Construction Raw Materials in India and Indonesia Market Study and Potential Analysis | Final Report May 2021 Imprint PUBLISHED BY Bundesanstalt für Geowissenschaften und Rohstoffe (BGR) Stilleweg 2 30655 Hannover (Germany) Copyright © 2021 by Levin Sources and the Federal Institute for Geosciences and Natural Resources (BGR) All rights reserved under International Copyright Conventions. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without prior permission in writing from the publisher. ABOUT THIS REPORT This report presents the final results of a study on construction raw material value chains in two metropolitan areas in India and Indonesia. This study is a product of BGR’s sector project “Extractives and Development”, which is implemented on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The set up and the implementation of the study have been coordinated and accompanied by Hannah Maul. For more information please visit: www.bmz.de/rue/en AUTHORS This report was written by Victoria Gronwald, Nicolas Eslava, Olivia Lyster, Nayan Mitra and Vovia Witni, with research contributions from teams in Indonesia and India. DISCLAIMER This report was prepared from sources and data Levin Sources believes to be reliable at the time of writing, but Levin Sources makes no representation as to its accuracy or completeness. The report is provided for in- formational purposes and is not to be construed as providing endorsements, representations or warranties of any kind whatsoever. The authors accept no liability for any consequences whatsoever of pursuing any of the recommendations provided in this report, either singularly or altogether. Opinions and information provided are made as of the date of the report issue and as subject to change without notice. For more information, please visit www.levinsources.com DESIGN BlockDesign Kommunikation & Medien (Germany) COVER PHOTO Jörg Böthling / visualindia.de – Hard working women at a granite stone quarry in India. AS AT May 2021 CONTACT Bundesanstalt für Geowissenschaften und Rohstoffe (BGR) Stilleweg 2 30655 Hannover (Germany) E-Mail: [email protected] Table of contents Acronyms 4 List of maps 5 List of figures 5 List of tables 6 1. Introduction 7 2. Approach and methodology 10 3. India 12 3 1 Country overview 12 3 2 Value chain overview and analysis 15 4. Indonesia 37 4 1 Country overview 37 4 2 Value chain overview and analysis 43 5. Barriers and opportunities to expansion of local value chains 58 5 1 India 58 5 2 Indonesia 65 6. Analysis of value chain and sector potentials 71 6 1 India 71 6 2 Indonesia 79 7. Bibliography 85 Annex 1: List of interviewees 100 Annex 2: Material selection 104 Annex 3: Social and environmental impacts 110 Annex 4: India’s mining obligations framework 120 Annex 5: Potential analysis – general approaches 122 4 | Construction Raw Materials in India and Indonesia Acronyms ASM Artisanal and small-scale mining BEE Bureau of Energy Efficiency BIS Bureau of Indian Standards C&D waste Construction and demolition waste DFM District Mineral Foundation DGMC Directorate General of Minerals and Coal ECBC Energy Conservation Building Code EIA Environmental Impact Assessments EPA Environment Protection (Amendment) Act EUR Euro FCA Forest Conservation Act FSI Floor Space Index GDP Gross domestic product GRIHA Green Rating for Integrated Habitat Assessment IBM Indian Bureau of Mines IDR Indonesian Rupiah INR Indian Rupee LPJK National Construction Services Development Board LSM Large-scale mining MEMR Ministry of Energy and Mineral Resources MoEFCC Ministry of Environment, Forest and Climate Change MoHUA Ministry of Housing and Urban Affairs MMDR Mines and Minerals (Development and Regulation) MoMSME Ministry of Micro, Small & Medium Enterprises M-sand Manufactured sand NBCI National Building Code of India NCT National Capital Territory of Delhi NCR National Capital Region of Delhi NGT National Green Tribunal OBC Other backward castes OHS Occupational health and safety PEPs Politically exposed person PPE Personal protective equipment SC Supreme Court of India SCST Scheduled casts and scheduled tribes SIPB Rock Mining Permit USD US Dollar Market Study and Potential Analysis Acronyms, List of maps, List of figures, List of tables | 5 List of maps Map 1 Delhi NCT area of supply 14 Map 2 Surabaya area of supply 39 Map 3 Regencies with sand production 47 Map 4 Regencies with limestone production 49 Map 5 Regencies with clay production 49 List of figures Figure 1 Delhi’s population trends 13 Figure 2 Extraction and follow up steps of stones, sand and clay 15 Figure 3 Rock supply chain 21 Figure 4 Brick manufacture and associated steps 23 Figure 5 Cement manufacture and associated steps 26 Figure 6 On-site processing and end usage of aggregates, cement, sand and bricks 28 Figure 7 Limestone production and size of operators, India 30 Figure 8 Percentage of quarrying sector workers in legal entities and home businesses, Indonesia 37 Figure 9 Number of quarrying