Chinese Companies Seek to Reduce Stakes in Indonesian Nickel Smelters

By Fransiska Nangoy

JAKARTA (Reuters) – Chinese companies are in discussions with potential investors to lower their stakes in Indonesian nickel smelters. This move aims to make their products eligible for U.S. electric vehicle tax credits, according to an Indonesian official on Friday.

Under the U.S. Inflation Reduction Act, materials for electric vehicles (EVs) or batteries must come from firms with no more than 25% ownership by a “foreign entity of concern.” This regulation affects companies from China, Russia, North Korea, and Iran.

As the world’s largest nickel producer, Indonesia is negotiating a critical mineral deal with Washington to include its nickel in the IRA-recognized supply chain.

The nickel industry in Indonesia is primarily controlled by Chinese firms like Tshingshan Holding Group, Zhejiang Huayou Cobalt, and Lygend Resources and Technology.

Chinese companies are reaching out to Indonesian and South Korean firms for partnerships in high-pressure acid leaching (HPAL) plants, both under construction and in the planning stages. Septian Hario Seto, Deputy Coordinating Minister for Maritime and Investment Affairs, explained to Reuters that HPAL is a method for producing nickel materials used in EV batteries from nickel ore.

The goal is to reduce the stakes of Chinese companies to qualify for U.S. tax credits, with Indonesian companies also aiming for majority shares in these projects. Seto mentioned that the Chinese companies would provide technology while Indonesian investors supply the nickel ore, and Korean investors would act as off-takers.

The Financial Times reported that Indonesia’s government and local industry are structuring new investment deals with Chinese firms as minority shareholders. Seto clarified that these efforts are driven by business-to-business initiatives without government intervention.

During a recent visit to Jakarta, U.S. official Jose Fernandez indicated that negotiations between both countries regarding the critical mineral agreement are progressing positively but refrained from disclosing specific timelines.