Jakarta – The Constitutional Court (MK), through Decision No. 202/PUU-XXIII/2025, ruled that the phrase “and/or global” in Article 51B paragraph (2) letter d and Article 60B paragraph (2) letter d of Law No. 2 of 2025 amending Law No. 4 of 2009 on Mineral and Coal Mining (Mining Law) is conditionally constitutional. The Court held that the provision must be interpreted to mean that the allocation of Mining Business License Areas (WIUP) through a priority mechanism for downstream industrialization must first prioritize domestic value addition and the fulfillment of domestic supply chains. Only after domestic needs have been met may the government consider fulfilling global supply chains.
The Publish What You Pay (PWYP) Indonesia Coalition views this ruling as an attempt to remove ambiguity surrounding the direction of Indonesia’s downstream industrialization policy. However, clarifying the wording alone does not resolve the deeper governance and justice issues that have characterized downstream industrialization to date. From the outset, the government should have consistently defined the primary objective of downstream industrialization: whether it is genuinely intended to build long-term domestic economic self-reliance or merely a reactive response to geopolitical competition over critical and transition minerals.
“On the one hand, this Constitutional Court ruling reaffirms the state’s sovereignty over extractive resources. However, sovereignty cannot be guaranteed merely through statutory wording. If downstream industrialization is truly intended to reduce dependence on imported energy and downstream products, the government needs an explicit legal framework that prioritizes domestic value addition, accompanied by clear sanctions for non-compliance,” said Aryanto Nugroho, National Coordinator of PWYP Indonesia.
A Much Larger Task Than Revising Legal Wording
Aryanto stressed that revising the reference to global supply chains is far from sufficient, as it does not address the fundamental shortcomings of Law No. 2 of 2025, which continues to facilitate the broad issuance of new mining permits.
“Meaningful mining governance reform requires much more than replacing the word ‘global’ with ‘domestic.’ It requires ensuring that any priority licensing mechanism is governed by objective, transparent, and accountable criteria, as we previously emphasized in response to Constitutional Court Decision No. 160/PUU-XXIII/2025. Without these safeguards, priority licensing risks becoming a backdoor for issuing new mining permits under various ownership arrangements that remain insufficiently verified. Indonesia’s mineral and coal production has already expanded massively, generating destructive environmental and social impacts. The appropriate policy direction today should therefore be a temporary moratorium on new mining permits—including those granted through priority mechanisms—while governance reforms are undertaken, particularly given that many existing long-term mining licenses remain active,” Aryanto explained.
Aryanto also warned that making downstream industrialization a prerequisite for obtaining priority licenses could easily become a mere administrative formality, allowing companies to secure priority status without any guarantee that their downstream commitments will actually be fulfilled.
“The government should learn from the experience of coal downstream industrialization under Law No. 3 of 2020. Extensions of mining rights from Coal Contracts of Work (PKP2B) to Special Mining Business Licenses (IUPK) were granted first, while downstream commitments were only required afterward as paper promises. As a result, the government now struggles to enforce those commitments, even though the companies have already secured their long-term licenses,” Aryanto added.
Downstream Industrialization That Shifts, Rather Than Eliminates-Dependence
The rationale for downstream industrialization stems from Indonesia’s long-standing concern over delayed domestic industrialization despite being one of the world’s largest producers and exporters of strategic mineral commodities. At the same time, Indonesia remains a consumer of higher-value products manufactured from its own exported raw materials.
In the nickel sector, for example, Indonesia exports intermediate products for the electric vehicle (EV) industry, while China dominates EV manufacturing and sales, positioning Indonesia once again as a consumer market for products derived from its own mineral resources.
The current model of nickel downstream industrialization has imposed high costs on surrounding communities and the environment. Industrial nickel processing hubs in Morowali (Central Sulawesi) and Halmahera (North Maluku) have contributed to deforestation, air and water pollution, greenhouse gas emissions from coal-fired captive power plants, and violations of the rights of local and Indigenous communities. Most nickel smelters also remain dominated by foreign investment, with limited technology transfer to Indonesia’s local workforce.
“For PWYP Indonesia, this demonstrates that downstream industrialization cannot be understood merely as domestic control over supply chains. It must also address who bears the ecological and social costs, and whether the economic value created genuinely benefits communities living around mining and smelting areas, rather than primarily investors and the state,” Aryanto emphasized.
Similar concerns apply to Indonesia’s plan to develop coal downstream projects through coal gasification into dimethyl ether (DME). Analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) concludes that Indonesia’s coal-to-DME projects are economically unviable, with production costs exceeding imported LPG, posing substantial financial risks, increasing the burden on state subsidies, and contradicting clean energy transition objectives.
PWYP Indonesia has consistently advocated for coal production controls aligned with Indonesia’s climate commitments. Downstream industrialization that merely prolongs dependence on fossil fuels is not a genuine solution, but rather a transfer of climate and fiscal risks to future generations.
Wicitra Diwasasri, Researcher at PWYP Indonesia, cautioned against allowing downstream industrialization to reinforce Indonesia’s disadvantaged position within global extractive industries.
“The government must avoid perpetuating an extractivist model that positions Indonesia primarily as a global upstream supplier while simultaneously becoming a downstream consumer of processed mineral products because of limited domestic industrial and technological capacity. Indonesia appears increasingly prepared to supply its mineral resources for export, reflecting a short-term export-oriented strategy. It is therefore essential to redefine the direction and objectives of downstream industrialization in the national interest, supported by policies and programs that demonstrate genuine commercial and investment viability,” Wicitra said.
The implementation of this Constitutional Court ruling through secondary legislation, particularly Government Regulation No. 39 of 2025, also requires close scrutiny. Although the regulation reportedly prioritizes domestic interests in downstream industrialization and no longer explicitly refers to global supply chains, further verification is needed to ensure consistency with the Constitutional Court’s ruling.
PWYP Indonesia expects future implementing regulations not only to prioritize domestic supply chains but also to establish firm sanctions for companies that fail to prioritize domestic market needs.
“Equally important, future downstream industrialization policies must align with Indonesia’s climate commitments and deliver socio-ecological justice for communities living in mining and downstream industrial areas, rather than simply extending the pace of natural resource extraction under a new policy label,” Wicitra concluded.
Ultimately, debates over legal wording should not obscure the more fundamental question: Will downstream industrialization truly break Indonesia’s extractive dependence and distribute its benefits fairly to communities living around mines and smelters, or will it merely shift the form of dependency from global markets to domestic discourse without changing who bears the costs and risks?.
Media Contacts
Aryanto Nugroho
National Coordinator, PWYP Indonesia
aryanto@pwypindonesia.org
Wicitra Diwasasri
Researcher, PWYP Indonesia
wicitra@pwypindonesia.org