Mega-Project Mania: Indonesia’s Industrial Land Supply Under Constraint from the Global Race for Strategic Minerals  

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This article is part of a series exploring Southeast Asia’s industrial zone landscape. For a comprehensive overview, refer to our articles on Malaysia, Vietnam, and Thailand’s Mega-sites.


Foreign investment in Southeast Asia’s largest market surged during 2022, with the total investment value rising by 44% from the previous year, to $43 billion. The year saw major investments announced across the pharmaceuticals, food and beverage, and fast-moving consumer goods (FMCG) sectors throughout the country. However, it is the mega-investments in processing Indonesia’s mineral resources that have made the news and were the primary drivers of the country’s FDI growth.

Indonesia’s deposits of nickel, cobalt and manganese, among other minerals, are strategic inputs to electric vehicle batteries, and the Indonesian government is using these resources to attract new investments. Regulations require that companies process the materials prior to export, and the government is developing policies to attract downstream investment in the electric vehicle battery materials value chain with the goal of making Indonesia a future hub in battery production. This includes the raw material export moratoriums, developing attractive investment incentives, as well as consolidating the investment regulatory framework under the 2020 Job Creation, or Omnibus Law.

These policies have worked. Mega-investments have been announced by global leaders in base metal smelting and refining, as well as downstream processing of these metals for precursor cathode active materials (PCAM), cathode active materials (CAM) and battery components. Recent announcements have seen Hyundai Motor Group and LG Energy Solutions announce a $1.1 billion facility to refine nickel for production of PCAM. China’s Contemporary Amperex Technology (CATL) plans to establish a $5.2 billion EV battery facility, and BASF is finalizing a $2.6 billion partnership deal with Earmet for processing nickel.

Figure 1: Locations of Recently Announced Mega-Projects in Indonesia

Investments have been largely focused on the main island of Java where 166 million, 61% of Indonesia’s total population, reside, and where the infrastructure is most advanced. The less developed islands including Sulawesi and Maluku have received investments in mining and mineral processing that require proximity to the mining concession, but it is rare to see investments in high value-added downstream processing in these locations due to limited availability of reliable infrastructure, labor and the specialized raw materials needed for manufacturing. As conditions drive investment, companies must consider the challenges they will face when trying to identify an optimal site in the archipelagic country that is experiencing an FDI boom.   

Diversity of Options but Centralization of Quality 

The total stock of industrial real estate is more than 60,000 hectares, spread across the 6 main islands of Indonesia: Kalimantan, Sumatra, Java, Sulawesi and Maluku. The government has been actively developing new industrial zones in less developed regions like Kalimantan, Sulawesi, and Maluku, where 22 established zones are already located, and more are in early stages of development. However, the highest concentration of zones is in Java and Sumatra, where 112 zones or 82% of the total supply are located.

Figure 2: Distribution of Active Industrial Zones in Indonesia

Infrastructure capacity can vary substantially between the more developed regions of Java and Sumatra, and the less developed regions of Kalimantan, Sulawesi, and Maluku. Power generating capacity in the less developed regions is lower than in Java and Sumatra and there is limited penetration of transmission lines across the islands. Industrial zones in these regions have therefore invested in power plants to supply reliable electricity to tenants, and many of these plants have limited available excess capacity. Assessments of zones in the less developed regions of Kalimantan, Maluku, and Sulawesi identified that those with power plants currently operating could not provide sufficient excess capacity for a new investor, posing a significant risk to any potential investment.  

Identifying zones that could provide a sufficient supply of industrial water was also a challenge in the less developed regions. Investors are commonly told to use groundwater for their industrial needs, because the zones have little to no capacity to treat water. While river networks in these regions can provide large volumes, many developers have not built the infrastructure or received the approvals necessary to secure river water directly for industrial volumes.  

While still an occasional risk, these challenges are less common in the more developed regions of Java and Sumatra, due to the infrastructure already present in these regions and their proximity to existing industrial zones. In scenarios where zones may lack the necessary infrastructure, management can provide a clear path to connect to the national electricity grid and large water reservoirs. The availability of sufficient redundancy in utility supply found in Java and Sumatra continues to be a major driver influencing site-location decisions.  Java has historically received the greatest share of foreign direct investment, and received $15.5 billion, or 53% of Indonesia’s total FDI in 2022.Sumatra was the second most active destination receiving $8.14 billion, or 23% of total FDI.

