ARUSBAWAH.CO – The Publish What You Pay (PWYP) Indonesia coalition believes that Constitutional Court Decision No. 202/PUU-XXIII/2025, which prioritizes domestic supply chains within Indonesia’s mineral downstream processing (hilirisasi) policy, does not adequately address the fundamental governance challenges facing the mining sector.
According to PWYP Indonesia, while the ruling provides greater clarity on the direction of Indonesia’s downstream processing policy, changes to the wording of the Mineral and Coal Mining Law (Minerba Law) alone do not automatically guarantee natural resource sovereignty or justice for communities living in and around mining areas.
Constitutional Court Prioritizes Domestic Supply Chains
In its ruling, the Constitutional Court 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 the Mineral and Coal Mining Law, to be conditionally constitutional.
This means that the allocation of Mining Business Permit Areas (WIUPs) through the priority mechanism to support downstream processing must first prioritize domestic value addition and domestic supply chains. Global supply chains may only be considered after domestic needs have been fulfilled.
PWYP Indonesia National Coordinator Aryanto Nugroho described the ruling as a positive step toward eliminating ambiguity in Indonesia’s downstream processing policy.
However, he emphasized that the real challenge extends far beyond revising the wording of the law.
“On the one hand, this Constitutional Court ruling reaffirms state sovereignty over extractive resources. However, sovereignty cannot be guaranteed merely through legislative wording. If downstream processing is truly intended to reduce dependence on imported energy and processed products, the government needs an explicit legal framework that prioritizes domestic value addition, supported by clear sanctions for non-compliance,” Aryanto said in a press statement received by Arusbawah.co on Friday (July 24, 2026).
Mining Governance Remains the Core Challenge
PWYP Indonesia argues that the government’s homework is far greater than simply replacing the phrase “global supply chain” with “domestic supply chain.”
Aryanto stressed that mining governance reform must include objective, transparent, and accountable licensing procedures.
He warned that the priority licensing mechanism could become another pathway for expanding mining activities unless accompanied by clear and enforceable criteria.
He also highlighted Indonesia’s persistently high levels of mineral and coal production, which have contributed to significant environmental degradation.
For this reason, PWYP Indonesia urged the government to consider a temporary moratorium on the issuance of new mining permits, including those granted through the priority mechanism, until meaningful governance reforms are implemented.
Downstream Processing Must Not Become an Administrative Formality
PWYP Indonesia also warned that making downstream processing a prerequisite for obtaining priority mining permits risks reducing the policy to little more than an administrative requirement.
Aryanto pointed to Indonesia’s experience with coal downstream processing during the conversion of Coal Contracts of Work (PKP2B) into Special Mining Business Licenses (IUPKs).
According to him, mining permits were granted first, while downstream processing commitments were only formalized afterward, leaving the government with limited leverage to enforce those commitments.
“As a result, the government has struggled to hold companies accountable for their downstream processing commitments because the licenses had already been issued,” he explained.
Downstream Processing Still Leaves Indonesia Dependent
PWYP Indonesia also criticized the current model of nickel downstream processing.
While Indonesia has successfully increased exports of intermediate products used in the electric vehicle industry, the final products are still largely manufactured overseas.
As a result, Indonesia remains a consumer of finished goods produced from its own raw materials.
At the same time, nickel industrial parks continue to generate numerous environmental and social impacts, including deforestation, pollution, emissions from coal-fired power plants, and violations of the rights of local communities and Indigenous Peoples.
The coalition also noted that most nickel smelters remain dominated by foreign investors, with only limited technology transfer to Indonesia.
“Downstream processing should not be understood merely as control over domestic supply chains. It must also address who bears the ecological and social costs, and whether the value created truly benefits communities living around mines and smelters, rather than only investors and the state,” Aryanto emphasized.
Coal Downstream Processing Project Also Draws Criticism
PWYP Indonesia also criticized the government’s plan to promote coal downstream processing through coal gasification into dimethyl ether (DME).
The coalition cited analysis from the Institute for Energy Economics and Financial Analysis (IEEFA), which concludes that the project is economically unviable because production costs exceed the cost of importing liquefied petroleum gas (LPG).
Beyond increasing the burden on public subsidies, the project is also considered inconsistent with Indonesia’s clean energy transition agenda.
PWYP Indonesia argues that downstream processing strategies that prolong dependence on fossil fuels merely shift climate and fiscal risks onto future generations.
Stronger Implementing Regulations and Sanctions Needed
PWYP Indonesia researcher Wicitra Diwasasri warned that downstream processing policies must not once again leave Indonesia serving merely as a supplier of raw materials to global markets.
She argued that the government must ensure downstream processing genuinely strengthens Indonesia’s domestic industrialization rather than simply increasing exports of raw commodities or intermediate products.
PWYP Indonesia also called for close oversight of the alignment between the Constitutional Court ruling and implementing regulations, including Government Regulation No. 39 of 2025.
The coalition expects future implementing regulations not only to prioritize domestic supply chains but also to include clear and enforceable sanctions against companies that fail to meet their obligations.
“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.
PWYP Indonesia concluded that debates over changes in legislative wording should not obscure a more fundamental question:
Can Indonesia’s downstream processing policy genuinely reduce dependence on an extractive economic model while ensuring that its benefits are distributed fairly to communities living in mining regions, or will it merely replace one form of dependency with another without addressing the underlying structural problems?
Source: Arus Bawah