UAE to invest $9.5 bn in aluminium smelters: Indonesia

The UAE plans to make possibly the largest-ever investments in Indonesia's industrial sector by pumping $9.5 billion into aluminium smelter projects in Kalimantan, Indonesia's ambassador to the UAE said on Wednesday.

M Wahid Supriyadi was unable to give a time-scale or details on production capacity on the two smelter projects, at a news conference in Jakarta.

"Emirates Alumunium will invest $4 billion in West Kalimantan to build an alumunium smelter and a power plant... Ras Al Khaimah Investment Authority will invest $5.5 billion in East Kalimantan to build an alumunium smelter, a power plant and a railway line related to the projects," Supriyadi told reporters.

Earlier this month, Indonesia's trade minister said India's state-run National Aluminium Co Ltd (NALCO) will invest $4 billion in an aluminium smelter and power plant in Indonesia's East Kalimantan province.

"Depending on the timing it's not a very big deal," said a metals analyst, who asked not to be named. "These big projects get announced all the time and then get scrapped later."

"Indonesia has got some bauxite and it's got a lot of thermal coal, so you have the power," he added. "It all depends on the timing of the deal and how long it takes to sort out, because aluminium capacity expansion for the next decade is quite large."

Bauxite is used to make alumina which is in turn used to make aluminium, a light-weight and flexible metal used in a vast array of industrial and consumer products, from packaging and aircraft manufacturing to electrical cables and insulation.

Southeast Asia's largest economy is the world's top exporter of thermal coal, with about 99 per cent of the identified coal resources located on the island of Sumatra and in the south and east Kalimantan provinces, on the Indonesian side of Borneo island.

The world's fourth most populous country drew in a record of $9.6 billion in foreign direct investment (FDI) in the first half of 2011, attracted by its relatively stable politics and economy since the 1998 financial crisis, plus abundant resources and huge consumer spending power.
Despite issues over infrastructure, corruption and labour disputes, that trend is expected to continue as global firms look to take advantage of cheap labour, and Indonesia's huge mineral wealth. Growth prospects have been given another boost by the government's offer of a tax holiday to big manufacturers investing more than $100 million. 

Other planned investments include a $6 billion joint-venture steel plant by South Korea's POSCO, the world's third-biggest steelmaker, a $4.5 billion petrochemical complex by South Korea's Honam Petrochemical Corp and a new oil refinery for $8-$9 billion from Kuwait Petroleum Corp.

"I do," the analyst said, when asked if he saw more deals similar to Wednesday's announcement. "The Asia region in general will be investing in Indonesia, and Indonesia will be investing in Indonesia."

"It is already clear they have plans to develop their resource-nationalistic policies," he added. "There is a long way to go, in terms of developing the adequate infrastructure."

In an effort to support the domestic industry and add value to its coal exports, the Indonesian energy and minerals ministry is drafting a regulation that would by 2014 require coal producers to upgrade low-quality coal to medium-quality coal before exporting.

Supriyadi added that there was also another UAE company that will invest $100 million in a crude palm oil refinery, while a second UAE firm will invest $90 million in the tyre industry.