Indonesia will propose a free trade agreement for some minerals shipped to the United States so that companies in the electric vehicle battery supply chain operating in the country can benefit from U.S. tax credits, a senior minister said on Monday.

Washington has issued a new guidance for EV tax credits under the Inflation Reduction Act (IRA), requiring a certain value of battery components to be produced or assembled in North America or a free trade partner.

Indonesia does not have a free trade agreement with the United States, but its nickel products have increasingly become important in the battery supply chain.

The Southeast Asian country has been trying to leverage its nickel reserves, the world's biggest, to attract investment from battery and EV makers, including U.S. companies such as Tesla and Ford.

Asked about the new IRA guidelines, Indonesian minister Luhut Pandjaitan, who has been spearheading efforts to attract U.S. companies, told a news conference Jakarta will propose a limited free trade agreement (FTA) with Washington.

"We do not have an FTA with them. Now we're proposing a limited FTA with them," Luhut said, adding that he would meet with Ford and Tesla executives to discuss the matter when he travels to the United States later this week.

Luhut's deputy, Septian Hario Seto, said the FTA proposal, which was still at an early stage, will likely be similar to the one the United States has signed with Japan for the critical mineral trade.

"It's the same in essence, that for critical minerals there will be free trade with requirements on processing, such as for nickel, aluminium, cobalt, copper," he said.

Last month, Ford signed an agreement with an Indonesian unit of Brazilian nickel miner Vale and China's Zhejiang Huayou Cobalt to partner in a $4.5 billion nickel processing plant in Indonesia's Sulawesi island. (Reporting by Stefanno Sulaiman; Writing by Gayatri Suroyo Editing by Ed Davies)