Redistribution of Economic Surplus in the Nickel Sector

The discourse on adjusting royalty rates for various minerals continues to unfold. The Ministry of Energy and Mineral Resources conducted a public hearing on the proposal on Friday, 8 May 2026. Various opinions emerging from the socialisation generally urged the Ministry to postpone the adjustment of royalty rates for copper, gold, silver, nickel ore, and tin.

“And after hearing input from the public and business colleagues, I have received input, so I think I will hold off to build a good formulation that benefits everyone. The state benefits and businesses must benefit,” stated Minister of Energy and Mineral Resources Bahlil Lahadalia in Jakarta on Monday (11/5/2026).

The Minister’s statement is not merely a postponement of a policy. It also implies an anxiety that the state feels it has not yet obtained a fair share from its natural resource wealth.

Amid the pros and cons colouring public aspirations from the consultation results discussing the revision of Government Regulation (GR) No. 19 of 2025, the Ministry of Energy and Mineral Resources has endeavoured to optimise state revenues from the mineral sector through Ministerial Decree No. 144 of 2026. The decree does not raise royalty rates but still impacts increasing state revenues. How does it do so? Let us discuss.

Policy on Price Formulation

Ministerial Decree No. 144/2026 changes the reference mineral price (HPM) formula, including for the nickel commodity. This policy is certainly not just a technical change but a repositioning of the state’s role in the mineral value chain.

In resource economics theory, price is a tool for distributing rents. For a long time, Indonesia has been considered to face the classic problem of being resource-rich but with suboptimal rent capture. The HPM change through Ministerial Decree No. 144/2026 essentially attempts to correct this.

The new formula no longer solely refers to global prices but also incorporates the value of associated minerals such as cobalt and iron, which were previously not considered in the HPM formula. The value of associated minerals is only calculated if they meet certain thresholds, such as a maximum iron content of 35% and a minimum cobalt content of 0.05%.

Additionally, the corrective factor (CF) has been updated and set differently for each commodity, namely 30% for nickel content of 1.6%, iron, and cobalt, and 10% for chromium. The implication of this policy will raise the reference mineral price, which will increase the royalty calculation base and ultimately boost state revenues.

Asymmetric Effects

However, like price policies in general, the effects are not symmetric. On the upstream side, mining companies (IUP holders) actually gain advantages, with miners’ margins potentially rising. With the HPM increase, the selling prices of nickel ore, both saprolite and limonite, also rise. Even for limonite, the price increase could be more significant because it now accounts for cobalt content.

Conversely, on the downstream side, the smelter industry faces real raw material cost pressures. In addition, citing the statement of the Chairman of the Indonesian Mining Experts Association (PERHAPI), currently RKEF smelters are facing rising energy costs, HPAL smelters are dealing with surges in sulphuric acid prices, and global market prices for downstream products (Nickel Pig Iron/Mixed Hydroxide Precipitate) have not fully recovered.

In this situation, the HPM increase means a cost-push shock for the processing industry. To date, Indonesia’s nickel downstream industry has been considered to flood the global market (NPI, MHP, stainless) with prices sufficiently low below international levels, so with the HPM increase, it is hoped that it can also boost the prices of Indonesian nickel downstream products.

In this condition, the trade-off of a policy becomes evident. From a fiscal perspective, a higher HPM has the potential to increase non-tax state revenues (PNBP) and corporate income tax for mining companies. From a downstream industry perspective, input costs rise, pressuring smelter margins and risking reduced smelter capacity utilisation. In economics, this is known as a distributional shift, namely the redistribution of surplus from the downstream sector to the upstream sector and the state.

Price as a Fiscal Instrument

However, it must be remembered that in the context of public policy, the state is not merely a regulator. It also has strategic interests in maintaining industry sustainability while optimising revenues. Looking deeper, Ministerial Decree No. 144/2026 will have positive impacts for the state in at least three ways.

First, improving price discovery. Prices reflect a more complete economic value. For a long time, Indonesia has been regarded as a price maker for nickel commodities because its production accounts for around 65% of the world’s supply.

Nevertheless, Indonesia has not yet become a price controller in terms of value. As a result, state revenues lag far behind the real economic value of nickel. This HPM reformulation policy underscores Indonesia’s important role as the world’s number one nickel producer in balancing the global nickel market through pricing policies.

Second, reducing the potential for underpricing. With the HPM reformulation policy, the transaction basis will become more transparent, thereby reducing moral hazard in determining transaction prices. In royalty calculations, the price used as the basis is the higher of the HPM and the transaction price. Thus, if the HPM is set more reasonably, it can serve as a floor price and prevent underpricing.

Third, enhancing the state’s rent capture. Without explicitly raising rates, the government can increase PNBP and income taxes. Ministerial Decree No. 144/2026 demonstrates one important thing: that price can be a fiscal instrument as powerful as tariffs.

With the HPM reformulation for the nickel commodity, it is estimated to impact an increase in royalty PNBP by 83% to 92%. Similarly for income tax, it is projected to rise due to Ministerial Decree No. 144/2026. The success