to pull it off?

SHS: I'm pretty confident because the industry involves a lot of stakeholders now. A lot of local companies have participated in the downstream industry. So obviously, they can also give input and feedback for the next administration.

I think the challenge is different in the next five years. In the previous five years, we focused still on the upstream part, smelting, refining, process the nickel ore into MHP and nickel pig iron.

But, the challenge in the next five years is how to attract more for the midstream and the downstream – the battery cell, the battery pack, etc. How you actually find new innovation in processing the nickel. This is a different challenge. But with the stakeholders and ecosystem we have today, I'm pretty optimistic.

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