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Commodities

Indonesian coal miner Adaro to build $728m aluminum smelter

Company also unveils battery plan as part of diversification push

Adaro Energy and other Indonesian coal miners are taking steps to diversify from the commodity.   © AP

JAKARTA -- Major Indonesian coal miner Adaro Energy on Thursday announced a plan to invest $728 million to build an aluminum smelter and a separate initiative to develop a "new energy battery factory" in the company's first major moves to diversify away from coal.

Rising climate pressures from investors and lenders are pushing coal miners in Indonesia -- the world's largest exporter of thermal coal -- to diversify away from the commodity as efforts increase internationally to cut carbon emissions and rein in rising global temperatures.

Adaro Energy subsidiary Adaro Aluminium Indonesia has signed a letter of intent to invest and build the aluminum smelter in a new industrial park that the government is currently developing in North Kalimantan Province on the island of Borneo, Adaro said in a news release. President Joko Widodo says he wants the area to become "the largest green industrial complex in the world."

"Adaro is committed to transform its businesses through green initiatives in the long term," Adaro Energy Vice President Ario Rachmat said of the aluminum smelter investment. "We are optimistic that global demand for aluminum products will keep rising, particularly for cables, batter[ies], and chassis."

He added that Adaro expects the industrial park to eventually attract other industries that require aluminum, such as solar panel and electric vehicle producers. The company will target both domestic and export markets for the aluminum products.

Adaro Energy CEO and President Director Garibaldi Thohir said during the signing ceremony held on Tuesday in North Kalimantan and witnessed by Widodo that Adaro is also planning to build a "new energy battery factory" in the same location.

"We're hoping to support the government's efforts to push for the development of the electric vehicle ecosystem and also to contribute to the development of renewable energy in Indonesia," Thohir said.

Adaro said that to carry out the aluminum project, it will team up with domestic and international partners "who have the track record, experience, cutting-edge technology and comprehensive knowledge of the aluminum industry," but did not name any of them.

Rachmat separately told Nikkei Asia that the smelter construction will take two years, but did not say when it is due to start. He added that the smelter will produce aluminum ingots or sheets.

Besides Adaro, other Indonesian coal companies are taking steps to diversify. Earlier this year, Indika Energy and state-owned Bukit Asam announced plans to enter the solar energy business.

Those moves are in addition to the government's mandate for miners to develop downstream industries in exchange for extension of their mining permits.

Bukit Asam, in partnership with state oil and gas giant Pertamina, last month announced a continuation of a delayed $2.1 billion coal gasification project plan with U.S. chemical company Air Products & Chemicals to convert coal into dimethyl ether, which will be used as a substitute for liquefied petroleum gas to reduce Indonesia's LPG imports.

Rachmat said the aluminum smelter development is also intended "to support the government's industrial downstreaming program" through which Adaro is hoping to "contribute to lowering imports of aluminum, to create processing activities and adding value to alumina, as well as to increase tax revenue for the country."

Widodo during the groundbreaking ceremony of the North Kalimantan industrial park on Tuesday said it has attracted investors from China and the United Arab Emirates. The complex will occupy 16,400 hectares (164 sq. kilometers) of land in the initial development plan, with a target to later expand it to 30,000 hectares. 

The president said it is intended to host "high-tech" industries -- including producers of sodium ion and lithium ion batteries, semiconductors, petrochemicals, solar panels and industrial silicone products -- and to support Indonesia's "economic transformation" from heavy reliance on raw commodities to industrialization.

"We'll no longer export raw materials," Widodo said. "From North Kalimantan here, [we'll export] just near finished products, so as to give added value for our country. This is a leapfrog that we want to do and we will see the real benefits five to 10 years from now."

Luhut Pandjaitan, Indonesia's coordinating minister for maritime and investment, added that the new industrial park will need up to $12 billion in investment to build hydropower plants to support industrial activities there and another $1 billion to build a major port.

But in a sign of the long road Indonesia faces in achieving its transformative ambitions, he said that until the construction of the hydropower plants are completed over the next 10 to 15 years, electricity for industries will be supplied by coal-fired and solar plants.

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