Asia News Sep 09

Man with the plan for a richer Indonesia

Minister Luhut Panjaitan tells how the nation plans to extract way more value from its mineral riches

Man with the plan for a richer Indonesia
Coordinating Minister Luhut Panjaitan recently sat down with Asia Times to outline the government's plan to get more value from its natural resources. Image: Twitter

Retired general turned businessman and politician, Coordinating Minister for Maritime Affairs and Investment Luhut Panjaitan may cut a controversial profile, but he is single-minded in his determination to use Indonesia’s vast natural resources to make the country part of the global supply chain.

Brushing aside widespread scepticism and the inevitable sniping about his own personal interests, the man often referred to as the “minister of anything” knows he has only the four years left in President Joko Widodo’s tenure to lay the foundation for that goal before he steps away from public life.

“One day this country is going to be very powerful,” he told Asia Times in an extended interview, an impressive team of young professionals sitting around him at a long office table. “In 10 to 15 years, Indonesia will be a very different place.”

Most analysts agree the 73-year-old Panjaitan has always possessed the ambition, drive and clout to be the nation’s president. But as a Christian, the straight-talking Sumatran batak was never going to rise to Muslim-majority Indonesia’s highest office. 

Instead, he has become Widodo’s right-hand man with a bewildering array of jobs, ranging from senior political adviser to point man for Chinese investment and now the chief strategist in tackling the coronavirus pandemic that has so far claimed over 7,800 lives.

More than anything, Panjaitan’s weapon is the 2009 Mining Law, which in banning the export of unprocessed and semi-processed ore aims to boost smelting capacity and add value in a way he hopes will transform the face of Indonesia. 

Indonesian President Joko Widodo and his right-hand man Luhut Panjaitan in a file photo. Image: Facebook

Nickel smelters

When it comes to nickel, the policy has been a profound success. Starting during the previous Susilo Bambang Yudhoyono presidency, Chinese companies have so far invested more than US$11 billion in three smelter complexes at Morawali and Konawe, on the east coast of Sulawesi, and at Weda Bay, on the main Moluccan island of Halmahera. 

The two eastern Indonesian islands contain most of Indonesia’s 21 million tons of nickel reserves, the largest in the world ahead of Australia, Brazil, Russia, New Caledonia, Cuba and the Philippines.

Tied to that is Panjaitan’s dream of establishing an electric vehicle industry, with South Korea car manufacturer Hyundai as an initial $1.5 billion investor and LG Chemical interested in building an associated lithium battery plant on the same site near Jakarta.

One of the motivations is the European Union’s intention to phase out diesel and petrol cars, in some countries as early as 2030. Indonesia may be a lot further off, but it has recently issued new regulations on electric vehicles that will allow them to be sold on the domestic market.

Lithium battery plant

China’s Tsingshan Steel plans a second lithium battery plant at its $2.2 billion Weda Bay Industrial Park processing complex, which Panjaitan now insists will also be the home of PT Freeport Indonesia’s (PTFI) long-delayed second copper smelter.

With Panjaitan indicating the Chinese have agreed to build and operate the plant, it will relieve the government and Phoenix-based minority partner Freeport McMoRan Copper & Gold (FCX) of the financial burden of running an operation that is estimated to lose $10 billion over the next 20 years.

The technical logic is twofold. Not only will the smelter provide Tsingshan’s Weda Bay processor with the large supplies of sulphuric acid it requires, but it will also serve as a ready source of copper cathode, which can be turned into the wiring and other components needed for the electric car venture.

Although the Gresik smelter has not drawn any ancillary industry apart from a fertilizer plant in the 20 years it has been in operation, Panjaitan is confident that overseas investors, particularly Chinese companies anxious to move offshore, will be attracted to the complex. 

Indonesia has 80% of the elements needed for lithium battery production, including cobalt, manganese, aluminum and even rare earth elements. But also on the horizon is a recycling plant at Halmahera that will eventually remove the need for new minerals in the production process.

An aerial view of the Grasberg mine in West Papua, which the Indonesia government recently took control of from US mining giant Freeport McMoRan. Picture: Facebook

Tsingshan and French partner Eramet, which brings its mining expertise to the partnership, began producing low-grade ferro-nickel for the world’s stainless steel market earlier this year. Its four production lines are expected to turn out 33,000 tons of ferroalloy a year.

At the $7.8 billion Morawali complex, Tsingshan and Indonesian partner PT Bintang Delepan operate a three million tonne a year nickel pig-iron smelter, a 500,000-tonne carbon steel facility, soon to expand to 3.5 million tons, and a 600,000-ton high-carbon ferro-chrome plant.

