Indonesia's Bold Mining Experiment: Empowering the People or Risking Chaos in the Bauxite Sector?

JAKARTA – A landmark regulatory shift in Indonesia is sending ripples through the global metals industry. The recent enactment of regulations that grant individuals, cooperatives, and community organizations (Ormas) the right to apply for small-scale mining permits is being hailed by the government as a progressive move to democratize mineral wealth. However, a subsequent, highly specific rule has added a dramatic new layer: a mandate for Religious Organizations (Ormas Keagamaan) to hold a controlling 67% stake in any business entity they establish for mining.

This move to corporatize religious groups' involvement, formalized in Minister of Energy and Mineral Resources Regulation (Permen ESDM) Number 18 of 2025, implementing PP 39/2025 that imposes the controversial 67% minimum ownership requirement exclusively on religious organizations is seen as a double-edged sword, with potentially significant consequences for the supply of key minerals like bauxite.

The policy represents a fundamental restructuring of the mining sector. Proponents argue it will formalize previously illegal artisanal mining, inject income into local communities, and empower small-scale enterprises.

A New Model: The Corporatization of Ormas-Led Mining
Permen ESDM 18/2025 fundamentally alters the potential impact of religious organizations in the sector. By requiring a minimum 67% ownership in a dedicated Business Entity (BU), the government aims to ensure Ormas are genuine controllers of their mining ventures, not just figureheads.

Market analysts note that the 67% rule is designed to prevent exploitation by large companies using Ormas as mere proxies. It forces the Ormas to be the principal actor, which could lead to more structured and accountable operations than would be seen with thousands of individual miners. However, this also raises the stakes immensely, placing the burden of major capital investment and complex operational oversight squarely on the Ormas themselves.

A Multi-Tiered Threat to Bauxite Supply Stability
The critical question for the market is how this multi-pronged approach will alter bauxite supply dynamics. Industry observers point to several key considerations:

• Supply Surge: The potential for a significant short-term surge in supply from individual miners is very real, but that supply will be highly volatile. The new Ormas-led entities represent an unknown variable—if they can mobilize capital and expertise, they could become a new class of mid-tier producers, offering more consolidated and predictable volumes than individual miners.

• Quality Challenge: The quality challenge now has two facets. Artisanal miners typically lack the expertise for rigorous quality control, while Ormas-led BUs face the challenge of whether they can secure the technical expertise needed to meet the consistent quality demands of alumina refineries.

• Market Power: Industry sources note that while they remain cautious about fragmented individual sources, the Ormas-led companies could potentially become reliable suppliers if they operate with corporate professionalism. The diffuse supply from individuals could exert downward pressure on domestic prices, while corporatized Ormas, controlling larger resource blocks, would have significantly more market power.

Significant Risks Loom Larger with Ormas Involvement

Beyond supply concerns, the policy introduces substantial systemic risks that are amplified by the involvement of powerful religious institutions.

Environmental organizations warn that regulating environmental compliance across hundreds of scattered, small-scale mines presents significant challenges. They note that if major Ormas-led ventures experience environmental incidents, the reputational damage could extend beyond corporate entities to affect civil society institutions.

While the 67% rule mitigates the risk of "shell" Ormas used as proxies by big miners, industry observers caution it could lead to complex partnerships between religious groups and private investors. Conflicts over land between communities, individuals, corporatized Ormas, and established mining companies are considered increasingly likely.

Conclusion: A Test of Governance and Institutional Integrity

Indonesia's bold experiment has evolved beyond testing the government's ability to oversee a fragmented mining sector. With the implementation of Permen ESDM 18/2025, it now also tests the managerial capacity of the country's religious institutions.

The ultimate impact on bauxite supply will be determined by a dual track: the government's ability to enforce regulations across countless small players, and the ability of Ormas to successfully transition into responsible, corporate mine operators. The international mining community watches closely as Indonesia balances economic inclusion with sectoral stability in one of its most strategically important industries.