Nickel mining and state capitalism in Kolaka, Southeast Sulawesi
Mahesti Hasanah and Gerry van Klinken
As the world shifts to electric vehicles (EVs), the Indonesian government aggressively pushes nickel mining as a key component in lithium-ion batteries for EVs. Locals in one place in Sulawesi where nickel is being mined are finding out what that means for their lives, and their environment.
Nickel has long been important for making industrial stainless steel. Today, demand is growing for the magnets and batteries that drive the renewable energy transition. Mining nickel is in principle non-renewable. Once in use it is not easily recyclable, because it gets dispersed into small gadgets all over the place. Already a global nickel shortage is looming, and scientists say presently known supplies will run out by the 2050s. Does this make the miners stop and think if this short-term perspective is worth the long-term costs? It does not. The looming shortage makes them only more aggressive about extracting their profits before that day.
Laterites
The easiest nickel ore to mine is a sulphide, such as at Sudbury in Canada. But these rich underground mines are basically exhausted already. That’s why attention has turned decisively to ‘laterites,’ a low-grade ore found only in tropical regions like New Caledonia, the Philippines, and Indonesia. Laterite is the red soil that forms when rain soaks into surface layers of rock over many thousands of years. Depending on what rock lies underneath, laterites can have commercially interesting nickel contents of around one per cent.
Kolaka in Southeast Sulawesi is one of many places in Indonesia cursed with nickel-rich laterite soil. This is one of the three most nickel-rich regencies in Indonesia, along with East Luwu in South Sulawesi and Morowali in Central Sulawesi. We say ‘cursed’, because mining nickel laterite is basically a gigantic earth-moving exercise, called ‘strip-mining.’ The laterite here is about 35 metres thick, with the bottom section containing most of the nickel. The deposits cover hundreds of thousands of hectares in area. All that soil is being removed, starting with the vegetation growing on it (see image above).
‘Useless’ soil is put to one side. When the nickel-rich soil appears, it is fed into machines that can extract the pure metal. Traditionally this has meant the ‘smelter’ – involving stuff tumbling at very high temperatures in long rotary kilns. But most of the nickel laterites currently being mined are too low-grade for the smelter, and anyway, the demand is for higher nickel purities than these smelters can produce. A newer technology offers the answer: High Pressure Acid Leaching, or HPAL. The soil goes into high-pressure vats, where sulphuric acid is pumped in to leach out the metal. The process is more expensive, uses more energy, and – you noticed the word ‘acid’? - produces far more toxic waste.
Both types are used or planned in Kolaka by the many Chinese and other large companies now operating there. They both consume enormous amounts of energy, HPAL more than the smelters – up to a hundred barrels of oil-equivalent per ton of nickel. This is generally supplied by coal-fired power stations, newly constructed especially for this purpose. (Thus the renewable energy of the future is facilitated by increased CO2 and fine-dust emissions today.) They also require prodigious quantities of fresh water.
The land is left looking like the surface of the moon. Lacking vegetation, flash-floods of red mud happen each time it rains hard. Local newspapers are full of them already, and mining has hardly started yet. Without adequate restoration – and the announced plans spend little time talking about that side of it - nothing will ever grow there again.
Meanwhile the ‘waste’ left over after refining – 99 per cent of what has been dug out – is dangerous to life, especially in the case of HPAL. Each smelter or HPAL produces millions of tons of it every year, and there are many of those in the nickel mining area. Miners prefer to get rid of it by pumping it out into the ocean – out of sight, out of mind for humans, and never mind the oceanic life. But local villagers in places like the Obi Islands off Southern Halmahera, where there are similar mines, protested about what this did to their fisheries and coastlines. Under such ‘green’ pressure, the Indonesian government has since 2021 no longer issued permits for marine tailings disposal, whilst not outright banning it by law. However, reports say environmental monitoring is poor and at least some of it is going into the ocean anyway. Otherwise, the toxic slurry of HPAL tailings must be stored on land behind temporary dams. These occasionally break, causing major disasters such as the ones in Brazil in 2015 and again in 2019.
Sustainable and democratic - once
Kolaka before nickel was essentially a subsistence agrarian society. The land produced cassava, corn, rice, bananas and so on – all ecologically sustainable. A few small to medium plantations produced commodities like cocoa, coconuts and cashew nuts. Small-scale mining has been going on for years.
This is a quiet region, and probably most of the local citizens haven’t known much if anything about the way global capitalism works. They are now finding out. If you had asked them about it before all this happened, we are pretty sure people would say, we have heard there is bad stuff out there, but the government will protect us. The older ones will remember Reformasi of 1998 and 1999. That’s when provincials like themselves demanded that the Indonesian state step up to the job of protecting them after years of militarised government under Suharto. And they got it – a decentralised government closer to the people; with lots of elections; and with local control over the use of natural resources including mining.
Some will have remembered their school history lessons: that the 1945 Revolution won them independence from the colonial Dutch, who had been ripping the resources out of Indonesia and exploiting its people. In his famous defence speech of 1930, the young Sukarno declared that Indonesia had for too long been the target of imperialists out to loot Indonesia’s resources. Imperialism was ‘turning Indonesia into an area for the exploitation of foreign capital.’ This to him was ‘most outrageous and is becoming more so all the time.’ When he became president in 1945, that was his mission: to protect Indonesia from the rich imperialists.
State capitalism
How things change. Now, it seems, the state is there mainly to ensure the foreign capitalists can get access to the environment. It started when President Susilo Bambang Yudhoyono signed the Mineral and Coal Law No. 4 of 2009. The aim was to maximise benefits by processing ore locally, rather than sending it overseas. The strategy is called ‘downstreaming’ (hilirisasi). Regents and mayors were authorised to issue permits for local nickel processing (Izin Usaha Pertambangan-IUP). Operationalised in 2014, a good number of local and national companies moved into nickel, also in Kolaka. But few had the experience or the capital to build smelters – the state-owned enterprise PT Antam being the big exception - and the policy was revoked in 2017.
