The Minister of Energy and Mineral Resources (ESDM), Bahlil Lahadalia, confirmed that the coal downstreaming project through gasification into dimethyl ether (DME) will not only be developed in South Sumatra but also in Kalimantan.
According to him, this plan has been discussed with President Prabowo Subianto during a limited meeting on Monday (March 10, 2025), as a follow-up to last week’s discussion regarding the first stage of downstreaming, which will be funded by the Investment Management Agency (BPI Danantara).
“We will also directly develop DME as a substitute for [LPG] imports. This will be done alongside downstreaming in the fisheries, forestry, and plantation sectors,” he said at the State Palace after the meeting on Monday evening.
“The locations will be in Sumatra and Kalimantan. One of the options is like that. Once it’s finalized, I will announce it again.”
Bahlil stated that the coal gasification project into DME will utilize technology transfer from the United States (US) and China. It is known that these are the only two countries that have proven capabilities in developing coal gasification technology into DME in the world.
He added that the coal downstreaming project will be technically discussed in the near future, including evaluating the technology that will be used.
The idea of gasifying coal into DME under President Joko Widodo's administration was initially entrusted to PT Bukit Asam (Persero) Tbk (PTBA), with investment support from Air Products & Chemicals Inc. (APCI) from the United States (US).
The project was originally planned for 20 years at the Bukit Asam Coal-Based Industrial Estate (BACBIE) located at the coal mine mouth in Tanjung Enim, South Sumatra. BACBIE would be situated at the same location as the South Sumatra 8 Mine Mouth Power Plant (PLTU).
With foreign investment from APCI, the project was initially expected to produce about 1.4 million tons of DME per year, utilizing 6 million tons of coal annually.
However, in mid-2023, APCI withdrew from the project to focus on developing blue hydrogen projects in the US. This departure led to the suspension of the coal gasification project’s continuation until now.
Wave of Criticism
The project has faced significant criticism from various parties, mainly because it was considered uneconomical if intended to substitute LPG imports, which cost around IDR 7 trillion per year.
From the mining business sector, the Executive Director of the Indonesian Mining Association (IMA), Hendra Sinadia, had previously stated that coal gasification into DME is a very expensive project.
"To convert coal into gas, for example into DME, there is a technology for it. We don't have that technology. Even in the world, the technology is limited, which is why it’s expensive," Hendra said when interviewed recently.
“This should be a consideration for the government. If coal processing is required for companies, it will not be economical.”
Hendra believes that if the government forces coal gasification into DME as a mandatory program for coal companies, there is a possibility that the substitute product will end up being more expensive than LPG.
As a result, this could be counterproductive to the government's goal of developing DME to reduce LPG import costs and subsidies.
"If they sell DME, which is supposed to replace LPG, how will the price of DME be set? It won’t be easy if the price isn’t economical. Why would anyone buy DME? They’d rather buy LPG. Why would anyone invest in it if the price isn’t attractive?" Hendra said.
Furthermore, the President's Special Advisor on Energy, Purnomo Yusgiantoro, stated that the netback of DME, as the final product of coal downstreaming, cannot compete with LPG, which is imported and subsidized by the government.
It’s important to note that netback value refers to the highest price that consumers or buyers are willing to pay for a particular energy source.
This issue led to APCI's withdrawal from the coal downstreaming project into DME by Bukit Asam, which left the LPG substitution mega-project stalled.
"There was a study as to why APCI pulled out from South Sumatra. They calculated the netback and found it couldn’t compete [with imported LPG]. Unless the coal price is US$15/ton. If it's US$15, then it's compatible with the price of LPG," Purnomo said during the Energy Transition Policy Review and Economic Growth Targets for the New Government event at the end of October.
Purnomo emphasized that the comparison between LPG and DME—supposedly a replacement for LPG—was not at the same level or "apples to apples."
National Economic Loss
From the economist’s perspective, the Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira Adhinegara, claimed—based on his institution's research—that the country could lose royal income amounting to Rp33.8 trillion per year if the coal gasification into DME project is pushed forward.
"What will be the result? The state stands to lose Rp33.8 trillion in royalty income per year. Why? Because coal downstreaming is given a 0% royalty incentive under the Omnibus Law [Cipta Kerja]," he said last weekend.
Bhima believes that if Indonesia continues to push for the coal DME project, which is economically expensive and requires substantial investment, in the end, the government will likely have to provide fiscal incentives for companies investing in this project.
"The incentive would be a 0% royalty. That means a loss of Rp33.8 trillion per year in estimated revenue," he concluded.
He also emphasized that coal downstreaming should not burden the state's finances with additional gas subsidy costs for the gasification process into DME.
“The projects being funded should not result in additional burdens on the state budget, such as in the form of gas subsidies for the coal gasification [DME] project,” he said.
In addition, he pointed out that the nature of coal mining in Indonesia, which is dominated by open-pit mining, is not suitable for gasification projects, which are considered more appropriate for closed-pit or underground mining.
Meanwhile, Deputy Speaker of the People's Consultative Assembly (MPR) Eddy Soeparno also urged the government to reconsider the prioritization of the coal downstreaming project, particularly coal gasification into DME, as the project faced challenges due to its perceived lack of economic feasibility in the previous administration.
“Going forward, policymakers need to conduct further studies to ensure that the economics of DME products are cheaper than LPG. This review is essential to ensure that the coal downstreaming policy can reduce imports and strengthen national energy resilience,” said Eddy in his statement, quoted on Monday (March 10, 2025).
In line with Purnomo's view, Eddy mentioned that if LPG imports are still cheaper than DME production, the government should consider increasing domestic LPG production capacity rather than building DME production facilities.
“At least, this would significantly reduce LPG imports, which would help preserve foreign exchange,” said the Member of Commission XII of the DPR.
Eddy explained that during his tenure as the head of Commission VII (which is a partner of the Ministry of Energy and Mineral Resources) from 2019 to 2024, coal downstreaming into DME faced a major challenge: the economic feasibility of the final product.
The raw material used for DME production is coal with good calorific value, which leads to high production costs.
“Because the coal feedstock used has a calorific value of 4,000–4,200 kcal, the raw material costs are relatively high. Therefore, when going through the production process into DME, the final price becomes expensive and even, in our calculations, it could be more expensive than importing LPG,” he explained.
“The goal of producing DME is actually to substitute LPG use.”
Eddy stressed that the economic challenges at the time caused the coal downstreaming policy to stall, ultimately leading two state-owned enterprises and one private company to withdraw from the project.
“These economic challenges led two of our state-owned enterprises and one private national coal company to cancel their investment in the project with Air Products from the US, which is an expert in the coal downstreaming process,” said Eddy.
