An EV-fix for Indonesia: the green development-resource nationalist nexus

ABSTRACT

The global energy transition is disrupting old industries needing to decarbonise. Meanwhile, resource-rich countries stand to benefit from the rush for ‘energy-transition minerals’. Here, institutional investors and governments promote climate policies compatible with natural resource extraction. This begs the question: How have extractive conglomerates reorganised their interests to benefit from the energy transition? Focusing on the nickel extraction to lithium battery to EV industry in Indonesia, this article contends that the intersection of decarbonisation, developmentalism, and resource nationalism offer extractive capital an ‘EV-fix’ for declining legitimacy. This is more than an ideological shift, as new alliances of state capital, domestic conglomerates, politicians and international battery and EV manufacturers are forged under a ‘green development-resource nationalist nexus’.

KEYWORDS:

• Energy transition minerals
• critical minerals
• spatial-fix
• crises of legitimacy
• nickel in Indonesia

1. Introduction

A global boom in energy transition minerals¹ (ETMs) is underway, driven by growth in ‘green’ technologies, especially electric vehicles (EVs) and renewable energy (IEA 2022). Resource rich countries around the world are using the objective of decarbonisation to legitimise extractive-led development (Bainton et al. 2021). This is a version of the phenomenon observed by Thurbon et al. (2023, p. 222) where ‘the global green shift creates the conditions for a developmental-environmental response amongst national authorities.’ We present evidence supporting the argument that ‘green developmentalism’² manifests according to local political contestations, ideologies, and resource endowments. Furthermore, we argue that it also provides a fulcrum around which new political-economic alliances emerge. The nexus is therefore more than greenwashing; it is a reorganisation of capitalist alliances to profit from extraction within the global energy transition.

In Indonesia, ‘green-developmentalism’ builds on a long standing ‘resource-nationalist’ agenda where the belief that Indonesia’s natural resources have long been exploited by foreigners binds together nationalist politicians, state-owned enterprises, and domestic conglomerates. Indonesia is the largest nickel producer in the world with growing capacity in metals refining (Mudd and Jowitt 2022, pp. 1968–69). Nickel is an essential ingredient in lithium batteries for electric vehicles. In addition to raw materials, Indonesia has a long-standing auto-manufacturing industry and one of the world’s largest consumer markets. The government has ambitions to connect the dots by championing an integrated EV industry (Veza et al. 2022). The Indonesian government has increasingly promoted ‘down-streaming’ nickel smelting to create more refined nickel, lithium-ion batteries and EV production as the best pathway to ‘net-zero’ while maintaining growth (Huber 2022).

We propose that a ‘green development-resource nationalist’ nexus explains how global environmental politics are harnessed by extractive capitalists in Indonesia. This proposition begs the following questions: How have powerful political economic groups including extractive conglomerates reorganised their interests around green development? What role(s) does the state play in this nexus?

The nexus is bound together by an ‘EV-fix’. The EV-fix is an instance of Harvey’s ’spatial fix’ (Harvey 1982), for the problems of legitimacy and overcapacity faced by extractive led development. By redirecting capital into EV supply chains, especially nickel mining and refining, mining conglomerates find new alliances, rehabilitate their reputation, and position themselves to profit from the global energy transition. A ‘selective de-risking’ strategy by the state helps sustain the EV-fix. De-risking is state intervention to protect private investment in development projects from financial, political and social risks (Gabor 2023). By selective de-risking, we mean the state targets interventions to particular projects or companies that directly align with the state’s policy objectives.

This paper contributes to understanding how the global energy transition shapes and is shaped within domestic political economies. We draw on publicly available data, including policy documents, legislation and regulation related to resources, climate and EV policy. We draw on over 15 interviews conducted in Jakarta in 2023 and 2024 with government officials, businesspeople and consultants associated with the nickel, battery and EV sectors.³ The interviews were carried out in Indonesian and English using a mix of formal, semi-structured, and informal interviews. Given the sensitivity of the issue, interviewees are cited anonymously, providing respondents’ organisation details only as appropriate.

We find that Investment in nickel extraction, refining, batteries, and EVs facilitates the formation of a new alliance of private extractive conglomerates, SOEs, Chinese and Korean companies, and executive politicians. The state facilitates the expansion of extractive conglomerates through a fusion of state capital and market instruments. This includes concentrating nickel refining and vehicle manufacture in SOEs partnering with Chinese and South Korean companies while extractive conglomerates invest in nickel extraction, battery assembly, and EV distribution.

This paper proceeds in four sections. The second outlines the relevance of two literatures which have hitherto remained separate – Indonesian political economy and green developmentalism. We then explain the two concepts we use to understand the emergence of the nexus: the ‘EV-fix’, and ‘selective de-risking’ as a state strategy to safeguard the fix. The third section provides a history of resource nationalism in Indonesia and introduces the current push to refine battery-grade nickel and manufacture batteries and EVs. In the fourth, we demonstrate how powerful groups of actors have formed a coalition by reorganising their interests through the ‘EV-fix’. The coalition has a strong foothold within the executive government and is coordinated by the state-owned enterprise (SOE) Indonesia Battery Corporation (IBC).

