Could Indonesia and Australia make EV batteries together?
Lian Sinclair
Indonesia and Australia are both on the frontline of new ‘green-extractivism’ – a boom in mining and processing the ‘energy transition minerals’ required for the global energy transition. Indonesia leads the world in nickel production and Australia in lithium, both are key ingredients in lithium-ion batteries needed for electric vehicles (EVs) and backing up renewable energy. This is leading commentators to call for increased cooperation, perhaps even joint production of EVs, batteries or precursors. The most optimistic ‘expect a transnational green technology ecosystem to emerge organically regardless of the commitments national governments make one another.‘ But is such cooperation possible, given the complex histories of oligarchs and multinational mining corporations (MNCs) running the domestic mining regimes?
As two resource rich (post-)colonised countries, Indonesia and Australia’s extractive industries have long had an ambiguous relationship. Understanding the relationships and patterns of history could inform efforts to cooperate on energy transition mineral production. Both countries have long been sources of natural resources required by colonial empires and MNCs. The world’s largest mining company – BHP, known until 2017 as BHP Billiton - was created from a merger between two mining empires which began in Indonesia and Australia. Broken Hill Proprietary made its initial fortune from silver-lead mining in Broken Hill, when New South Wales was a British colony. Billiton Maatschappij extracted tin from the islands of Bangka and Belitung in Dutch colonial Indonesia.
Although these operations have long been divested, the name BHP Billiton is symbolic of the uneasy relationship between Indonesia and Australia in the shadow of global empires based on extractive accumulation.
I have defined extractive accumulation as an integrated set of strategies, institutions and relationships, including governance, legal frameworks, and social relations that ‘that enable corporations to first secure natural resources and then profit from their [continued] extraction.’ That is, extractive accumulation privileges corporate profits and elite wealth accumulation above all else.
Since the colonial era, this is a process dominated by oligarchs and MNCs working together across national borders to extract resources, not of simple imperial relationships. The rest of this article explores how we – Australia and Indonesia - have gone from colonial outposts in resource extraction for the benefit of Europe to potential collaborators in new green-extractivism for battery technology through a number of rounds of extractive accumulation.
Histories of extractive accumulation
Since the beginning of Indonesia’s New Order regime in 1966 and until recently, the main story of mining relations between the two countries has been Australian corporate adventurism, profiting in partnership with powerful politicians and Indonesian oligarchs. The consequences for locals were often disastrous. This was still the case when three anti-mining protestors were killed in 2011 by police defending Arc Exploration, ARC. The most tragic joint venture was the Lapindo disaster, in May 2006, when mud started erupting from a drillhole. It continued over years, reaching 90 million cubic meters, displacing approximately 40,000 people. The operating company was jointly owned by the Bakrie family and Santos Ltd, an Australian oil and gas company. The latter sold its 18 per cent stake in 2008, while denying any responsibility for the disaster and refusing to contribute to compensation.
A much more successful venture (from the point of view of the Indonesian Government) was Kaltim Prima Coal (KPC), established by Rio Tinto and BP in a remote East Kalimantan rainforest in 1978. It began producing 7 million tonnes per annum of coal in 1991. Although KPC’s contract of work with the Indonesian government required them to divest their ownership to Indonesian corporations, none could afford the price tag. That is, until PT Bumi Resources put up US$500m for the purchase in 2004. By 2010, KPC was producing 40 mega tonnes per annum of coal for Bumi, propelling it to become the largest coal mining conglomerate in Indonesia.
The Indonesian state and conglomerates repeat this same strategy of extractive accumulation again and again. It involves using foreign capital to develop resource extraction and processing operations, then requiring divestment, waiting until a domestic conglomerate amasses enough capital to take over operations, and finally allowing the latter to profit from expanding operations.
Like Rio Tinto, BHP no longer has operations in Indonesia. Its last claim there – the gargantuan ‘Indomet’ coal deposits with 1.2 giga tonnes of estimated resources straddling Central and East Kalimantan – were divested to Adaro Energy in 2016. BHP’s decision to sell its 75 per cent stake followed the implementation of Indonesia’s resource nationalist provisions – which required foreign corporations to divest 51 per cent of mine ownership and imposed ever stricter licensing conditions (more detail below). To be sure, the global turn away from coal mining as a legitimate source of energy and profits also influenced BHP’s decision to divest. In leaving Indonesia, BHP is not alone. In fact, with the exception of a few exploration adventurers (see elsewhere in this edition), all Australian mining companies (along with most other western mining companies) divested from Indonesia in the 2010s:
- Newmont (USA) sold Batu Hijau to MedcoEnergi in 2016
- Indomines (Aus), with its stalled pig-iron project in Kulon Progo, Yogyakarta was taken over by Rajawali Corp in 2018
- Newcrest (Aus) sold its 75% share of Gosowong gold mine to Indotan Halmahera Bangkit in 2020 (25% was already Pt Aneka Tambang)
- Even the giant Brazilian-Canadian nickel miner Vale’s Indonesian operations are now 34% owned by the state’s holding company MIND ID, making it the largest shareholder.
- Rio Tinto (UK-Aus) sold share in Grasberg (Freeport Indonesia) in 2018 having already relinquished its last East Kalimantan interests in 2006
- Finally, after years of struggle, in 2018, Freeport McMoRan divested 51.2 per cent to PT INALUM and other SOEs
Why did they leave?
