Indonesian nickel sector undergoes restructuring process

Indonesia is undergoing a strategic restructuring of its nickel mining and processing sectors to reduce Chinese investment, positioning itself to qualify for U.S. tax incentives under the Inflation Reduction Act (IRA) starting in 2025. The IRA restricts tax benefits for electric vehicles (EVs) that contain critical minerals sourced from "foreign entities of concern."

To align with these requirements and attract the tax credits, Indonesia is ensuring that Chinese companies become minority shareholders in new ventures. As the leading global supplier of nickel, the country has historically received substantial Chinese investments. However, the IRA specifies that EV batteries containing more than 25% ownership by Chinese entities will not be eligible for tax breaks.

In response, Indonesian authorities have been negotiating with investors to develop new smelters where Chinese ownership is limited to less than 25%. One notable project involves a $700 million smelter, which will be a collaboration between Indonesian and South Korean partners, with a minority stake held by Chinese interests.