2. Political economies of green-development and the EV-fix

2.1. Political economies of EVs and green-developmentalism

Literature on the political economy of EV policy and development in Indonesia examines the role(s) of the state at the intersection of energy transitions, industrial policy, and resource extraction. One approach sees the rush for EV and battery production as a reflection of new state developmentalism, legitimised by decarbonisation (Yusgiantoro et al. 2021, Pirmana et al. 2023, Schröder and Iwasaki 2023). They argue that the state has assumed a coordinating role in automotive industrial policy as part of decarbonization efforts. The state has redirected capital into industrial upgrading to deliver on promises of local employment, industrial output, and emissions reduction, leading some to call it a ‘new developmental state’ (Kim and Summer 2021). The second approach emerges in the form of policy analysis and NGO documents, exposing how such extractivism has come at the expense of environmental destruction, social conflict, and benefited only a tiny group of well-connected elites and politicians (Rushdi et al., 2021; Morse 2021)

However, most of these political economy analyses of EV policy miss a wider reconfiguration of politico-economic alliances around environmental politics. The literature either reduces the role of the state to a development agent or accepts that state has been ‘hijacked’ by capital. More crucially, these two approaches inadequately capture dynamics between the state and groups shaping the green development-resource nationalist nexus. This is because they generally view resource nationalism as an ideological means to legitimise state intervention and green developmentalism as greenwashing. How the nexus entails a reorganisation of political economic alliances via environmental politics remains under-explored.

There is a substantial ‘green-developmentalism’ literature emerging in the Americas examining how resource rich nations harnessing mineral wealth for national development is legitimised through their contributions to the global energy transition. This literature revives the earlier tradition of ‘new extractivism’ where centre-left governments promoted extractive-led development to fund social programs (Veltmeyer and Petras 2014, Riofrancos 2020). These scholars argue that lithium, in particular, represents an imagination of sustainable and equitable development (Obaya et al., 2021; Barandiarán 2019). Different approaches and outcomes across Central and South America have been explained by variations in political ideologies, the strength of domestic corporations and foreign investment patterns (Marmolejo Cervantes and Garduño-Rivera 2022, Sanchez-Lopez 2023). In this view, the state acts as a core facilitator of international capital and industrialisation.

We agree with Obaya (2021, p. 1), that a ‘frame of analysis which considers the social relations in local territories is needed to fully appreciate the impact of resource nationalism’. However, the difference between Southeast Asia and South America in social relations, ideology, and industrial capacity is vast. For example, the resource nationalist agenda in Bolivia was built on left-populist social movements (Obaya 2021). In contrast, Indonesian resource nationalism is driven by domestic capitalists and the ruling political coalition to entrench their economic power (Winanti and Diprose 2020). To address the gaps identified in existing literatures we develop the concept of an ‘EV-fix’, built upon Harvey’s (1982) ‘spatial fix’ concept.

2.2. The EV-fix and selective de-risking

Harvey’s concept of ‘spatial fix’ is based on the recurring need to resolve capitalism’s tendency to crises such as ‘overaccumulation’⁴ by spatially or temporarily displacing crises (Harvey 1982). Harvey (2001, p. 24) argues that ‘Once the “fix” is found or achieved then the problem is resolved, and the desire evaporates’ - if only temporarily. For example, to offset overproduction in China’s EV battery industry, Chinese policymakers and automakers have emphasised boosting exports to Europe and other new markets (Leahy 2023). However, the process of solving crises and finding fixes is not merely economic or technical. As Glassman argued (2007, p. 349), crisis and recovery are interconnected, and ‘centered in political and social struggles’ which involve political alliances and accumulation strategies. Glassman’s (2007, p. 350) main insight for our analysis is that, ‘like the paths into crises, the paths out of them are conditioned by the kinds of political alliances and accumulation strategies that are adopted.’

We identify the ‘EV-fix’ as a specific manifestation of Harvey’s and Glassman’s spatial fix. The EV-fix provides new investment opportunities for a range of actors who otherwise face overlapping (impending) crises of overproduction and legitimacy. The EV value chain in Indonesia – from nickel extraction to EV manufacture brings together the interests of groups united in seeking a pathway out of crises – via the green development-resource nationalist nexus.

The first crisis is the overproduction of coal power. The past decade saw increased investment in power plants by Indonesian coal mining companies with Korean, Japanese, and Chinese technology providers resulting in power oversupply, with capacity exceeding demand by 50–60% (Hamdi and Adhiguna 2021). Therefore, coal companies needed to shift investments away from coal extraction and power (Nangoy 2023). Here, the internationalisation of production by Chinese and Korean EV and battery manufacturers creates new investment opportunities for domestic coal conglomerates in the battery production and EV assembly, – creating a spatial fix within which their capital can circulate, while generating significant electricity demand.

The second crisis is of legitimacy. Opposition from communities and civil society to the environmental and social impacts of mining has resulted in the implementation of new global governance standards for environmental and social impacts, participation and benefit sharing (Sinclair 2020) and commitments to ‘green financing’ from investors (Wijaya 2022). For example the International Finance Corporation (IFC), Japan Bank for International Cooperation (JBIC) and China’s policy banks have all pledged to stop funding coal projects (Jong 2022). This forces Indonesian coal conglomerates to diversify their investments to maintain access to international capital. Investments in EV supply chains serve as a fix for the legitimacy of international banks and domestic coal companies alike. By shifting their extractive focus towards nickel, these actors seek to rehabilitate their dirty reputation, maintain access to international capital, and profit from both the energy transition and the resource nationalist down-streaming agenda. Thus, the EV-fix is a spatial fix for the crises of legitimacy and overcapacity of extractive-led development.

