How Foreign Investors Can Tap into Indonesia’s Downstream Industry

Indonesia rapidly emerges as a key player in the global downstream industry, presenting an exciting opportunity for foreign investors.  

The country is actively implementing a downstream processing strategy known as “hilirisasi” to enhance the value of its abundant natural resources before exporting them. This strategic shift reshapes the economic landscape, particularly in the mining, oil and gas, and manufacturing sectors.  

This move transforms the economic landscape, particularly in the mining, oil and gas, and manufacturing sectors. 

Indonesia’s Downstream Market Landscape 

The Ministry of Investment (BKPM) estimates that Indonesia’s downstream program could attract $618 billion (IDR 9,000 trillion) in investments over the next 15 years. This investment will help boost economic growth until 2040.  

The government has devised a comprehensive downstream roadmap encompassing 28 commodities, ensuring value addition across various sectors. This strategic approach underscores Indonesia’s commitment to maximizing the potential of its natural resources. 

At least 50% of the IDR 9,000 trillion target is expected to be realized by 2029, with downstream investments contributing up to 70% of total assets by 2040.  

Currently, 60% of these investments are concentrated in metal commodities. Still, the government is also expanding the program to agriculture, focusing on seaweed, crude palm oil, rubber, coconut, and blue swimming crab.  

The seaweed industry alone is forecast to generate $10 billion from organic fertilizers and over $40 billion from eco-friendly plastics by 2040, leveraging Indonesia’s vast coastline as a key advantage. 

What Sectors are Categorized as Downstreaming Industries? 

Indonesia’s downstream industry spans multiple sectors, transforming the country from a raw material exporter into a global manufacturing powerhouse.  

With $545 billion in targeted investments by 2040, Indonesia aims to expand the value chains of 21 commodities across minerals, coal, oil, natural gas, plantations, marine, forestry, and fisheries. Here are the key sectors driving Indonesia’s downstream processing revolution: 

Metal and Mineral Processing 

• Nickel: Essential for EV batteries; Indonesia is the world’s largest nickel producer. 
• Bauxite: Used in aluminum production, with refining investments increasing. 
• Copper: Smelting projects are expanding, especially in partnership with global investors. 
• Tin and Rare Earth Minerals: Critical for electronics and renewable energy sectors. 

Oil and Gas Downstream 

• Refining and Petrochemicals: Investments in domestic refineries reduce dependence on fuel imports. 
• LNG Processing: Development of liquefied natural gas (LNG) terminals to enhance energy security. 

Agriculture and Plant-Based Processing 

• Palm Oil: Focus on producing biodiesel, oleochemicals, and food derivatives. 
• Rubber: Expanding manufacturing for tires, industrial rubber, and medical-grade latex. 
• Coconut: Used for virgin coconut oil, activated charcoal, and cosmetics. 
• Nutmeg & Spices: High demand in pharmaceuticals and specialty food industries. 
• Seaweed: Processed into hydrocolloids, cosmetics, and biodegradable plastics. 

Transportation, Warehousing, and Telecommunications 

• Battery and EV Supply Chains: Strong investment in lithium-ion battery production. 
• Logistics & Cold Storage: Supporting growth in processed food and pharmaceutical industries. 
• Telecom Infrastructure: Expansion of fiber optics and 5G networks to support industrial growth. 

Renewable Energy and Sustainable Materials 

• Biofuels & Green Hydrogen: Efforts to establish Indonesia as a biofuel hub. 
• Eco-Friendly Plastics: Projected to exceed $40 billion by 2040, driven by demand for biodegradable materials. 

READ MORE:

• Unlocking Growth in Indonesia’s Oil and Gas Industry 
• Fiscal Incentives for Oil and Gas Contractors in Indonesia 
• ESG Integration in the Extractive Industry 

Challenges in Indonesia’s Downstream Industry 

While Indonesia’s downstream industry offers immense potential, several challenges must be addressed for successful investment and operations. 

Complex Smelter Commissioning and Power Supply Issues 

Smelting requires advanced technology, skilled labor, and a stable power supply. Power interruptions can disrupt production and cause delays. 

Higher Operational Risks in Mining and Smelting 

Smelting introduces chemical and thermal risks beyond traditional mining hazards. Furnace failures can lead to serious accidents and production losses. 

Shortage of Skilled Labor 

Smelting requires highly trained professionals, but the local workforce is limited. Knowledge transfer and training are critical for efficiency. 

Integration Challenges Between Mining and Smelting 

Coordination issues can disrupt supply chains and increase costs. Poor integration affects efficiency and product quality. 

Environmental and Waste Management Risks 

Toxic residues from smelting can contaminate groundwater. High carbon emissions lead to stricter regulations and taxes. 

However, these challenges can be effectively managed. InCorp offers ESG advisory services to guide you through Indonesia’s downstream industry, ensuring compliance and optimizing your investment for maximum returns. 

How to Start Investing in Indonesia’s Downstream Industry 

Investing in Indonesia’s downstream sector has become more accessible due to regulatory reforms opening the market to private entities. The Oil and Gas Law (Law No. 22 of 2021) ended Pertamina’s monopoly, allowing foreign investors to establish limited liability companies in the sector.  

Key Investment Requirements 

• Investors must comply with foreign shareholding restrictions outlined in the Investment List (Presidential Regulation No. 10 of 2021). 
• To operate in processing, storage, transportation, or trading, a downstream business license from the Ministry of Energy and Mineral Resources (MEMR) is necessary. 
• Licensing applications are submitted via the Online Single Submission (OSS) system, with approval based on corporate and technical feasibility requirements. 
• Oil and gas downstream sector companies may need multiple licenses, such as Processing, Storage, Transportation, or Trading Licenses. 

Regulatory and Financial Considerations 

• No specific fiscal terms or production-sharing schemes apply to the downstream oil and gas sector. 
• BPH Migas regulates gas transportation tariffs, requiring operators to submit proposed tariffs for approval. 
• Companies holding trading or processing licenses must pay BPH Migas a royalty fee, as stipulated in Government Regulation No. 48 of 2019. 

Start Investing in Indonesia’s Downstream Industry with InCorp 

Navigating Indonesia’s investment regulations, business licensing, and compliance requirements can be complex. However, InCorp Indonesia (an Ascentium Company) can assist you with:  

• Investor KITAS: Assisting foreign investors in securing legal permits. 
• Business Licensing: Helping investors obtain downstream business licenses. 
• ESG Advisory: Helping businesses implement sustainable and responsible operational strategies. 

Complete the form below to enter Indonesia’s downstream industry and seize its growing opportunities.