In a further effort to optimize domestic mineral downstreaming in order to develop strategic industries (“Downstreaming Optimization”), the Minister of Energy and Mineral Resources (“Minister”) has issued Decree No. 69.K/MB.01/MEM.B/2024 on the Stipulation of Types of Commodities Classified as Strategic Minerals (“Decree 69/2024”), which has been in force since 1 April 2024.^[1] At its core, the aforementioned strategic minerals comprise minerals that have strategic value and that will serve as raw materials for Downstreaming Optimization with the ultimate goal of improving the country’s competitiveness in global trade, as well as boosting state revenue and the national economy.[2]

It should be noted that the introduction of Decree 69/2024 is in line with the previously issued Regulation of the Government No. 14 of 2015 on the National Industrial Development Master Plan for the 2015 – 2035 Period (“Regulation 14/2015”), which sets out various strategies for national industrial development, including the development of strategic industries.[3] Said strategic industries comprise priority industries that meet essential needs for the welfare of the population, generate added value from strategic natural resources or have relevance to national defence and security interests.^[4]

The introduction of the new strategic mineral classifications will also serve as a reference in relation to the governance of mineral commodities. Said governance will focus on increasing domestic added value through mineral downstreaming.^[5] This goal is in line with Regulation of the Minister No. 25 of 2018 on Mineral and Coal Mining Businesses, as amended several times, most recently through the issuance of Regulation of the Minister No. 17 of 2020 (collectively referred to as “Regulation 25/2018”).[6] In this regard, Regulation 25/2018 mandates that all exported mineral commodities (both metal and non-metal minerals) are first required to undergo various processes that will add to their value, typically processing and/or refining activities that aim to enhance the quality of minerals and that are in line with various determined minimum thresholds that are outlined under the Appendices to Regulation 25/2018.^[7]

Given the importance of strategic mineral commodities, particularly for industries that fall into the strategic industries classification and that wish to engage in Downstreaming Optimization, this edition of Indonesian Legal Brief (“ILB”) offers an overview of the various provisions that are set out under Decree 69/2024 and their potential impacts. This overview breaks down as follows:

1. Strategic Minerals: Applicable Criteria, Purposes and Classifications;
2. Downstreaming Minerals: Export Ban Disputes; and
3. Anticipating the Implications of Strategic Mineral Downstreaming.

Strategic Minerals: Applicable Criteria, Purposes and Classifications

In essence, the stipulation of strategic minerals, as featured under Decree 69/2024, has been based on a total of five criteria. Specifically, strategic minerals should possess one of the following five properties:^[8]

As briefly outlined above, the stipulation of strategic minerals should serve as a reference for use by relevant government ministries and/or agencies, as well as by regional governments, regarding the following matters that specifically relate to the utilization of strategic minerals:[9]

In terms of strategic minerals themselves, a total of 22 minerals have now been classified as strategic minerals along with their respective mining commodities, as comprehensively outlined listed under the Appendix to Decree 69/2024.[10] The aforementioned strategic minerals break down as follows:[11]

However, it is important to note that the above-listed strategic mineral commodities will be subject to reviews that are undertaken annually or at any time deemed necessary.[12]

Downstreaming Minerals: Export Ban Disputes

Given that mineral processing and/or refining is now mandatory in Indonesia, as outlined above, the country has begun to engage in various mineral downstreaming activities of late. In this regard, according to officials working at the Coordinating Ministry for Maritime and Investment Affairs, mineral downstreaming has resulted in various positive outcomes, including job creation, a growing trade surplus and improved national macroeconomic stability.^[13]

However, while such mineral downstreaming activities may ultimately benefit the Indonesian economy, the enforcement of downstreaming policies, particularly the ban on raw mineral exports, has sparked controversy at the international level. The export ban itself was originally outlined under Regulation 25/2018. The following table highlights relevant commodities and the dates upon which the export ban came into effect, as set out under this framework:

Various international steel industries have lodged protests in response to the above-outlined export ban, as they are heavily reliant on Indonesian nickel ore imports.[17] In this regard, the new downstreaming policies have resulted in increased production costs for foreign companies, as they are now required to construct domestic smelters. This requirement was specifically introduced under the framework of Law No. 4 of 2019 on Mineral and Coal Mining, as amended several times, most recently through  Regulation of the Government in Lieu of Law No. 2 of 2022 on Job Creation (collectively referred to as “Law 4/2019”), which mandates that mineral processing and/or refinement facilities should be established domestically.[18]

Opposition to the new mineral export requirements peaked when the European Union (“EU”) filed a complaint with the World Trade Organization (“WTO”) against Indonesia's new nickel ore export ban and domestic processing requirements back in 2019. In this regard, the EU alleged that Indonesia had violated the General Agreement on Tariffs and Trade (GATT) and its defining principles on free markets and the elimination of restrictions. The WTO ultimately ruled against Indonesia in this case, citing Indonesia’s inconsistent fulfillment of its international obligations.^[19] In addition, the WTO’s assessment also contended that Indonesia's downstream industry was not sufficiently advanced to support this commodity.^[20]

It should also be noted that Indonesia has notified the Dispute Settlement Body (DSB) of the WTO of the country’s intention to file an appeal in relation to this dispute with the Appellate Body of the WTO.[21] However, to date, Indonesia is still awaiting the scheduling of this appeal, which is currently pending due to the ongoing suspension of said Appellate Body.[22]

Anticipating the Implications of Strategic Mineral Downstreaming

The ultimate goal of Downstreaming Optimization is the improvement of Indonesia’s competitiveness in terms of global trade and national economic performance, while the Coordinating Minister for Economic Affairs has stated that Downstreaming Optimization is an essential step in the development of the technological, capital and financial capabilities that are required in order to boost industrial development. Among these various objectives, Downstreaming Optimization seeks to encourage smelter development through the provision of various incentives (e.g. tax holidays, tax allowances, infrastructure support and so forth).[23]

Similarly, the Minister has affirmed that the development of mineral industries will result in a multiplier effect across Indonesia’s general public, including the boosting of state revenues, as well as increased manpower absorption and economic independence for local communities. However, the Minister has also restated that Downstreaming Optimization must be implemented in line with good mining practices and Environmental, Social and Governance (ESG) principles.[24]

It should also be noted though that the implementation of Downstreaming Optimization is also characterized by a certain set of challenges. As an example, the following table summarizes various challenges that are likely to arise in relation to the Downstreaming Optimization of aluminum (aluminum being one of the strategic minerals outlined under Decree 69/2024), as stated by the Minister of Industry:[25]

Source: hukumonline.com