Jakarta. Indonesian government is set to break ground on coal downstreaming projects that will convert coal into dimethyl ether (DME) on Friday, as Southeast Asia's largest economy looks to strengthen its energy security and cut reliance on imported liquefied petroleum gas (LPG).

Rosan Roeslani, Minister of Investment and Downstream Industry as well as head of the Investment Coordinating Board (BKPM), said six downstream initiatives were scheduled to enter the construction phase simultaneously.

“Six downstream projects will conduct their groundbreaking on February 6,” Rosan said after a meeting with lawmakers from House Commission XII at the parliamentary complex in Jakarta on Tuesday. 

The projects will be built at six locations across Indonesia: Bulungan in North Kalimantan; East Kutai and Kotabaru in South Kalimantan; and Muara Enim, Pali, and Banyuasin in South Sumatra.

Rosan, who also serves as chief executive of sovereign wealth fund Danantara Indonesia, confirmed that the projects involve multiple investors, but he did not specify who they are. 

The DME initiative is part of a broader national downstream industrialization agenda aimed at boosting value-added processing of natural resources while addressing structural weaknesses in Indonesia’s energy supply chain.

Earlier, Energy and Mineral Resources Minister Bahlil Lahadalia said the coal gasification project would begin development in 2026, using technology sourced from either China or Europe.

The DME project is among 18 downstreaming initiatives that have completed their concept development and pre-feasibility studies under the National Downstream and Energy Security Acceleration Task Force.

The 18 downstream projects are estimated to require investment of $38.63 billion, equivalent to Rp 618 trillion.

Bahlil has repeatedly stressed the project’s strategic importance, particularly in reducing Indonesia’s heavy dependence on LPG imports. National LPG demand currently stands at around 8.5 million tons per year, while domestic production is limited to roughly 1.3 million tons, leaving imports at about 7 million tons annually.

According to Bahlil, Indonesia’s limited LPG output is largely due to the composition of its natural gas reserves, which are dominated by methane (C1) and ethane (C2), rather than the propane (C3) and butane (C4) components required for LPG production.

“Our gas is mostly C1 and C2, while LPG requires C3 and C4. That is why it is difficult for Indonesia to build a domestic LPG industry,” he said.

As an alternative, the government is promoting the downstream industrialization of low-calorie coal into DME, which can be used as a substitute for LPG. In addition to lowering import volumes, DME is also considered more competitive in terms of pricing.

“DME is produced from low-calorie coal and is far more price-competitive than LPG,” Bahlil said.

Interest has been signaled by foreign investors. Previously, a Chinese investor was reported to be exploring participation in Indonesia’s coal gasification program in a potential deal valued at around $1.2 billion.

Tri Winarno, a senior official at the Energy Ministry, said last year that a Chinese company had surfaced as a potential partner in the DME project, with an internal rate of return exceeding 15%, a level seen as attractive for long-term investment. There's government declined to disclose further details.

The Chinese firm is expected to partner with a privately owned Indonesian company, although both parties have remained unnamed, but local media reports point to state coal miner Bukit Asam (PTBA).