The EV-fix requires the state to play a role as consensus builder, focusing on decarbonisation and industrial upgrading via selective de-risking. Here, we expand on Gabor’s (2023) observation that de-risking has recently emerged as a mechanism to organise green industrial upgrading. De-risking takes different forms, including subsidies, tax breaks, loans, guarantees, equity contributions, and sovereign bond issuance. De-risking is important because the market alone cannot guarantee profitability for investors (Braun 2021). As we elaborate below, in Indonesia, de-risking takes the form of fiscal and investment incentives by the state to safeguard conditions for accumulation. We argue that de-risking is highly ‘selective’, meaning that conditionalities or eligibility requirements, are designed in the interests of specific capitalist groups. As a result, while de-risking elicits downstream investment, it reconsolidates the interests of industrial elites in the EV-fix. Before turning to analyse how the state facilitates the EV-fix with a selective de-risking strategy, we first describe the history of resource nationalism and the emergence of nickel for lithium batteries in Indonesia.

3. From resource nationalism to EV batteries

3.1. The historical development of resource nationalism

Resource nationalism has always been an ideological feature of the Indonesian Republic. Article 33(3) of the 1945 Constitution states ‘the earth, water and natural riches’ should be used by the state to maximise the prosperity of ‘the people.’ The current wave of resource nationalism began with the new mining law in 2009⁵ which overturned the New Order’s foreign friendly mining regulations (Kadir and Murray 2019). Two of the measures in the law were decried by foreign multinationals as being ‘resource nationalist’:

1. A requirement for foreign owned mining companies to progressively divest up to 51% of mine ownership to domestic companies.

2. A system of export bans, tariffs and quotas on various unrefined minerals.

The measures aimed to stimulate the construction of smelters and ‘downstream’ refining of minerals while capturing value through government revenue, domestic linkages, employment and local procurement. The most prominent measure was the ban on exporting unrefined nickel ores,⁶ with various exemptions given if smelter construction was underway, until 2017 (Warburton 2018). Copper, tin, iron, lead, zinc and manganese ores also had to meet minimum concentrations prior to export (PwC 2022, pp. 137–42). Companies, foreign and domestic alike, were compelled to invest in domestic processing.

Resource nationalism shifted mine ownership from foreign multinationals to domestic conglomerates. Between 2016 and 2020, Newmont, Newcrest, BHP and Rio Tinto all sold their major productive and prospective assets in the country to SOEs and private domestic conglomerates (Sinclair 2024). While Freeport-McMoRan retained just under 49% ownership of the gigantic Grasberg copper-gold mine in West Papua, the acquisition of 51.2% of the flagship mine by state-owned enterprises⁷ was a major achievement of the policy (Winanti and Diprose 2020). These acquisitions helped domestic conglomerates evolve from junior partners of multinationals to controlling managers of Indonesia’s largest mines. This was important for domestic coal mining companies seeking to diversify their portfolios.

These resource nationalist policies triggered a wave of investment in smelting by Chinese capital (Camba et al., 2020). Unlike US- and Australia-based mining companies, these Chinese corporations aligned their economic interests with the Indonesian Government’s growth strategy. From 2014 to 2020, over US$10.20 billion in foreign direct investment flowed into the construction of nickel smelters in Morowali Regency alone (Umah 2021). Located in nickel-rich Central Sulawesi, Tsingshan Holding Group’s Indonesia Morowali Industrial Park (IMIP) includes processing, refining and export facilities. Tritto (2023) reported that joint investments between PT QMB New Energy Materials (a consortium of Chinese companies), IMIP, Japanese company Hanwa, and Huayue Nickel and Cobalt totalled over US$2 billion. The overall impact is that Indonesia is now one of the top producers of refined nickel products and stainless steel.⁸

However, despite the constitutional provision specifically invoking ‘the people’, the beneficiaries have been national politicians and the largest domestic conglomerates while communities affected by mining and indigenous people pay the costs of negative environmental and social impacts (Kadir and Murray 2019). Resource nationalism has rebalanced power between domestic and international capital, favouring Chinese over Western capital, while achieving nothing for the rights of people affected by mining.

3.2. Green technology, the EV boom, and critical minerals

Coinciding with the success of resource nationalist strategy for down-streaming nickel production, global demand boomed. The cathodes in lithium-ion batteries require a mix of metals including cobalt, nickel, aluminium, and manganese. Nickel-rich batteries, holding up to 50 kg of the metal in each electric vehicle, are ideal for EVs because they are energy-dense and lightweight (Camargos et al. 2022).

The nickel smelters constructed in Indonesia between 2014 and 2019 mostly produced ‘class 2 nickel’⁹ – important ingredients in steel. Lithium batteries require ‘class 1’ nickel,¹⁰ nickel sulphate, or the precursor mixed hydroxide precipitate (MHP)¹¹ (Huber 2021). To produce these onshore, Indonesia is constructing a new generation of energy-intensive high-pressure acid leaching (HPAL) smelters, which also extract cobalt (Mudd and Jowitt 2022, 1964). Toxic tailings then need to be disposed, probably through controversial deep sea tailings placement (Gultom and Sianipar 2020). The environmental challenges of HPAL smelters add to the existing concerns over labour standards, land conflicts and community resistance to nickel mining (Rushdi et al. 2021). To stimulate the construction of HPAL smelters, the Ministry of Energy and Resources again banned all exports of unrefined nickel ores from January 2020 (PWC 2022, p. 21).

