Indonesia’s Mining Law Reforms 2025

Navigating Licensing, Export Controls, and Investment Uncertainty in a Rapidly Evolving Landscape.

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Executive Summary

Stronger State Control with Downstream Focus: Between 2019 and 2025, Indonesia's mining-law amendments consolidated licensing authority under the Ministry of Energy and Mineral Resources (MEMR), tightened export proceeds rules, and increased royalties. The reforms grant the state greater discretion over zoning and licensing, prioritise domestic processing, and require 100% of export proceeds to be deposited locally for 12 months.

Investment Boom and Volatility: The policy of banning raw mineral exports spurred a dramatic surge in foreign direct investment (FDI), with investment in mineral processing rising from US$3.56 billion in 2019 to US$10.96 billion by 2022. While FDI remained resilient, new progressive royalties and stricter regulations increase uncertainty for new projects.

EV Supply-Chain Opportunity Tempered by Policy Risk: Indonesia, holding over 59% of global nickel supply, has attracted mega-projects like Hyundai/LG’s battery-cell plant. However, investors must navigate domestic market obligations, 51% foreign-ownership divestment requirements, and global shifts in battery chemistry that could reduce nickel demand.

207.9%

Increase in Mineral Processing FDI (2019-2022)

$47.5B

Total Realised FDI in 2023

>59%

Share of Global Nickel Production

100%

Export Proceeds Retention for 12 Months

Regulatory Timeline (2019–2025)

Key Laws and Ministerial Decrees

Industry Impact

FDI Surge and Regional Spread

Driven by the nickel export ban, investment in mineral processing surged 207.9% from 2019-2022. FDI is now shifting eastward to new nickel hubs like Morowali and Weda Bay, beyond the traditional concentration in Java.

Q1 2025 Resilience but Softening

Indonesia attracted US$13.67 billion in FDI in Q1 2025, up 12.7% year-on-year, with mining and smelting accounting for 23%. However, Q2 saw a 6.9% drop, signaling potential softening amid regulatory changes.

EV Demand and Shifting Battery Chemistry

BEV sales grew 151% in 2024. However, the global auto industry's rapid adoption of nickel-free LFP batteries poses a significant long-term risk to Indonesia's nickel-centric strategy.

Environmental and Social Risks

Nickel smelting is carbon-intensive, and mining has led to significant deforestation. Growing community opposition and intensified environmental scrutiny are leading to licence revocations and increasing operational risks.

SWOT Analysis

Strengths

World-leading nickel reserves (5.2B t) and 59% global production.
Strong investor appetite, with FDI rising 207.9% (2019-22).
Incentives for creating an integrated value chain.

Weaknesses

Complex and frequently changing regulatory landscape.
High fiscal burdens, including progressive royalties and 100% export proceeds retention.
Persistent 51% foreign-divestment requirement.

Opportunities

Strong policy support for EV downstreaming and battery production.
Regional diversification of investment beyond Java.
Strategic partnerships with global giants like Hyundai/LG and CATL.

Threats

Global shift to nickel-free LFP batteries dampening demand.
Increasing political, ESG, and trade risks (e.g., potential US tariffs).
Currency/financing risks from export retention rules and global rate volatility.

Policy Outlook & Investor Implications

Indonesia's reforms aim to secure fiscal revenues while building a domestic manufacturing base. The 2025 amendments deepen state involvement. Investors should consider the following:

Downstream Integration is Non-Negotiable: Contract extensions and new licences require ownership or partnership in domestic processing facilities. Upstream-only projects face significant risk.
Plan for Liquidity Constraints: The 100% export proceeds retention rule requires careful adjustment of financing structures, potentially through domestic financing or currency hedging.
Assess Royalty and Price Exposure: The progressive royalty system benefits integrated producers. Ore-only exporters must stress-test project economics against price volatility.
Monitor ESG and Geopolitics: Environmental scrutiny is intensifying. Investors should adopt high ESG standards, engage locally, and watch for trade developments like potential tariffs and critical minerals agreements.