A well-structured site selection analysis will take these factors into consideration, and sometimes less developed locations will be the optimal location for a specific project. While the regions of Kalimantan, Sulawesi and Maluku have greater infrastructure challenges, major investments have been established across these islands, often due to the benefit of being in close proximity to mining concessions. Infrastructure can be developed to support investment in these locations, but at additional time and cost. Investors that do not require proximity to mining concessions will find that the lack of developed infrastructure in these regions will drive their site-selection to the 112 zones across Java and Sumatra.

Availability of Land in Industrial Zones

The availability of industrial land for large-scale projects is very limited, and even more so when considering the relevant legal titles necessary for investment. In a recent chemical processing site-selection project, Tractus found about one-third of active zones in Indonesia are suitable for an investment in and could provide 45 Ha or more. While Indonesia had more zones that fulfilled the project’s minimum requirements (25) compared to those identified under the same conditions in Malaysia (10), Thailand (11) and Vietnam (16), further analysis revealed most were unsuitable due to limited infrastructure and holding relevant land titles and permits.

Investors must ensure that the land being offered has been appropriately titled to permit an investor to acquire ownership of the property and develop the land for industrial use. The critical permit that must be assessed is the “Hak Guna Bangunan (HGB)”, also known as a “Right to Use.” This is a permit that will allow an investor to construct a facility on the land. Zones that are managed by the government may also provide land with a “Hak Pengelolaan Lahan (HPL)” permit, or “Right to Manage.” If the land being offered is under an HPL, and has not received an HGB, an investor will need to convert the land title to an HGB, which takes approximately 3-months. If the land is titled as HGB, ownership can be immediately transferred to the investor. The HGB has a validity of 30 years, which can be extended for an additional 2 terms, the first for 20-years and the second for 30-years, providing a total lease of 80 years. These are the most common land lease terms, but there are new zones being developed that provide a 99-year lease term.

Investors must also assess if the plot being offered has received environmental approval to permit industrial activity, known as an “Analisis Mengenai Dampak Lingkungan” (AMDAL). The AMDAL will allow for certain industries, established under defined industrial codes known as KBLI numbers, to operate on the land. Developers may propose land that does not have an AMDAL, which would require investors or the zone to undertake the approval process. Obtaining an AMDAL can take upwards of 1.5 years to complete. However, prior to assessing the title and AMDAL, the developers must have acquired clear title to the land from local landowners.

Based on our experience, we have encountered numerous instances where developers proposed land that had not yet been acquired from local communities, did not have an HGB, and did not have an AMDAL. The process of acquiring land and then converting the relevant titles for industrial use could take between 2-3 years and the process is subject to significant risks of delay. Indonesia has recently revised many of its investment and land title permitting processes to streamline investment, but even with the new framework there remains regulatory complexity and inconsistencies across regions and zones. Determining that all land has been acquired and holds relevant approvals, permits and titles needed for an investment is therefore critical in undertaking a site-location analysis in Indonesia.

Figure 3: Example of the Fragmented Process by which Land is Being Acquired for an Industrial Zone Development

Note: Green shading denotes land already acquired while the white areas are land remaining to be acquired

Tractus found that 90% of the sites investigated posed a risk to the investment schedule due to lack of permits and approvals. Investors trying to identify mega-sites can expect that only about 10% of zones have shovel ready land, or land that required minimal title changes that could align with the investment schedule. This is a constraint that we are seeing in all of the other ASEAN countries and investors need to be prepared.  

Indonesia is a rapidly growing destination for investments that seek to process its rich natural resources and provide consumer goods to its large population. The challenges present within the developed and less developed regions of the country while not unique to Indonesia, occur with greater frequency than among its ASEAN peers. A comprehensive site-selection analysis that takes into account the key operational and cost criteria that drive a site location decision will, however, effectively address these challenges and identify the optimal site in the country.

What We Can Do 

Tractus has been assisting companies to make informed decisions about where to invest and how to expand their businesses in Asia and beyond for over 25 years. Our partners and senior management leverage their experience running successful manufacturing and service businesses, bringing this commercial perspective to our client work. We have proven experience advising companies on their location strategies, helping them optimize their real estate portfolios, and identifying the optimal sites to support their companies’ growth. We use a proven, integrated site selection, real estate and incentives negotiations methodology, comparing locations in a systematic and objective way that leads to a defensible result. Let us show you how we can support you to make your next assignment a success.   


Authored by

Dennis Meseroll is Executive Director, James Meisenheimer is Senior Consultant Manager, Arunrat Chumroentaweesup is Consulting Manager and Khemthong Chanchao is a consultant based in Thailand.


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