Chinese companies are negotiating with potential investors to reduce their stakes in Indonesian nickel smelters in a bid to make their products eligible for U.S. electric vehicle tax credits, according to an Indonesian official on July 26th.

Under the U.S. Inflation Reduction Act, materials used in electric vehicles (EVs) or batteries must come from companies with no more than 25% ownership by a "foreign entity of concern," which includes firms from China, Russia, North Korea, and Iran. 

Indonesia, the world's largest producer of nickel, has been in talks with Washington to secure a critical mineral deal that would allow its nickel to be included in the supply chain recognized by the Inflation Reduction Act (IRA). However, the country's nickel industry is largely controlled by Chinese firms such as Tsingshan Holding Group, Zhejiang Huayou Cobalt, and Lygend Resources and Technology. Chinese companies are now seeking partnerships with Indonesian and South Korean firms for high-pressure acid leaching (HPAL) plants, both those under construction and in the planning stages, according to Septian Hario Seto, Deputy Coordinating Minister for Maritime and Investment Affairs. 

High-pressure acid leaching (HPAL) is a technique used to produce nickel material from nickel ore, which is crucial for electric vehicle batteries. According to Seto, who oversees the mining sector at the coordinating ministry, the goal is to reduce Chinese companies' stakes in these projects to qualify for U.S. tax credits. Indonesian companies are also aiming to secure majority shares in these ventures. In this arrangement, Chinese firms will provide the technology, Indonesian investors will supply the nickel ore, and South Korean investors will handle the off-take agreements. 

It was reported that Indonesia's government and industry are arranging new investment deals with Chinese companies as minority shareholders. Seto mentioned that these efforts are being conducted on a business-to-business basis without government intervention. During a recent visit to Jakarta, U.S. official Jose Fernandez indicated that negotiations between the two countries on the critical mineral agreement were making positive progress, though he did not provide a timeline for completion. 

Image Source: Mining Technology