Making downstream processing a prerequisite for priority mining permits risks becoming little more than a procedural formality, without ensuring that companies actually fulfill their commitments.
BETAHITA.ID – Constitutional Court Decision No. 202/PUU-XXIII/2025, which declared the phrase “and/or global” in Article 51B(2)(d) and Article 60B(2)(d) of Law No. 2 of 2025, the Fourth Amendment to Law No. 4 of 2009 on Mineral and Coal Mining (Minerba Law), to be conditionally constitutional, has drawn responses from civil society organizations.
Under the ruling, the allocation of Mining Business Permit Areas (WIUPs) through the priority mechanism for downstream processing must first prioritize domestic value addition and domestic supply chains, while global supply chains may only be considered after domestic demand has been satisfied.
The Publish What You Pay (PWYP) Indonesia coalition views the decision as an attempt to eliminate ambiguity in Indonesia’s downstream processing policy. However, it argues that clarifying the wording of the law alone does not address the deeper governance and justice issues that have characterized downstream processing in practice.
According to PWYP, the government should have established from the outset whether downstream processing is genuinely intended to build long-term domestic economic self-reliance or merely serves as a reactive response to geopolitical competition over critical and transition minerals.
“On the one hand, this Constitutional Court ruling reaffirms state sovereignty over extractive resources. However, sovereignty cannot be guaranteed merely through legislative wording,” said Aryanto Nugroho, National Coordinator of PWYP Indonesia, in a written statement on Friday (July 24, 2026).
Aryanto added that if downstream processing is truly intended to reduce dependence on imported energy and manufactured products, the government needs an explicit legal framework that prioritizes domestic value addition, accompanied by clear sanctions for non-compliance.
Governance Reform Requires More Than Revising Legal Wording
Aryanto stressed that the government’s challenges extend far beyond revising references to global supply chains, arguing that such changes do not resolve the fundamental problems created by Law No. 2 of 2025, which significantly expands opportunities for new mining licenses.
“Real mining governance reform is not simply about replacing the word ‘global’ with ‘domestic.’ It is about ensuring that every priority licensing mechanism—regardless of its form—is subject to objective, transparent, and accountable criteria, as we have consistently emphasized in response to Constitutional Court Decision No. 160/PUU-XXIII/2025,” Aryanto said.
Without those safeguards, he warned, the priority mechanism could become a backdoor for issuing new mining permits under various forms of ownership that remain unverified.
He also pointed out that Indonesia’s mineral and coal production has already reached an enormous scale, causing severe environmental destruction.
For that reason, PWYP Indonesia believes the current policy direction should be a temporary moratorium on new mining licenses, including those granted through priority schemes, while governance reforms are undertaken, particularly since many existing long-term mining licenses remain in force.
Downstream Processing Risks Becoming a Mere Formality
Aryanto further warned that making downstream processing a prerequisite for priority licensing could become nothing more than an administrative requirement allowing companies to obtain a “priority ticket,” without any certainty that downstream processing commitments will actually be fulfilled.
He pointed to the government’s experience implementing Law No. 3 of 2020, under which Coal Contracts of Work (PKP2B) were converted into Special Mining Business Licenses (IUPKs).
In those cases, licenses were granted first, while downstream processing obligations were added later as paper commitments.
“As a result, the government is now struggling to hold former PKP2B holders accountable for those promises, even though they have long since obtained their licenses,” Aryanto said.
Downstream Processing That Maintains—Rather Than Eliminates—Dependence
Aryanto explained that the rationale behind downstream processing stems from Indonesia’s long-standing concern over its delayed industrialization, despite being one of the world’s largest producers and exporters of strategic mineral resources.
At the same time, Indonesia continues to import and consume many finished products manufactured from its own raw materials.
In the nickel sector, for example, Indonesia exports intermediate products used in the electric vehicle (EV) industry, while China—having developed the downstream manufacturing industry—exports finished EV products back to Indonesia, turning the country into a consumer of goods made from minerals extracted from its own territory.
PWYP argues that Indonesia’s nickel downstream processing model has also imposed significant environmental and social costs.
Nickel industrial parks in Morowali (Central Sulawesi) and Halmahera (North Maluku) have contributed to deforestation, air and water pollution, greenhouse gas emissions from captive coal-fired power plants, and violations of the rights of local communities and Indigenous Peoples.
The coalition also noted that most nickel smelters remain controlled by foreign investors, while technology transfer to Indonesia has been limited.
“For PWYP Indonesia, this demonstrates that downstream processing cannot be understood merely as controlling domestic supply chains. It must also address who bears the ecological and social costs, and whether the value created genuinely benefits communities living around mines and smelters—not only investors and the state,” Aryanto said.
Coal Downstream Processing Raises Similar Concerns
PWYP Indonesia expressed similar concerns over the government’s plan to promote coal gasification into dimethyl ether (DME).
The coalition cited analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) showing that DME projects in Indonesia are not economically viable, with production costs exceeding the cost of importing liquefied petroleum gas (LPG).
The projects also risk increasing the government’s subsidy burden and are inconsistent with Indonesia’s clean energy transition agenda.
PWYP Indonesia has consistently advocated for controlling coal production in line with Indonesia’s climate commitments.
In its view, downstream processing that merely prolongs dependence on fossil fuels is not a solution—it simply transfers climate and fiscal risks to future generations.
Stronger Business Case and Regulatory Oversight Needed
PWYP Indonesia researcher Wicitra Diwasasri warned that Indonesia’s downstream processing policy must avoid repeating patterns that leave the country at a structural disadvantage.
She argued that Indonesia must not continue functioning primarily as a global supplier of upstream mineral resources while remaining dependent on imported downstream products due to limited domestic industrialization and technological capacity.
According to Wicitra, the government’s current approach still appears heavily export-oriented, emphasizing short-term gains rather than long-term industrial transformation.
“It is crucial to clearly define the direction and objectives of downstream processing in the national interest, supported by programs and policies that genuinely demonstrate their commercial and investment feasibility,” Wicitra said.
She also emphasized that implementation of the Constitutional Court ruling must be closely monitored through revisions to Government Regulation No. 39 of 2025.
Although the regulation already prioritizes domestic interests for downstream processing and no longer explicitly refers to global supply chains, PWYP Indonesia believes this still needs to be verified to ensure consistency with the Constitutional Court’s ruling.
The coalition expects future implementing regulations not only to prioritize domestic supply chains but also to establish clear sanctions for companies that fail to prioritize domestic needs.
“Equally important, future downstream processing policies must be aligned with Indonesia’s climate commitments and deliver social and ecological justice for communities living in mining and downstream industrial areas—not simply prolong the extraction of natural resources under a new policy label,” Wicitra said.
In closing, Wicitra stressed that debates over legislative wording must not distract from the more fundamental question:
Can downstream processing genuinely break Indonesia’s dependence on an extractive economic model while distributing its benefits fairly to communities living around mines and smelters, or will it merely shift that dependency from global markets to domestic discourse without changing who ultimately bears the costs and risks?
Source: Betahita