We Want Electric Vehicle Investments from Upstream to Downstream
Investment Coordinating Board Chief Bahlil Lahadalia explains the negotiation process with LG Energy Solution. This South Korean company commits to invest US$9.8 billion to build electric car battery production center.
THE Investment Coordinating Board (BKPM) made an official announcement at the end of December 2020 about LG Energy Solution Ltd.’s investment plan, a good news for government’s ambition to build a world-class electric vehicle ecosystem in Indonesia. BKPM Chief Bahlil Lahadalia, who had been following the negotiations over the past year, said that the US$9.8 billion or around Rp142 trillion investment commitment for the construction of an electric car battery cell production center was not easily obtained. “I had to travel to South Korea five times just to discuss it,” he told Tempo’s Retno Sulistyowati, Khairul Anam, and Aisha Shaidra on Thursday, January 7.
How long did it take to discuss LG's investment plan?
For the memorandum of understanding (MoU) negotiation, it was about a year. We made the MoU draft, going through 22 changes and running to several deadlocks. The BKPM team did the negotiations, without the help of any consultant, because the ones who know about the regulations and the President’s instructions are people in Indonesia. I also received helps from the Foreign Affairs Ministry, the Indonesia Embassy in South Korea, also the State-Owned Enterprises (SOEs) Ministry, Pak Erick Thohir and Pak Budi Gunadi Sadikin—when he was the deputy SOEs minister. We were truly a remarkable negotiation team.
Why did it take so long?
It was a tough negotiation because we want an upstream-to-downstream industry in Indonesia. From the mouth of mines and smelters in North Maluku, to the cathode and precursor factories, including battery cells, in Batang, Central Java. The car factory in Deltamas, Cikarang, West Java, is currently being built by Hyundai. We even discussed about the battery recycling process. This is a first in the world, because it goes from upstream to downstream. Others stop in battery cells.
The agreement was finally signed on December 18, 2020?
Yes. We had to delay the departure by one day, because there was one point missing that needed to be included in the MoU. I also asked for local entrepreneurs to be included in the development—not just SOEs. Private companies must also be allowed to participate. The President’s instruction is to have every investment to have multiplier effects in addition to creating jobs. (That way) the regional economy will advance and local businesses will grow.
What is the cooperation scheme?
This investment combines LG and the SOEs consortium in its parent company. Everyone is involved, for the mine there is Aneka Tambang, and all the way to the smelters, the precursors, cathodes, battery cells and battery packs, also involving SOEs.
So, an agreement between LG and SOEs was also signed?
There are two agreements, the MoU between LG and BKPM includes the scopes of what the state will provide them with. Vice versa, they must comply with regulations. The second (MoU) is a heads of agreement for business-to-business (B2B) that refers to what have been agreed upon. There must be no more additions, because the incentives are from the state, the licensing is from the state, and the nickel reserves are owned by the state. We want SOEs to have power in this
Has the B2B negotiation started?
It has. We are doing it simultaneously.
When will it be signed?
Our target is as soon as possible, it should be no later than January 2021. If we cannot fly (to Korea), LG will come here this January. The only thing left to discuss now is SOEs’ involvement in placing experts in all business divisions.
What about share ownership?
There are four stages: mines, smelters, precursors and cathodes, also battery cells. Among them, there are stages where SOEs (have the) majority shares and stages where they are minority shareholders. The same goes for LG. To me, this is not about who has the most shares, but how this collaboration is done. In the mine, for example, SOEs would surely have the most shares. In battery cells, it is LG, as they own the technology and the market. We welcome that. The BKPM will act as a fair referee. This is a very transparent deal.
Why not build the battery factory near mining areas for efficiency factors?
The smelters are located in the upstream. The nickel ore factory was built in North Maluku. Outputs from the smelter are taken to Batang, to be turned into precursors and cathodes. Batang will serve as a hub, connecting with other logistics aspect, including technology. The electricity supply comes from renewable energy.
Why was the Batang Integrated Industrial Zone chosen?
Batang is a supported and encouraged industrial area. It has been inaugurated by the President, and the land price is the cheapest. It is competitive. One thing that makes us lose to Vietnam is the price of land. Land prices in industrial areas in Java could reach Rp3-4 million per square meters. In Vietnam, it is no more than Rp1.2 million. The state should be able to attract investors. One way is by solving issues of licensing and land.
Will LG get the land for free?
Not just LG but everyone. For the first five years, it would be free of charge. If Panasonic or Tesla also wants to (set up investments) in Batang, we’re happy. We are not giving special treatments to any particular investor. Everyone is treated the same. There are 4,300 hectares over at Batang and I want the area full.