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Energy

Indonesia signs $15bn deal with U.S. company to turn coal into chemicals

NYSE-listed Air Products to build local industry for higher-value-added products

A coal barge is towed on a river in South Sumatra, Indonesia. (Antara Foto/Nova Wahyudi via Reuters)

JAKARTA -- Indonesia has signed a deal worth $15 billion with an American gas processing and chemical company to develop a coal gasification industry in the country, a government agency said on Friday.

The memorandum of understanding was signed between Indonesia's Investment Coordinating Board (BKPM) and Air Products and Chemicals on Thursday in Dubai, where President Joko Widodo currently is, a statement from BKPM said.

The deal was described as "long-term investment agreement" aimed at converting "low-value coal into high-value-added chemical products" such as methanol, enabling Indonesia to move downstream from raw natural resources.

New York Stock Exchange-listed Air Products builds and operates industrial gas projects. The company will work with several Indonesian corporations including coal miner Indika Energy and state-owned Bukit Asam, with investments set to start early next year, BKPM chief Bahlil Lahadalia said.

The deal reflects Indonesia's desire to move away from coal-fired power plants, which will create a need to put the commodity to other uses.

One aspect of the project will convert natural gas into blue ammonia -- ammonia that has been made through a process that produces low carbon dioxide emissions. 

Indonesia seeks to achieve net zero CO2 emissions by 2060, and was one of 46 countries to sign on to an agreement to phase out coal power in advanced economies by the 2030s and worldwide by the 2040s during the COP26 United Nations climate conference in Glasgow.

Coal gasification can also help alleviate the country's fuel imports and improve the country's trade balance. Despite being an exporter of oil, Indonesia is a net importer of crude as its energy needs grow.

Minister of State Owned Enterprises Erick Thohir said this year that coal gasification was important for the country as it "has a direct added value to the national economy at a macro level" and "because it is in line with President Joko Widodo's direction to reduce dependence on imported products."

He said coal gasification can save foreign exchange reserves of up to 9.7 trillion rupiah ($677 million) per year and the industry can support 10,000 jobs.

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