The green development-resource nationalist nexus is not limited to the construction of smelters. It aims to build a production network, from mineral extraction and refining to battery assembly and EV construction (Huber 2022). To incentivise this, the Indonesian government issued Presidential Decree No. 55 of 2019 on the acceleration of the program for EVs for road transportation¹² and introduced some fiscal and non-fiscal incentives for local manufacturers (Veza et al. 2022). This aligns with the government’s ambitious objective to have two million electric cars and 13 million electric motorbikes on the road by 2030 (Maulia and Cheng 2022).

Alongside incentives for domestic production, President Widodo passed several pieces of legislation between October 2019 and 2023¹³ designed to ‘simplify, cut and prune regulatory obstacles’ (Widodo, quoted in: Nursyamsi et al. 2019). These reduced labour standards and criminalised protests for ‘hindering or disturbing’ mining operations, reduced corporate liability and sanctions and reduced public participation in environmental impact assessment (JATAM 2020, Power 2020). While these reforms aimed at stimulating development across the economy, the primary beneficiaries will be large SOEs and domestic conglomerates.

In this respect, we see a nexus between resource nationalism and green development within which alliances of foreign investors and domestic political and business elites drive industrialisation while upholding Indonesia’s international commitments towards net-zero carbon. Old extractive oligarchs and fossil fuel barons are embracing EVs as central to turning Indonesia into a green manufacturing hub. The next section explains how these groups reorganise their interests and secure their spatial-fixes through this nexus.

4. Politicians, old extractive conglomerates, foreign newcomers, and state-owned enterprises

In this section, we elaborate on the four key groups shaping and benefitting from the green development-resource nationalist nexus in Indonesia. These are:

1. Major SOEs organised under the new Indonesia Battery Corporation (IBC).

2. Old private extractive and coal conglomerates.

3. Foreign newcomers including Korean auto manufacturers, Taiwanese component suppliers, and Chinese battery producers.

4. Senior government politicians and officers, based in the executive.

The IBC coordinates these four groups while the Coordinating Ministry for Maritime Affairs and Investment takes charge of EV policy. Chinese and Korean companies with financial and technical abilities aligned their global strategies with their Indonesian partners. Private conglomerates invest in ‘green’ industry to rejuvenate their dirty image and benefit from state incentives. Sections 4.1-4.3 below detail these processes Table 1 shows a number of foreign companies, state-owned enterprises and local private firms forming the EV-fix across the value chain.

Table 1. EV value chain in Indonesia.

Mining & smelting	Battery chemical & materials	Battery manufacturing	EV assembly
Vale (F), Tsingshan (F), TBS Energi Utama (P), Zhejiang Huayou Cobalt (F), Solway Investment (F), Eramet (F), Jiangsu Delong Nickel Industry (F)	IBC* (S), Hyundai (F), Merdeka Copper Gold (P), Tsingshan (F)	Electrum (P), IBC (S), LG-led consortium (F), Indika (P)-Foxconn(F)	IBC(S), Electrum (P), Gogoro (F), Hyundai (F), Wuling (F), Bakrie (P), China’s BYD** (F)

(F): foreign companies, (S): state-owned enterprises, (P): local private firms.

*still in the form of prototype, mass production will begin next year.

**the local assembly plant is under construction.

Source: Compiled by authors from Schröder and Iwasaki (2023), Kim (2023), and other news outlets.

While the nexus facilitates a coalition of ‘winners’, it also produces ‘losers’, summarised in Table 2 below. The first ‘losers’ were the Western multinational mining corporations who exited the Indonesian market, selling assets at discount prices to domestic conglomerates. Other major ‘losers’ in the new green developmentalism are NGOs, activists and communities affected by the mining and processing of nickel (Kurniawan et al. 2019, JATAM 2022). Finally, Japanese automakers, like Toyota and Honda, who have been reluctant to invest in lithium batteries and EV value chains, risk being left behind. We are not suggesting that these losers are permanently or globally fixed, rather they have been temporarily excluded from the EV-fix in Indonesia.

Table 2. Winners and losers in the context of the green developmentalism-resource nationalism nexus in Indonesia.

	International	Domestic
Winners	Chinese private and state corporations investing in smelters (e.g. Jiangsu Delong Nickel, Tsingshan Group) Coalitions of Korean chemical and auto corporations	Coal conglomerates reorganising their assets State capitalist centralising and coordinating control (IBC) Political elites
Losers	‘Western’ multinational miners (e.g. Freeport, Newmont, Newcrest) Japanese legacy automakers (Toyota)	Communities affected by mining. Environmentalists NGOs Human rights advocates

4.1. The Indonesian battery corporation in the driving seat

For decades, coal companies and their state allies have been searching for alternative energy investments with comparable returns on investment to coal mining and electricity production. In the 2010s, many coal mining companies held large stakes in independent power producers (IPP) to secure 25-year contracts with the state-owned electricity company, PLN (Bridle et al. 2018). During that period, these companies promoted Ultra Super Critical (USC) coal power plants¹⁴ as a ‘sustainability fix’ that solved crises in two ways: (1) by reducing carbon emissions and (2) absorbing the surplus of domestic coal production (Wijaya 2022). As of 2022, IPP and private power plants account for 11,897 MW of operating capacity while only 4,698 MW are owned by the state electric company, PLN (Fajrian 2023).