The mass exodus and divestment of Western multinational miners begs the question - Why did they all leave?
I argue that there were three overlapping factors. The first and most obvious is Indonesian governments ‘resource nationalist’ provisions. I have detailed these in earlier articles but the main point is that since 2014, foreign companies were required to divest 51 per cent of their ownership in mines to domestic firms. They faced a series of export tariffs, quotas and bans unless they built smelters to upgrade the domestic ‘downstream’ industry in processing and refining minerals and metals. Of course, this made operations less profitable and riskier from the point of view of the multinationals.
Second is the international strategy of western multinational mining corporations after the end of the last global mining boom (approximately 2003-2013). With declining mineral prices and rising interest rates, large multinationals, heavily indebted from a decade of expansion, focused on consolidating assets, selling off higher cost operations and paying down debt. The last thing global miners wanted to do, after the end of a boom, is invest in new, high-cost smelting and processing operations.
The third and final factor was the increasing capacity of Indonesian domestic mining conglomerates. Domestic coal-energy conglomerates like Bumi Resources, Adaro Energy and Indika Energy, all with close links to senior government officials and politicians, had amassed enough wealth while simultaneously facing the declining legitimacy of coal mining and power generation. In fact, they had amassed so much wealth and were producing so much coal that some have argued they faced crises of over-accumulation and over-production. They therefore needed new (preferably ‘green’) opportunities to invest in. So, it was an awkward, but mutually beneficial, deal for foreign multinationals to sell down Indonesian assets to cashed up domestic coal conglomerates looking to find ‘greener’ mines.
Thus, the cycle exemplified by KPC a decade earlier repeated itself. Foreign capital funded massive gold, copper and nickel extraction and processing operations, which were then divested to domestic, politically well-connected conglomerates. The Indonesian conglomerates then had new, more technically sophisticated metal-mining operations as new engines assets for further extractive accumulation.
The cycle has even been repeated on Australian soil. Indonesian coal conglomerates have spent over AU$3b on coal assets in Australia since 2016. ASX-listed corporations like Rio Tinto and BHP have been divesting from coal, while major banks hesitate to fund fossil fuels, scared of shareholder pressure to avoid stranded assets. Cash-flush Indonesian coal barons have swooped in and are reaping hundreds of millions of dollars in dividends from Australia’s most polluting mines before they inevitably close for good.
Nickel with Chinese characteristics
Just as the western multinationals quit Indonesia, Chinese investment into Indonesia surged. As the Western multinationals focused on consolidation and divestment, Chinese multinationals were driven to offshore industrial capacity by rising domestic costs and vertical integration of EV and battery manufacture. Chinese corporations, led by Tsingshan Holdings – a consolidated metals company - therefore responded to Indonesia’s resource nationalist provisions by investing into the downstream nickel processing industry. They started with steel-grade nickel, then moved on to advanced HPAL (high-pressure acid leach) smelters creating the mixed hydroxide precipitate that can be fed into battery cathodes. This drove Indonesian nickel exports from US$6b in 2013 to over $30b by building more than 43 smelters across three industrial parks.
As with the waves of western multinational miners in previous decades, the Chinese investors bring technical knowledge and capital and operate their ventures in partnership with Indonesian conglomerates, like Indika energy. All this happens under the coordination of the state-owned Indonesia Battery Corporation. Of course, the future is unwritten, but it seems likely that Indonesian coal barons, having made the jump from coal to metal-mining, may be able to eventually capture the downstream processing industries and even create moves into battery or EV manufacture.
Towards cooperation?
Many commentators have enthusiastically, and optimistically pointed out that Australian lithium and Indonesian nickel are two of the main ingredients in the most advanced lithium-ion batteries used in electric vehicles. They believe this is a solid foundation for cooperation. Indeed, the Indonesian government does have ambitions to continue building out downstream battery and EV manufacturing. To do this at scale, it may well need Australian lithium.
In 2023, the Western Australian Government signed an MoU with Indonesia to work towards lithium supply and cooperation on research, as did the Northern Territory government in 2024. The Commonwealth government has begun similar talks. Indonesia could be a destination for WA’s battery-grade lithium hydroxide, and cooperation between the two nations’ industries could help downstream development on both sides.
However, there are several reasons to suspect this will not be so easy. Australian refineries have struggled to set up production of lithium hydroxide – the chemical form used in batteries – on time and within budget. The three lithium hydroxide refineries in Western Australia have suffered from a lack of domestic capital, technology and availability of a skilled workforce.
If Australian mining corporations lack the capital, technology and workforce to develop a domestic processing industry, it is not in a position to provide technical assistance to Indonesia. At best, Indonesian and Australian mining corporations could cooperate on R&D ventures as equal partners.
At a more fundamental level, such a cooperative model of developing an industry together would need to overturn the centuries-long pattern of extractive accumulation that this article has outlined. The Indonesian conglomerates’ highly profitable strategy of attracting international corporations with capital and expertise to help establish new industries until they can take control clearly doesn’t fit with the current lack of surplus expertise and capital in Australian critical mineral mining corporations.
It is much more likely that Indonesian conglomerates will continue to turn to Korean and Chinese automakers and battery manufacturers to establish ‘downstream’ partnerships. Australian firms could hope that this creates regional buyers for refined lithium products, but more likely we remain competitors in the global green extractivist boom.
Lian Sinclair (lian.sinclair@sydney.edu.au) is postdoctoral research fellow in geography at the University of Sydney.
