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  • Writer's pictureThe San Juan Daily Star

How geopolitics is complicating the move to clean energy

A nickel mining site in North Konawe, on the Indonesian island of Sulawesi, July 23, 2023.

By Peter S. Goodman

He is known as the Minister for Everything. From the government offices of Indonesia’s capital to dusty mines on remote islands, Luhut Binsar Pandjaitan commands authority as the nation’s essential power broker.

A four-star general turned business magnate turned Cabinet officer, Luhut’s paramount aspiration is transforming Indonesia into a hub for the production of electric vehicles. But as he pursues that goal, he and his country are increasingly vulnerable to geopolitical forces beyond their control. Though this archipelago nation has long sidestepped entanglements in ideological rivalries, it is increasingly caught in the conflict between the United States and China.

At stake is control over nickel, a mineral used to make batteries for electric cars and motorcycles — a central component of the mission to limit the ravages of climate change.

Indonesia boasts the Earth’s largest reserves, making it something like the Saudi Arabia of nickel. But harvesting and refining those stocks is largely dependent on investment and technology from Chinese companies. And that has limited Indonesia’s access to the United States.

In Washington, the Biden administration has proffered tens of billions of dollars in tax credits to spur electric vehicle manufacturing. To qualify, cars sold in the United States must include an increasing share of parts and materials produced either in domestic factories or in countries deemed friendly to American interests.

In recent months, Luhut — formally, Indonesia’s coordinating minister for maritime affairs and investment — has implored the Biden administration for a trade deal covering minerals in an effort to secure his country status as a friendly country. That would generate greater demand for its nickel by making it eligible for the American tax credits under the Inflation Reduction Act. Companies around the globe would presumably gain incentive to erect smelters and electric vehicle factories in Indonesia, enhancing the nation’s technological prowess, and creating jobs.

But Luhut, the government’s de facto lead official on trade matters, has been repeatedly rebuffed because of American concerns about Chinese investment in Indonesia’s nickel industry, as well as unease over working conditions and environmental standards. In Washington today, countering China’s technological ascendance is that rare objective that captures support on both sides of the political aisle.

Some within the Biden administration argue that this stance is shortsighted. Climate change is an existential threat. Nickel is a central component of the transition away from fossil fuels, making access to Indonesia’s stocks an objective of greatest urgency. But that logic has failed to win over powerful administration figures — especially on the National Security Council — who maintain that nothing should be subordinated to limiting China’s might.

All of which explained Luhut’s tone of weary indignation on a recent morning as he held court in his glass-fronted office at his residence in Jakarta, Indonesia’s teeming capital. Outside in his garden, magpies whistled emphatically in cages hung from orchid trees. Inside, the Minister for Everything lamented the pernicious misconceptions separating his nation from its destiny.

“America doesn’t understand what Indonesia is doing,” he said. “It’s frustrating.”

Money and power

The animosity between the United States and China was not the only issue causing him angst. He was incensed by the stance of the European Union, which has challenged a key tenet of Indonesia’s industrial designs: a ban on the export of nickel ore.

In refusing to sell its raw nickel to the world, Indonesia has drawn more than $14 billion in investment, primarily from Chinese companies, into smelters that process it into products used to make stainless steel and EV batteries. Since the ban was introduced in 2014, Indonesia’s exports of nickel products have multiplied more than tenfold, exceeding $30 billion last year, according to government data.

The European Union asserts that its companies are being deprived of a fair chance to import nickel ore. It brought and won a case at the World Trade Organization, gaining the power to apply punitive tariffs on Indonesia’s exports even as the country appeals.

Luhut likens that position to a perpetuation of the colonial era, when the Dutch, Portuguese and British hauled spices, sugar and other lucrative commodities back to European entrepôts. The nickel export ban is a corrective, he said, the means of securing the value of extraction for Indonesians.

“It’s the arrogance of European countries,” he said. “Maybe they thought that Indonesia is still colonized. We have the right now to improve the quality of life in this country.”

His righteous words coincide with the crude interplay of money and state power that has long animated Indonesian commerce.

Luhut earned his fortune in the business of coal, still the dominant way the country generates electricity. His company, TBS Energy, which trades on the Jakarta stock exchange, is now effectively controlled by his nephew, Pandu Sjahrir, who also heads Indonesia’s leading coal industry trade association. The company is intent on placing itself at the center of the “electrical vehicle ecosystem,” according its most recent annual report.

Nearly 62% of TBS Energy shares are owned by a Singapore-registered company, Highland Strategic Holdings, that is itself controlled by another holding company, which is in turn owned by a third entity, masking the real beneficiaries. Luhut does not appear in the paperwork maintained by Singapore regulators, but he still owns 8% of his old company, he said, positioning him to profit from new smelters.

A critical need

Luhut describes his plans for nickel as the centerpiece of his efforts to spread the benefits of economic development beyond Indonesia’s largest cities, where a thriving middle class throngs shopping malls, and on to impoverished communities.

Most of the nickel is on Sulawesi, a K-shaped, jungle-draped island that is roughly the size of Oklahoma. Despite its expanse, Sulawesi has long been an outlier in a nation of 17,000 islands whose political and economic spheres are dominated by the one that holds the bulk of the population: Java.

In communities near new smelters, many celebrate an infusion of new jobs, even as people decry horrific pollution. Local workers complain that they are paid far less than those from China.

Experts accuse the United States of myopia in not embracing a trade deal with Indonesia, noting that Americans are already driving cars that use nickel mined there. The only question is which factories wind up making the batteries: those in China that now purchase nearly all of Indonesia’s nickel products, or new factories in the United States.

By 2035, more than 90% of all nickel products will be processed in countries that lack free-trade agreements with the United States, according to a recent study by S&P Global, a research firm. That makes it impossible for American battery factories to satisfy their demand for nickel without looking to countries beyond core U.S. trading partners.

“One way or another, Europe and the U.S. will need Indonesia nickel,” said Putra Adhiguna, an electric vehicle specialist at the Institute for Energy Economics and Financial Analysis in the Indonesian city of Bandung. “They should be coming to this country figuring out how they can do it better.”

The White House declined to discuss the particulars of its talks with Indonesian officials, while suggesting that deliberations continue.

“Indonesia is an important partner for fighting climate change and accelerating the clean energy transition,” said a spokesperson for the National Security Council, Eduardo Maia Silva. “We continue to consult with stakeholders and Congress on implementation of the Inflation Reduction Act, and we remain interested in coordinating with Indonesia, just as we are with other partners, to strengthen the resilience of our critical minerals supply chains.”

Without a trade deal that can extend American tax credits to Indonesian minerals, many anticipate that the advent of electric vehicles will be hampered by a crude division: producers that rely on Chinese investment, and those that don’t.

Luhut’s advisers quietly acknowledged that the American tax credits were not happening, not with the pushback in Congress after the Biden administration completed a minerals deals with Japan.

The Minister for Everything was absorbed with hawking nickel.

“We are aiming basically to the United States,” he said. “But if the Americans finally say, ‘We don’t want to take it,’ fine, we’ll look for some other places to go.”

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