Yet, spatial-fixes are temporary. Technological progress and political challenges demand new fixes. In a number of interviews, Indonesian business representatives and senior officials explained how institutions like the IFC and JBIC blacklisting coal investments pressures coal conglomerates to find new investments.¹⁵ Renewable energy projects, however, remain a high-cost alternative for extractive conglomerates and have not-yet presented a lucrative investment alternative (Bridle et al. 2018). For example, in 2022, the Asian Development Bank (ADB) signed an MoU with PLN and private firms for the early retirement of the Cirebon-1 plant. However, the plan reached an impasse because it did not provide enough investment opportunities for the private firm.¹⁶ A representative of the Just Energy Transition Partnership revealed that: ‘Green infrastructure investments in large-scale solar or geothermal projects need sovereign guarantees and concessional capital that Indonesia to date finds difficult to manage. Early retirement of coal power plants is even more complex where compensation mechanisms for the loss of future earnings remains unclear.’¹⁷ The difficulty with power generation pushes extractive conglomerates to seek investment opportunities in other ‘green’ economic sectors, like EV supply chains.

The shift to battery materials has required a reorganisation of capital coordinated by the state. In 2021, four prominent SOEs in mining, petroleum, and electricity infrastructure came together as major stakeholders in the creation of the IBC: Mining and Industry Indonesia (MIND ID), PT Pertamina (petroleum giant), PT Perusahaan Listrik Negara (PLN, electricity infrastructure), and PT Aneka Tambang (mining), each owning a 25% stake. Mining and Industry Indonesia (MIND ID) was itself the result of mergers between SOEs in extracting and processing minerals. The formation of the IBC centralises extractive SOEs and legitimises their continued role at the centre of the Indonesian developmental agenda.

The government priorities the IBC’s territorial control over energy transition minerals. According to the Indonesian Minister for SOEs, Erick Thohir, the IBC will invest in and control up to 51% of nickel mines and smelters, and 25%-40% of derivative, such as battery cathodes and precursor production (PwC Indonesia 2021). This supports the mandate of Presidential Regulation No. 55 of 2019, requiring electric cars produced in country to have at least 40% local content by 2023 and 80% by 2030 (Yusgiantoro et al. 2021).

Under the EV-fix, SOEs coordinating value chains exploit national resources in the name of ‘the people.’ As Luhut Pandjaitan, Coordinating Minister for Maritime Affairs and Investment, argued:

Many of you think that we are opening a wide door for China. That is not the case. We offered investment opportunities to everyone, even to Japanese companies, but they are still reluctant to invest in the EV sector. I will keep fighting to make this downstreaming a success…. I do this not for me, but for the entire country and the next generation to come.¹⁸

As he also mentions, forging partnerships with foreign capitalists is important because they possess the technology and expertise. Another domestic player noted, ‘We have gained an upper hand in a niche two-wheeler market. But when it comes to batteries, we still need to import from China’ (cited in Pardede 2023).

While Chinese and Korean investors provide capital and expertise, the IBC secures investment and controls risk. The SOEs constituting the IBC are susceptible to financial risks from rapid expansion and large debt-funded acquisitions. PLN, for example, recorded financial losses up to 11.2 trillion rupiah¹⁹ in 2021 (Guitarra 2022) while Pertamina operated at a loss of 191.2 trillion²⁰ (ICW 2021). Nevertheless, new entrants like Korean companies invest with knowledge that the state will make projects work at all costs. In September 2021, the LG-led consortium (LG Chem, LG Energy Solution, LG International, POSCO, and China’s cobalt company Huayou Holdings) and IBC launched the first EV battery factory in Southeast Asia, with an investment of US$1.1 billion (Kaur 2022). Investors’ confidence is rooted SOE’s selective de-risking.

4.2. The reorganization of private extractive conglomerates

Extractive conglomerates have reorganised their business interests to align with the green development-resource nationalist nexus. The EV-fix enables them to maintain relevance as local partners of foreign capitalists and the IBC despite their limited experiences in the EV industry. Some of them do have access to nickel and links with smelters in Central Halmahera and Morowali. TBS Energi Utama, a unit of Toba Bara Sejahtera, with strong links with Luhut Pandjaitan, and the Indonesian Minister for Education, Nadiem Makarim, is diversifying from coal mining. Joining forces with a major Indonesian gig economy company, Gojek, TBS set aside US$350 million for forming Energi Kreasi Bersama (Electrum), to acquire batteries from IBC and produce electric mopeds in 2024 (Reuters 2022).