establishments by province 40 Figure 10 Number of quarrying workers per province (home businesses) 40 Figure 11 Percentage of female and male workers in quarrying establishments, East Java 40 Figure 12 Percentage of workers by status, home businesses and legal entities, East Java 41 Figure 13 Percentage of workers by education, legal entities and home businesses, East Java 41 Figure 14 Value chains of gravel and sand, limestone, rock and clay in Indonesia 44 Figure 15 Percentage of workers by material, legal entities and home businesses, Indonesia 44 Figure 16 Percentage of legal entity and home business production volume by material, Indonesia 45 Figure 17 Percentage of legal entity and home business production value by material, Indonesia 45 Figure 18 Sand prices flowchart (N B prices are indicative and subject to fluctuation) 53 Figure 19 Gravel prices flowchart (N B prices are indicative and subject to fluctuation) 53 Figure 20 Expenditures, legal entities and home businesses, East Java 56 Figure 21 Trade balance attributed to construction raw materials, 2015-2019 65 Figure 22 Main contributors to trade deficit attributed to construction materials, 2019 66 Figure 23 Global material use in 2011 and 2060 104 6 | Construction Raw Materials in India and Indonesia List of tables Table 1 Production of quarrying materials 2017-18 in India 8 Table 2 Production of quarrying materials 2018 in Indonesia 8 Table 3 Value per m3 of material 46 Table 4 Expenses per business per year 55 Table 5 Taxes and retribution by the quarrying sector 56 Table 6 Income tax rates for construction companies 57 Table 7 Average annual remuneration per worker in East Java 57 Table 8 Known material uses for raw materials 62 Market Study and Potential Analysis 1. Introduction | 7 1. Introduction Industrial minerals and construction raw materials 2018). The OECD projects recycling of materials to make up 84% of mineral production across the globe. become more competitive in comparison to the ex- The price and value of most construction raw mate- traction of primary materials, due to technological rials on global markets is comparatively low, exports developments and changes of the relative prices of are limited, and foreign direct investment is low. For production inputs (OECD 2018). this reason, they are often classed as ‘low-value’ ma- terials and receive relatively little attention compared Construction consists mainly of residential housing with higher value per volume minerals such as pre- (38%), transport, energy, and water infrastructure cious metals. However, construction raw materials (32%), institutional and commercial buildings (18%), are a high-value sector. As they are typically used in and industrial sites (13%). In developing countries, the the region or country they are produced in they have construction industry can account for more than 8% the potential to significantly contribute to the local of GDP (v. 5% in developed countries). Currently, more economy and poverty reduction. The quarrying and than 100 million people are working in construction mining of construction raw materials in developing around the world. The industry is expected to un- countries provides many low-skilled jobs. Next to the dergo significant growth in the coming years (World positive effects for the local economy, the construc- Economic Forum (WEF) and The Boston Consulting tion raw materials sector is prone to risks due to its Group 2016). The projected growth between 2018 and widely informal character. This includes health and 2023 was 4.2% per year. Urbanisation and population safety risks, child labour, and adverse environmental growth drive this increase, with an estimate of 75% impacts (Franks 2020; Hilson 2016). Also the green- of the infrastructure that will be in place in 2050 still house gas (GHG) impacts related to the construction having to be built (IFC and CPLC 2018). Demograph- raw materials sector are significant. Over 50% of GHG ic changes are not the only megatrend that needs to emissions are related to materials production, con- be observed in order to understand changes in the sumption and end-of-life management, and that will construction value chain. Other factors are the avail- further rise in the next decades (OECD 2018). ability of energy, digital and technological develop- ments and climate change mitigation (De Groote and The importance of non-metallic minerals – which in- Lefever 2016). clude construction raw materials – is going to increase in the coming decades. The OECD estimates that glob- As this report is written in early 2021, it is important al materials use is projected to more than double be- to consider the impacts of the COVID-19 pandemic tween 2011 and 2060, from 79Gt to 167Gt. Non-me- on the construction sector and value chain. The con- tallic minerals represent around half of that. Their use struction sector has experienced contraction and neg- is projected to rise from 35Gt in 2011 to 82Gt in 2060.