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Indonesia possesses the world¡¯s largest nickel reserves. According to the US Geological Survey¡¯s Mineral Commodity Summaries 2025, Indonesia¡¯s nickel output increased by about 8% in 2024, while the overall global nickel production declined. Given nickel¡¯s pivotal role in the production of power batteries, changes in Indonesia¡¯s nickel-related policies have a profound impact on the global nickel industry chain.

Some background

Indonesia¡¯s abundant mineral resources have served as the cornerstone for attracting foreign investment. However, the domestic manufacturing sector has not developed in tandem with these resource advantages, remaining at a relatively low position in the global value chain. To address the bottlenecks in manufacturing development, the Indonesian government has sought to move up the value chain by prohibiting the export of raw ores and promoting downstream integration, to enhance the technical competitiveness of the local workforce.

Through implementing a series of amendments and regulations to supplement Law No. 4 of 2009 on Mineral and Coal Mining, Indonesia¡¯s government has progressively clarified and enforced a ban on nickel ore exports, without distinguishing different grades of ore, to encourage companies to process raw ore in Indonesia.

On 30 May 2024, Indonesia enacted Government Regulation No.25 of 2024, aimed at standardising domestic mining operations and advancing the implementation of a national downstream integration programme. It also offers compliance guidance and commercial certainty to holders of mining rights issued prior to the enactment of Law No.3 of 2020, further supplementing the 2020 amendments to the Mineral and Coal Mining Law.

Overview of GR No.25

Under Law No.3 of 2020 (an amendment to Law No.4 of 2009 on the Mineral and Coal Mining Law), companies intending to engage in upstream nickel activities such as exploration and mining must obtain relevant operating licences from the Ministry of Energy and Mineral Resources (MEMR). Previously, through Government Regulation No.15 of 2017, the MEMR introduced a licensing regime to gradually replace individually negotiated contracts of work (CoW).

A CoW refers to a long-term co-operation agreement entered into between the government and participants in mining activities. These contracts, granted before the implementation of a unified permit system for mining activities, outline the rights and responsibilities of participants engaging in mining activities within a specified area.

The regulation stipulates that holders of such CoWs must convert to mining business licences. GR No.25 imposes detailed requirements that must be fulfilled by legacy CoW holders wishing to retain and extend their mining rights, including but not limited to the following:

(1) The applicant must own integrated processing and/or refinery facilities in Indonesia;
(2) The applicant must demonstrate that the availability of reserves supports the processing and/or refinery facilities¡¯ operations;
(3) Foreign shareholders of the applicant must comply with a phased divestment, including the issuance of new shares to Indonesian state-owned enterprises and the transfer of shares to Indonesian domestic enterprises; and
(4) The applicant must make a formal commitment to additional investment, which should at least be in the form of advanced exploration activities and the expansion of refining capacity, as approved by the minister for energy and mineral resources.

The foreign shareholder divestment requirement stipulates that Indonesian state-owned enterprises must hold new shares of at least 10% of the applicant¡¯s total share capital, while Indonesian local participants must hold at least 51% of the applicant¡¯s share capital.

Through the enactment of the GR No.25, Indonesia has reiterated its requirements for foreign shareholder divestment and the integration of upstream and downstream nickel mining activities . In addition to GR No.25, the Regulations of the Minister of Trade Nos.10 and 11 of 2024, which took effect concurrently, extend export bans on several mineral products including nickel ore concentrates. The bans will remain in effect from 1 January 2025, with no specified end date.

Overcoming restrictions

Chinese enterprises may consider the following approaches to navigate restrictions on localised smelting and foreign shareholding.

Integration of local industry chains. To retain access to high-grade nickel ore, Chinese companies may invest in domestic nickel smelting projects in Indonesia to meet the local processing and/or refining requirements. Tsingshan Holding Group has already planned to establish its first overseas battery production facility in Indonesia.

Additionally, GEM, a leading producer of lithium-ion battery cathode precursors, announced in November 2024 that it signed a project investment co-operation framework agreement with Vale Indonesia to construct a high-pressure acid leaching green smelter and supporting infrastructure in Central Sulawesi province.

The facility will process part of the nickel ore from a Vale Indonesia mine into market-standard mixed hydroxide precipitate products containing nickel and cobalt. GEM has also expressed interest in developing downstream facilities to form a closed-loop industry chain from nickel mining to smelting to battery materials.

Equity structure arrangements and adjustments. Given the mandatory requirement for Indonesian entities to hold at least 51% of share capital in mining rights companies, foreign-invested enterprises often adopt alternative equity structures and contractual arrangements to maintain a degree of control.

For example, mining companies may classify shares as A/B shares based on criteria such as voting rights, the right to appoint board members or supervisors, preferential dividend rights and/or liquidation preferences, within the framework permitted by Indonesian law, to preserve Chinese shareholders¡¯ interests and decision making powers. Alternatively, Chinese investors may acquire shares in mining companies that have already obtained the necessary licences as strategic investors.

Once the mining company goes public through an IPO, the acquisition of shares by Chinese shareholders as strategic investors would be considered a securities investment and not subject to the foreign owner restrictions under the Mineral and Coal Mining Law or related regulations.

Given the potential for future regulatory changes, Chinese enterprises should thoroughly assess the legal and compliance risks of any alternative structural arrangements to ensure the sustainability of mining operations.

Cheng Jun is an equity partner and Bao Leiwei is an associate at Zhong Lun Law Firm