Sandiaga Uno, the current Minister of Tourism, through his company, PT Saratoga Investama Sedaya, acquired 18.34% of PT Merdeka Copper Gold (MDKA). MDKA and China’s Tsingshan Group – have set up a joint venture to reprocesses mine tailings for by-products (Saratoga Investama 2021). In 2021, Indika Energy, one of Indonesia’s largest coal mining companies, acquired gold mining company Nusantara Resources Limited (NRS), and metal ore trader Perkasa Investama Mineral. It stopped investing in new coal power plants to diversify its portfolio with 50% of its revenue set to come from non-coal interests by 2025. In September 2022, Indika set up a joint venture with Foxconn Taiwan that will focus on developing lithium iron phosphate batteries for EVs and eventually manufacture commercial vehicles. As Indika group’s CEO Azis Armand mentioned, ‘If we look only at the coal sector, our participation won’t be sustainable in energising Indonesia’ (cited in Sulaiman 2022).

Meanwhile, politically powerful conglomerates like the Bakrie & Brothers Group have used ‘green’ technology to rehabilitate their reputation and profit from the energy transition (Freischlad 2022). Despite having one of the largest mining businesses in Indonesia, Bakrie Group has limited access to nickel. The well-connected but controversial oligarchical family has secured a stake in the EV ecosystem (Bosnak 2015). Their subsidiary, VKTR, runs an EV component manufacturing business, collaborating with two Indonesian heavy equipment state enterprises, PT INKA and PT Barata Indonesia. The company has also conducted an initial public offering to develop an EV assembly plant in 2023 in partnership with China’s BYD, focusing on buses and trucks (Damayanti and Maulia 2023). As Anindya Novyan Bakrie, the CEO of Bakrie group noted in a media interview (2023):

As media and NGOs have stated, state subsidies are not politically justified as these vehicles are still too expensive for the middle class. In addition, although the wide use of EV can help reduce air pollution, the charging stations use electricity generated from coal, and so make no difference … further development will take time.

In sum, extractive conglomerates have changed strategies from challenging decarbonisation to embracing low-carbon technology under the coordination of SOEs. This helps arrest the declining legitimacy of the mining industry in a time of increasing global and local opposition to fossil fuel extraction. Under the nexus, these capitalists benefit from selective de-risking strategies managed by the state.

4.3. Executive politicians: selectively de-risking the EV-fix

At the apex of the EV-fix, the national government institutionalises incentives, performance criteria, local content requirements, and subsidies to de-risk investments and boost EV uptake. This is just as Gabor and Sylla (2023, p. 4) describes where the de-risking state institutes ‘a set of incentives, controls and mechanisms … to encourage local investment in strategic sectors with stringent performance conditions.’ Fiscal and investment incentives are increasingly tailored for selected SOEs, extractive conglomerates and foreign capital which exhibit certain conditions, such as compliance with local content requirements.

Table 3 lists the flurry of EV-market-creating and industrial promotion policies of the Jokowi administration. One recent policy is subsidies to boost EV uptake. Effective from 20 March 2023, US$450 in tax deductions (about 7 million rupiah), will be provided for each new electric moped made in Indonesia²¹ (Rahayu 2023). The government will subsidise purchases of up to 138 electric buses and 35,900 electric cars in 2023. However, not all brands are eligible for state subsidies. Among e-mopeds, brands including Gesits (IBC-owned), Volta, Yadea, and Selis meet the threshold of 40% local content (Sisapira 2023). Among cars, only Hyundai’s Ioniq 5 and China’s Wuling Air EV qualify. The regulations listed in Table 3 also accommodate domestic extractive conglomerates in various ways.

Table 3. Regulations on EV development in Indonesia.

No.	Regulation	Description	Categories of subsidies
1	Decision of Minister of Industry No. 1641 of 2023	Specifying models and types of the vehicles that meet local content requirement and are eligible for national subsidies for purchases of EVs.	Market-creating subsidies
2	Regulation of Minister of Finance No. 38 of 2023	Waiving value-added tax on handover of certain four-wheel EV and electric buses
3	Presidential Instruction No. 7 of 2022	Calling for adoption of EVs as government official vehicles
4	Ministry of Home Affairs Regulation No. 1 of 2021	Mandating sub-national governments to promote EV adoption by adjusting tax reduction rate
5	Presidential Regulation No. 79 of 2023 replacing Presidential Decree No. 55 of 2019	Adjusting local content requirements and eligibility requirements for subsidies and import taxes for EV automakers	Industrial promotion subsidies
6	Ministry of Industry Regulation No. 6 of 2022	Outlining technical specification, EV roadmap, and local content requirement guidelines as a precondition for production subsidies
7	Ministry of Industry Regulation No. 28 of 2020	Detailing various tax incentives provided for EV manufacturers

*Apart from subsidies scheme, the Indonesian government also issued technical regulations and standard process. Among others, Ministry of Transportation (MoT) Regulation No. 15 of 2022 on the conversion of other than two-wheel vehicle; MoT Regulation; MoT Regulation No. 45 of 2020 regarding safety requirement and vehicle lane and Ministry of Energy and Mineral Resources Regulation No. 13 of 2020 regarding provision of electric charging station infrastructure.

Source: compiled by authors.