Just making the environment available was apparently not enough. The state also had to deliver the environment to the right actors. This could only be done by withdrawing authority from the local heads and returning it to Jakarta. President Joko Widodo (Jokowi) did just that in his second term, with Law Number 3 of 2020, known as the New Mineral and Coal Mining Law, replacing the previous law. The central government was now responsible for issuing permits, designating mining areas, standardising nickel prices, overseeing nickel production and processing, and ensuring environmental compliance. Local governments were left to provide support and some coordination, without decision-making or agenda-setting powers.
This led to much larger companies making their appearance in Kolaka, both international and Indonesian state-owned entities. PT Vale, a joint venture between PT Mineral Industri Indonesia and Vale Canada Limited (VCL), established a presence in Kolaka since 2023 with a Community Empowerment Program. It has a Forest Area Use Permit (IPPKH—Ijin Pinjam Pakai Kawasan Hutan) to conduct nickel exploration over 12,563.10 ha. PT Vale has for years been making large profits elsewhere in Indonesia. ‘Industrial parks’ offer special protection for smelting operations as part of the National Strategic Projects (PSN—Proyek Strategis Nasional). One is being built in Kolaka by PT Indonesia Pomaala Industrial Park (IPIP) on 2,000 ha of land. IPIP is modelled on the huge PT Indonesia Morowali Industrial Park (IMIP).
The vigorous collaboration between the Indonesian central state and private capital in the nickel industry is part of a global pattern that has been called a state-capital hybrid. The state wants to be simultaneously a regulator, supervisor, and a player.
Perusda
There is one positive spin-off for local government in Kolaka. One of the first results of the downstreaming policy was the establishment of the local state-owned enterprise PT Aneka Usaha Kolaka. This is where what’s left of decentralisation meets global capitalism. Widely known in Kolaka simply as Perusda, people feel it delivers them some benefits from nickel mining. Of its after-tax profits, 65 per cent go to the regional treasury, 15 per cent to the company's development fund, 10 per cent to general reserves, 10 per cent to an ‘incentive fund,’ and 5 per cent to corporate social responsibility (CSR). The regent is chair and appoints the company's board of directors and supervisory board. This central role for the regent has led to some grumbles – voiced quietly to the research team led by one of us (MH) – that Perusda is only for the regent’s inner circle, who get to appoint the subcontractors.
Indeed, it is subcontractors who do Perusda’s real work. Based on the first wave of downstreaming policy, the regent granted it the first mining permit in 2018. Valid until 2028, it covers a comparatively tiny 340 hectares. Unable to process the nickel ore it digs out, Perusda sells it on to other companies with smelting facilities. However, even just doing that delivers local subcontractors high profits in a short time.
Perusda thus acts as a government middleman that subcontracts out the mining and sells ore to smelters. It is primarily a rent-seeking entity that does not engage in productive activities. The whole picture suggests a betrayal of democratic mining governance. Rather it is one of cynical corporations and their official rent-seeking buddies in the state acting on behalf of capitalist interests.
The photos below were taken in one of the villages in Kolaka’s Pomaala subdistrict, where most of the nickel companies are located. Red mud was readily visible. One informant told us the red colour of the sea (image below) was caused by the mining companies directly dumping the mud unfiltered into the water.
When our team visited this village in October 2023, the community was no longer taking care of its environment, often not even cleaning up their own waste, because ‘it is already a bin for nickel mining companies’, as a villager told us. They used to gather sea cucumber here, but red mud sedimentation killed the plankton upon which the sea cucumbers feed.
Villagers are realising that nickel mining provides them only minimal economic benefits while causing significant environmental consequences. One of them living near the Perusda operational area said Perusda was a company that did not do anything (ongkang-ongkang kaki). It only earned royalties from its contractors and left its waste behind. Another told us:
In the dry season, my terrace house, which is far away from the road, becomes red from the dust. But it would be fine in a rainy season because then the dust would not fly into my house. Living surrounded by IUP holders, we are supposed to be wealthy. All IUP holders must compensate us as they take material from our village. But there is no feedback for us, and we only get the waste (Interview with a resident from Pesouha village, 5 October 2023)
Sacrifice zones
The Canadian mining journalist Christopher Pollon writes in his book on global mining trends, Pitfall: the race to mine the world’s most vulnerable places (2023), that the world today is mining more than ever before. In the last 50 years the extraction of metals and minerals around the world has gone up almost five times. ‘On our current trajectory,’ he goes on, ‘the future will demand we extract much more.’ This presents the world with a conundrum – how to limit the number of destructive holes in the ground, while at the same time producing more metals than ever before.
Apparently the answer is to go to the world’s most vulnerable places, like Kolaka, where environmental regulations are weak and popular democracy is easily crushed. These areas, he wrote, are to be sacrificed to the comfort of the rich in the North:
‘If business-as-usual mining continues, our inevitable future is to create vast new ‘sacrifice zones’ across the developing world, much of this in the name of saving the planet from climate change. A term first coined to describe the places ruined by uranium mining and processing during the Cold War, sacrifice zones are landscapes destroyed for the sake of benefits delivered somewhere else.’
Mahesti Hasanah (mahesti.hasanah@sydney.edu.au) is a PhD candidate in political economy at the University of Sydney and lecturer in politics at Gadjah Mada University, Yogyakarta. This research is funded by SUSTAIN-NORHED II. Gerry van Klinken (gvanklinken@gmail.com) is a member of Inside Indonesia’s board.
