Indonesia is in the midst of a structural pivot. It is using commodity leverage, especially nickel, to deepen its financial system and steer investment into the downstream industry

Nickel is the commodity of choice, as Indonesia sits on the world’s largest laterite nickel resources and is also its top producer. A “transition metal” like gold, Nickel is essential for manufacturing stainless steel today and EV batteries (many cathodes use nickel) tomorrow. Rising global demand gives Indonesia bargaining power.

Let's look at the trajectory of the last few months. Three policy gears have defined 2025 so far: tougher FX-retention rules that keep export dollars onshore, nickel policy tweaks to tame a glut and stabilize margins, and a sovereign-fund push to build an integrated nickel hub.

Together, they’re reshaping how money moves through Southeast Asia’s biggest economy

1) FX retention: more export dollars, deeper pipes

According to the FX retention rules from 1 March 2025, exporters of most natural-resource goods must now retain 100% of their foreign-currency earnings in Indonesia for at least 12 months (oil & gas remain on a 30%/3-month regime).

Jakarta expects this to increase its FX reserves by about US$80 billion in 2025. In fact, Bank Indonesia (BI) is rolling out onshore instruments to absorb the flow, while the government has scrapped certain taxes on these deposits to encourage compliance. Exporters can still use these funds for operations, including conversion to rupiah within the domestic system. (Reuters, Lexology, Setkab)

Why it matters: The Government is hoping that this rule will reduce “leakage” to offshore banks and give BI more liquidity to manage the rupiah and money markets. For firms, it nudges treasury operations back home. This can likely increase demand for local hedging, working capital, and trade-finance products—classic “resources to finance” transmission.

2) Nickel policy: from volume race to governance & price discipline

Indonesia’s nickel strategy is evolving from build-capacity-fast to manage-the-cycle:

1. Quotas (RKAB) shortened. The mining ministry has cut the validity of production quotas from three years back to one, thereby improving supply control amid oversupply and weak LME prices. But industry groups are keen that the three-year window be preserved for planning certainty. (Reuters)
2. Royalties up, and tiered. Jakarta has raised nickel royalties from a flat 10% to a price-linked 14–19% for ore (and increases on some semi-refined products), seeking better state take and governance. In response, smelter groups have asked for a phased implementation of the new rates as nickel prices recover.
3. Environmental enforcement. Authorities revoked permits for several Raja Ampat operators after protests and audits—signalling that license quality, not just quantity, will determine output. (Reuters)

Why it matters: Shorter quotas and higher royalties are expected to curb the incentive to flood the market, support fiscal revenues, and encourage moves up the value chain (matte, MHP/HPAL, precursors). It will also bolster Indonesia's broader strategy to assert control over its natural resources and encourage domestic processing of raw materials, which in turn will help to capture more value within the country. Enforcement will also help de-risk ESG and tourism clashes that threaten the sector’s social license.

3) Sovereign capital backs a nickel hub

Indonesia now runs two state investment vehicles in parallel: the established Indonesia Investment Authority (INA) and the new Danantara Indonesia, launched in February under President Prabowo. Both are sovereign wealth funds.

In 2025:

1. With an overall investment of $8.3 billion, Danantara recently announced plans to co-develop a nickel processing hub with China’s GEM—a signal project for processing nickel for electric vehicle batteries and channelling sovereign capital into midstream EV materials. The project will create a green industry estate aimed at generating net-zero emissions of carbon and operating sustainably. (Reuters, TradingView)
2. Danantara + INA also unveiled a strategic investment platform with France’s Eramet to accelerate nickel downstreaming operations. (go.id, Yahoo Finance)

Why it matters: Sovereign balance sheets can bring together foreign partners and domestic lenders, organise scattered smelters into integrated parks, and hard-wire standards on technology, ESG, and offtake. This, in turn, can help convert resource rents into bankable, long-dated cash flows.

Capital-flow mechanics: how the pieces connect

1. FX retention → local liquidity. With more export FX “sticky” onshore, BI can now expand hedging tools and sterilization options as local banks will see deeper dollar books and derivative demand from miners, traders, and EPCs. (Reuters)
2. Royalties/quotas → earnings quality. Tighter quotas and tiered levies moderate supply surges and improve price discovery, thereby stabilizing project cash flows that determine debt capacity and refinancing terms. (Reuters)
3. Sovereign platforms → blended finance. State-owned funds like INA/Danantara vehicles reduce project risk through governance and also anchor capital, which in turn helps release loans and private equity for midstream assets (MHP/precursor/cathode) and shared infrastructure (power, ports, waste). (go.id, Reuters)

Implications for investors and operators

1. Banks & capital markets: You can now expect a bigger onshore FX/rates complex and more structured trade-finance tied to nickel and other resources. Local-currency funding for capex may also gain share as retained FX is converted for operations. (Reuters)
2. Smelters & miners: While cash-cost pressure may rise (royalties, fuel, ESG), policy clarity plus sovereign-led hubs can be offset via scale and offtake security. Shorter quotas require tighter inventory and mine-plan discipline. (Reuters)
3. ESG & tourism: Enforcement in sensitive regions (e.g., Raja Ampat) will shape permit values and insurance. Firms that front-load biodiversity and water-management standards will face fewer disruptions. (Reuters)

Downstream EV value chain: With state capital crowd-in and price governance, Indonesia can progress from NPI/matte to battery-grade intermediates, anchoring more value domestically and smoothing export receipts. (ina.go.id)

What to watch next (6–12 months)

• BI instruments & usage: Which deposit and hedging facilities exporters choose under the 100%/12-month rule—and how much is converted to rupiah. (Reuters)
• Quota cadence: Whether one-year RKABs measurably curb ore output and stabilize NPI/HPAL utilization rates. (Reuters)
• Royalty pass-through: How tiered royalties feed into mine-gate prices and smelter margins; any temporary relief if LME nickel stays weak. (Reuters)
• Sovereign-backed hub milestones: Site selection, EPC awards, and offtake MOUs for the Danantara–GEM hub and the INA partnerships. (Reuters, go.id)

Bottom line: It’s clear that Indonesia is aiming to convert its commodity heft into financial depth. While FX retention will help anchor dollars at home, the rule on nickel production quotas will stabilise prices, and sovereign balance sheets will be able to knit assets into bankable hubs.

If execution holds, 2025 could be the year “resources to finance” stops being a slogan and starts reading like a balance-of-payments upgrade.

SOURCE

https://energynews.oedigital.com/mineral-resources/2025/08/26/danantara-and-chinas-gem-will-develop-nickel-processing-hubs-in-indonesia#:~:text=a%20decade%20earlier.-,Danantara%20and%20China's%20GEM%20will%20develop%20nickel%20processing%20hubs%20in,the%20company%20could%20begin%20operating.

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