March 6, 2025
JAKARTA – The government seeks to revamp coal gasification projects and build what is to be the country’s largest oil refineries among the dozens of megaprojects worth a combined US$618 billion set to start this year, financed by the newly established Danantara sovereign wealth fund (SWF), a minister has said.
Home to the world’s seventh-largest coal reserves, Indonesia has long sought to process low-rank coal to produce dimethyl ether (DME) as a way to cut its reliance on liquefied petroleum gas (LPG) imports, but past efforts stalled when foreign investors pulled out.
“The government doesn’t need new investors. The President’s directive is clear: Use domestic funds,” Energy and Mineral Resources Minister Bahlil Lahadalia told reporters at the State Palace on Monday.
“All we need [from investors] is the technology. The capital will come from the government and local investors, while the raw material and offtakers are all ours. We’re no longer dependent on foreign players,” he said.
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Indonesia has been pushing to process low-quality coal into higher-value products, such as DME, methanol, urea and other compounds.
State-owned mining company PT Bukit Asam (PTBA) and United States-based Air Products and Chemicals planned a joint venture in 2018, but Air Products pulled out in 2023, when it also exited a similar project with PT Kaltim Prima Coal (KPC).
Chinese investors had shown interest but later withdrew, the energy minister said.
Around four coal gasification projects in South Sumatra, East Kalimantan and South Kalimantan would be developed in parallel, said Bahlil, who also heads the task force on acceleration of downstream industries and energy resilience.
The coal gasification projects are part of 21 natural resource processing projects worth $40 billion in planned investment that the government seeks to accelerate, with announcements of other plans expected in the coming months.
The government also planned to develop an oil refinery with a capacity of 500,000 barrels per day as well as a crude oil storage facility on Nipa Island in Riau Islands province to boost energy security, the minister said.
Ronny P. Sasmita, an economist at the Indonesia Strategic and Economic Action Institution (ISEAI), told The Jakarta Post on Wednesday that using Danantara to finance coal gasification “makes no sense”, as such projects came with “uncertain returns and questionable viability”.
“The exit of foreign investors alone signals weak prospects. Besides, these aren’t the kind of projects SWFs typically back,” Ronny said, likening the move to a risky bet on a start-up.
He also warned of accountability risks, as any losses from the projects would no longer be classified as state losses under the amended State-Owned Enterprises (SOEs) Law.
Coal mining companies have warned that gasification is very costly because of its complex economics, while global coal divestment by major asset managers and banks is making financing increasingly hard.
PTBA’s coal-to-DME project could see the state-owned miner incur annual losses of $377 million, according to a 2020 report from the Institute for Energy Economics and Financial Analysis (IEEFA).
Fitch Ratings stated in a February report that the credit profile of some state-run firms could weaken if Danantara required higher dividend payouts or if firms pursued riskier projects as a result of Danantara’s approach.
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Tri Winarno, the energy ministry’s minerals and coal director general, estimated that coal gasification investments would total $11 billion, the largest among the government’s planned projects to start this year.
“Beyond Danantara, SOEs would also be involved in executing these projects,” Tri said on Tuesday, as quoted by Bloomberg Technoz.
Mining downstream projects included an iron smelting plant, an alumina processing facility, an aluminum refinery, two copper refineries and two nickel processing plants, Tri added.
President Prabowo envisions Danantara, funding with an initial $20 billion from savings “previously [lost to] inefficiencies, corruption and misallocation”, to be a driving force in boosting economic growth from 5.03 percent in 2024 to 8 percent by the end of his term in 2029.