The state executive has demonstrated flexibility in using public resources to incentivise local EV production. Presidential Regulation No. 79 of 2023 on the acceleration of the program for EVs for road transportation stipulates that the government will relax local content requirements for automakers who are committed to producing at least 40% of the content of EVs in Indonesia by 2026. Such automakers would be exempt from import tariffs and luxury taxes on imported EVs. At the time of writing, BYD is set to launch three EV car models into Indonesia‘s market in February 2024 which will be directly imported from China. To benefit from the exemptions BYD committed to invest $1.3 billion in a local manufacturing facility with a production capacity of 150,000 vehicles (Damayanti 2024). Other beneficiaries include the country’s first commissioned battery plant, a joint venture between IBC and the LG-Hyundai consortium – scheduled to commence operation in 2024. The battery produced will enable Korean automakers to manufacture more than 40% of EVs locally, making them eligible for additional value-added tax reduction from 11 to 1% and exemptions from the 15% luxury tax (Byun 2023). Such targeted incentives and public investment de-risks pathways for international manufacturers to ramp-up domestic investment and production.

The Indonesian state hands out subsidies to all EV and battery manufacturers if they meet local content requirements. For foreign capital, this means that partnership with the IBC is essential to secure the government’s long-term support.²² As one official explained,

In the pursuit of hilirisasi (downstreaming), we might have to rely on Chinese smelter technology and introduce incentives to attract investments and create an EV market. But, this does not mean that we become dependent on China or prefer China. Please never ignore the fact that it is still IBC and other local conglomerates who have majority ownership in smelter and battery production. With this, we will also reduce our dependencies on Japan who has inhibited our technological catching up for decades.²³

While this does not immediately affect long-established Japanese companies, having already achieved economies of scale in their conventional supply network, the EV-fix could pose challenges for them in the long-term. Japanese companies, nevertheless, remain reluctant to switch to EV production or even invest in battery supply chains (Schröder and Iwasaki 2023).

Finally, apart from incentives and investment, a pivotal component of selective de-risking is the political will to defend down-streaming policies. The green development-resource nationalist nexus legitimises the costs of these policies. This was the case when the EU filed a WTO panel request in 2021 against the unlawful restriction of nickel exports that restricted EU steel producers’ access. The WTO ruled that the Indonesian Government violated the WTO provisions in Article XI.1 GATT 1994. The President vowed to challenge any WTO ruling against the ban on nickel ore exports and cover any fines but refused to change the policy (Cabinet Secretariat of the Republic of Indonesia, 16 January 2021). Jokowi and his ministers, alongside the Nickel Association, invoked collective responsibility for promoting national industries and decarbonising the transport sector as justification. Furthermore, whenever new deals for battery plants or EV manufacturing were signed, President Widodo was personally involved. For example, on his 2022 trip to the USA, the President met with Elon Musk to discuss possible construction of a Tesla battery and EV factory in Central Java (Anas et al. 2022, p. 268).

Selective de-risking has now been embedded within state institutions directly backed by the executive arm of the government. The executive coordinates downstream development and bears the burden of risk via the IBC. This bold decision is coupled with regulatory changes, safeguards against WTO rulings, and repression of opposition to extractive projects, while deploying the nationalist narratives of providing employment, reducing emissions, and producing locally made products. The state’s actions have been legitimised through the ideological framework of green developmentalism and resource nationalism. The green development-resource nationalism nexus is underpinned by a political, economic and ideological strategic coalition, bound together by the EV-fix for overlapping crises faced by international and domestic conglomerates. However, like all fixes, it will likely be temporary.

5. Conclusion

The global energy transition has created conditions for a new, green developmentalism in resource rich countries. This global trend manifests in each country according to the local balance of political power and ideologies of development. In the USA, Riofrancos (2023) named a ‘Security-Sustainability nexus’ driving new economic priorities. In Central and South America, different governance frameworks (including resource nationalism), the strength of domestic corporations and reliance on Chinese investment produces variegated outcomes (Sanchez-Lopez 2023). Australia’s market-based developmentalism converges with a frontier mentality in a new extractivist ‘rush’ (Hine et al. 2023). Southeast Asia remains under researched, despite Malaysia’s export ban on rare earths and the Philippines’s ban on nickel exports are both attempts to emulate the success of Indonesia’s resource nationalism within the global energy transition. Although a full international comparison is beyond the scope of this paper, we have shown that the new ‘green-developmentalism’ facilitates a material reorganisation of extractive interests into alliances seeking to profit from the global energy transition.

In Indonesia, green-developmentalism in built on long standing ideologies and policies of resource nationalism while helping to resolve some of the domestic and international crises facing extractive industries and coal producers. The ‘green development-resource nationalist nexus’ works through a loose alliance of Chinese and Korean investors, domestic conglomerates, state-owned enterprises and the political executive who have found common interest in the EV production network. This ‘EV-fix’ provides opportunities for over accumulated capital and legitimation for extractive led-development – as we saw in the reorganisation of extractive SOEs under the IBC and private conglomerates’ turn from coal to nickel.

Our analysis presents findings for the study of Indonesian political economy. First, as a rebalancing of political economic power, the green development-resource nationalist nexus produces a new constellation of winners and losers. The winners are those already identified in the alliance of the nexus, while those (temporarily) left behind include western multinational mining companies and long-standing Japanese auto manufacturers. Second, the Chinese and Korean investors are not crowding out domestic capital. Rather, the IBC is playing a pivotal role to sustain the coalition and to maintain control over resources. Third, the role of the state should not be readily reduced to ‘being hijacked’ by capital. Selective de-risking by the Indonesian state indicates the potential for state elites to maintain their political legitimacy by imposing regulation and trade policy, such as local content requirement and the export ban on nickel ore, that are politically popular.