Further down the coast, in southeast Sulawesi, China’s Virtue Dragon Nickel Industry last year completed the $1.4 billion first stage of its three-phase Konawe complex, which will eventually have a production capacity of three million tons of ferro-nickel a year and employ as many as 3,000 local workers.

Panjaitan, who has a testy relationship with the parent company, had always insisted that Freeport build the new $2.8-billion facility near the country’s sole, Mitsubishi-run copper smelter at Gresik on the East Java coast, where $130 million has already been spent on site preparation.

But circumstances have changed. First, it was the government’s acquisition last year of a 51% stake in the Indonesian subsidiary, in exchange for an extension to FCX’s contract until 2041. Now the Covid-19 pandemic has put state finances under pressure and raised questions about spending priorities.

Unlike nickel, copper refining is a notoriously marginal business, particularly when the final process of turning concentrate into copper cathode adds only 5% to the value. 

Officials argue that a smelting hub in Halmahera will create cost-saving synergy, both in construction and operation. But doubts remain. “The only fly in the ointment is the economics,” says one mining executive. “It sounds viable, but there is also a danger that it may turn out to be a white elephant.” 

Iron ore magnate

Meanwhile, Panjaitan has forged a burgeoning relationship with Australian iron ore magnate Andrew Forrest, who has been a frequent visitor to Jakarta to discuss his possible involvement in major hydro-electric projects on North Kalimantan’s Kayan River and on the Mamberamo River in Papua.

After meeting with President Widodo on September 4, Panjaitan and Forrest signed an initial letter of intent to work on the joint development of what it called “new and renewable energy to support an environmentally friendly industry” without mentioning any specific projects.

Planned as the source of energy for a series of aluminium-manufacturing clusters on the bauxite-rich island, the $17.8 billion, 9,000MW Kayan River venture is currently part of China’s Belt & Road initiative. But Panjaitan says that does not preclude other participants.

Australian mining magnate Andrew Forrest has taken an interest in Indonesia. (Facebook)

A renewable energy advocate, Forrest’s most recent visit to Indonesia involved a stopover in Papua New Guinea (PNG), where he signed an agreement to revive the $5 billion, 2,500MW Purari River hydro-electric project, northwest of Port Moresby, which has been stalled for years.   

The billionaire’s interest in PNG has aroused speculation that he may be looking at Bougainville’s giant Panguna copper mine, which has been closed since the 1989 civil war. Analysts note that Bougainville is only 3,000 kilometers away from the Weda Bay facility.

Although Bougainville’s status as an autonomous region of PNG remains in question, a team from Forrest’s Fortescue Metals Group inspected the mine last year. Analysts say it would be no surprise that the firm would be interested in a copper asset as it looks to diversify.

Interestingly, that already includes lithium battery production. Fortescue has been exploring for lithium in the vast Pilbara region of West Australia since last year, but the Australian Financial Review reports it has left the door open to buying into an established lithium project.

“I think everyone has realised that this is a once in a generational shift in natural resources that are going to underpin what happens in the electric vehicle market,” Martin Donahue, managing director of lithium company Kidman Resources, told Fairfax Media in a 2017 interview.

Panjaitan says his vision of Indonesia becoming an industrialised nation crystallised when he was trade minister in the short-lived government of Muslim cleric Abdurrahman Wahid in 2000 to 2001. “Now I’ve got the opportunity,” he says, “I’m just carrying on with it.”

It is easy to be impressed by his grasp of the subject matter and the enthusiasm he brings to the job. “I’m just the one who says yes and no,” he explains. But after sitting in on one of the seven or eight Zoom meetings he has each day, it is clear he knows the right questions to ask.

Panjaitan focused on a business career during the presidencies of Megawati Sukarnoputri and Yudhoyono. In 2004, he founded his own company, PT Toba Sejahtra, with interests in oil and gas, coal, electricity generation and agriculture, mostly in Kalimantan and Sumatra.

A nickel mine in Indonesia. Image: AFP

It was as the owner of a Kalimantan timber concession — and his daughter’s insistence that he refrain from wastefully using the wood for pulp and paper — that bought him into contact with Widodo, then a little known Solo, Central Java furniture maker.

Over the last six years, he has become the president’s most trusted adviser. Initially, it was on political issues, but since becoming minister of the revamped Coordinating Ministry of Maritime Affairs and Investment in 2016, he has become increasingly involved in natural resources policy.

Asked about persistent claims that he is using his powerful position to win benefits for himself, Panjaitan takes the question in his stride: “At my age and as a retired general, I have everything,” he says. “Enough is enough. I don’t dream of having more than what I have now. In Indonesia today, you can’t hide anything.”

This report by John McBeth appeared initially on Asia Times website