Any spatial fix is only a temporary displacement of crises, as extractive capitalism will continue to generate new crises. Further research could reveal potential sources of crises for the green development-resource nationalist nexus. There are several possibilities identifiable based on existing tensions. First, the Japanese automakers will undoubtably reposition themselves in response to the new strategies of Korean and Chinese firms. Second, an emerging troop of local startups and technology companies seek a share in downstream industries, such as EV assembly and it is unclear how they may cement or disrupt the nexus. Thirdly, and perhaps most significantly, is the repressed farmers, fishers, workers, environmentalists and human rights activists resisting extractive industries. These groups certainly constitute the most vocal opposition to ‘green developmentalism’. Fourth, on NaN Invalid Date , President Widodo and US President Joe Biden signed a ‘comprehensive strategic partnership’ including closer cooperation on nickel supply (The White House, 2023). If the US state and corporations choose to embrace Indonesian nickel, this could disrupt the existing balance within the nexus. Finally, the Indonesian election of February 2024 and the coming Presidency of Prabowo Subianto may alter some of the personalities involved, if not the ideological direction of the nexus.

For global environmental politics, it is important to understand how the drive for low carbon technologies including EVs and renewable energy enable extractive led development. The EV-fix shows that, in some instances, the actors empowered by global green politics are the very extractive corporations who profit from the exploitation of fossil fuels, land and people. Conceptually, the EV-fix and selective de-risking demand that scholars of environmental politics pay close attention to the agency and interests of local politicians who are not simply captured by but rather attempt to coordinate domestic corporations and international investors in complex alliances. As such, research is needed to better understand, explain, and anticipate emerging alliances as specific versions of the EV-fix develop.

Acknowledgments

We thank the anonymous reviewers and the journal editor for their generosity in providing sincere constructive feedback, and Kanishka Jayasuriya and Rebecca Meckelburg for their steadfast support and advice. This work was supported by the RARA (Ritsumeikan Advanced Research Academy), Ritsumeikan University, Japan and Monash University’s Herb Feith Indonesian Engagement Centre, Australia.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. ‘Energy transition minerals’ is a similar category to ‘critical minerals’, but focused specifically on 20 metals, including nickel, which ‘are predicted to face market pressure as the production of low-carbon energy technologies intensifies’ (Lèbre et al. 2020).

2. Green development, related to resource nationalism, is not to be confused with ‘green-nationalism’ or ‘eco-nationalism’, which are about ‘environmental protection of the national territory’ (Conversi and Hau 2021, p. 1091).

3. All interviews were conducted by the lead author with ethical approval from Ritsumeikan University and comply with Ritsumeikan University Research Ethics Guideline.

4. A condition where simultaneous surpluses of labour and capital with seemingly no way to put them together in profitable ways. It can stem from demand deficiency or overproduction.

5. Law number 4/2009 on Mineral and Coal Mining.

6. Nickel must be refined into matte of at least 70%, ferronickel, nickel pig iron, or other alloys.

7. Of the 51.2% owned by SOEs, 52.5% is owned by PT Indonesia Asahan Aluminium, 47.5% by PT Indonesia Papua Metal and Mineral.

8. Exports of Ferronickel rose from 89.43kt in 2006 to 1240.7kt in 2020 (EITI Indonesia 2022). Indonesia is now second only to China in exports of flat rolled stainless steel (Schröder and Iwasaki 2023, p. 9).

9. Nickel pig iron or ferronickel with Ni concentrations of 4 or 8%.

10. At least 99.8% Ni.

11. Typically 34–55% Ni.

12. The decree is the first regulated incentive for the update of the EVs in Indonesia. It provides a set of regulations for: (1) domestic industry acceleration program and the minimum requirement for local content, (2) incentive provision, (3) charging infrastructure and tariff, (4) technical regulation, and (5) environmental protection). Even more incentives are created by Presidential Regulation No. 79 of 2023.

13. Law 3/2020 on Mineral and Coal Mining; 11/2020 on Job Creation ‘Omnibus Law’, and 1/2023 New Criminal Code (KUHP).

14. USC employs higher pressure and temperature steam than traditional methods to reduce the volume of CO₂ emissions.

15. Interview with an Indonesian official, Coordinating Ministry for Maritime Affairs and Investment, Jakarta, 10 April 2023; Interview with a representative of Indonesian Chamber of Commerce, Jakarta, 16 January 2024; Interview with an Indonesian official, Just Energy Transition Partnership Office, Jakarta, 4 February 2024.

16. Interview with an Asian Development Bank local staff member, Jakarta, 20 June 2023.

17. Interview with an Indonesian official, Just Energy Transition Partnership Office, Jakarta, 4 February 2024.

18. Luhut‘s opening remark at the 2023 Saratoga Investment Summit, Jakarta, 27 January 2023.

19. Approximately U$735 million at average 2021 exchange rates.

20. Approx. US$13.4 billion.

21. The price of Gesits’ electric bike ranges from 26–29 million rupiah (U$1700-U$1900).

22. Interview with a Japanese business consultant, online, 8 August 2023.

23. Interviews with an Indonesian official, Ministry of Investment, Jakarta, 18 January 2024.