Final Report Extractive Industry and Local Community

Copyright @ 2013 Lembaga Penyelidikan Ekonomi dan Masyarakat - FEUI

Final Report

Extractive Industry and Local Economy:

A Case of PT Newmont Nusa Tenggara in Kabupaten Sumbawa Barat

Lembaga Penyelidikan Ekonomi dan Masyarakat

Fakultas Ekonomi Universitas Indonesia

Kampus UI Salemba, Jl. Salemba Raya 4, Jakarta 10430

Final Report

Extractive Industry and Local Economy

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Acknowledgements

The authors listed below gratefully acknowledge the financial grant provided by SEADI-USAID.

Constructive feedback and comments from Tim S. Buehrer, Ashok Menon, and Hery Kameswara are

gratefully acknowledged. We greatly thank PT NNT for providing us with the access to the company’s

information. Last but not least, we also thank Uka Wikarya, Nurkholis, Hamdan Bintara and Bisuk A.S

Gultom for their excellent assistance during the project. All remaining errors are our responsibility.

Authors

Institute for Economic and Social Research Faculty of Economics (LPEM FEUI)

University of Indonesia

Widyono Soetjipto

Agus Salim

Cita Wigjoseptina




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TABLE OF CONTENS

Page

TABLE OF CONTENS............................................................................................... i LIST OF TABLES ...................................................................................................... ii LIST OF FIGURES .................................................................................................... iv

Chapter 1. INTRODUCTION ................................................................................. 1 1.1. Background.................................................................................. 1 1.2. Objective of the Research ........................................................... 2 1.3. Methods of the Research ............................................................ 2

Chapter 2. REGIONAL PROFILE ............................................................................ 3 2.1. WEST NUSA TENGGARA PPROVINCE........................................... 3

2.1.1. NTB Economic Profile ........................................................ 3 2.1.2. Demographic Profile.......................................................... 6 2.1.3. Fiscal Profile ...................................................................... 9

2.2. WEST SUMBAWA DISTRICT ......................................................... 10 2.2.1. Economic Profile................................................................ 11 2.2.2. Demographic Profile.......................................................... 14 2.2.3. Fiscal Profile ...................................................................... 16

Chapter 3. THE CONTRIBUTION OF PT NNT......................................................... 18 3.1. ECONOMIC CONTRIBUTION OF PT NNT..................................... 18 3.2. FISCAL CONTRIBUTION OF PT NNT.............................................. 26 3.3. CSR CONTRIBUTION OF PT NNT .................................................. 31

Chapter 4. SURVEY RESULTS ............................................................................... 34 4.1. STAKEHOLDER INTERVIEWS ........................................................ 34

4.1.1. Economic Aspects.............................................................. 34 4.1.2. Employment Aspect .......................................................... 36 4.1.3. Fiscal Aspect...................................................................... 38

4.2. SUPPLIER’S SURVEY ..................................................................... 39

Chapter 5. SOCIO ECONOMIC ANALYSIS ............................................................. 43 5.1. SOCIO-CULTURAL CHANGES........................................................ 43 5.2. ECONOMIC IMPACT..................................................................... 45

Chapter 6. CONCLUSION AND RECOMMENDATIONS .......................................... 49 6.1. CONCLUSION ............................................................................... 49 6.2. RECOMMENDATION.................................................................... 50

REFERENCES .......................................................................................................... 51




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LIST OF TABLES

Page

Table 2.1 GRDP of NTB by Economic Sectors In Current Prices 2006-2011

(Rp billions)....................................................................................... 4

Table 2.2 The Growth of NTB GRDP by Economic Sector In Current Price,

2000-2011 (%) .................................................................................. 5

Table 2.3 Population by Districts/Cities in NTB Province, 2011....................... 6

Table 2.4 Population 15 Years of Age and Over Who Worked by Economic

Sector in NTB, 2006 – 2011 (person)............................................... 7

Table 2.5 Percentage of Population 15 Years of Age and Over Who Worked

by Field in NTB, 2006 – 2011 (Percent) ........................................... 7

Table 2.6 Population 15 Years of Age and Over Who Worked by Level of

Education in NTB, 2006 – 2011 (Person) ......................................... 8


by Level of Education in NTB, 2006 – 2011 (Percent) ...................... 8

Table 2.8 Realization Revenue of NTB Provincial Budget, 2008-2011 (Rp

million and %) ................................................................................... 9

Table 2.9 Realization Expenditure of NTB Provincial Budget, 2008-2011 (Rp

million and %) ................................................................................... 10

Table 2.10 GRDP of KSB by economic sectors in current prices 2000-2011

(Rp billions)....................................................................................... 12

Table 2.11 Growth Rate of KSB GRDP in Constant 2000 Price by economic

sector, 2006-2011 (percent)............................................................. 14


by Field in KSB, 2010 – 2011............................................................ 15


by Level of Education in KSB, 2006 – 2011....................................... 16

Table 2.14 Realization Revenue of KSB, 2008 – 2011 (Rp million and %).......... 16

Table 2.15 Realization Expenditures of KSB, 2008 – 2011 (Rp million and %)... 17

Table 3.1 The Proportion of Primary Inputs of NTB Province in Mining

Sector based on 2005 IRIO Table...................................................... 23

Table 3.2 Employment Generation of PT NNT across sector and region in

Indonesia based on IRIO Model in 2011........................................... 24

Table 3.3 PT NNT’s Direct and Indirect Employee based on Nationality ......... 26

Table 3.4 Fiscal Impact Scheme of PT NNT to Central and regional

Government ..................................................................................... 27

Table 3.5 The Distribution of Tax and Revenue Sharing, Local Tax and

Retribution Related to Mining Industry........................................... 28

Table 3.6 PT NNT Fiscal Contribution to Central and Regional Budgets,

2005-2012 (Rp billions)..................................................................... 29

Table 3.7 PT NNT Spending for Community Development, 2006-2012 (in

thousands US$)................................................................................. 32

Table 3.8 PT NNT Spending for Community Development, 2006-2012

(percent) ........................................................................................... 32

Table 3.9 The Five Years Goal Indicator of Success.......................................... 33




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Table 4.1 Distribution of Respondent by Location and Type........................... 40

Table 4.2 Year of Established of Respondents ................................................. 40

Table 4.3 Respondent’s Type of Business ........................................................ 40

Table 4.4 Percentage of Workers Origin by Respondent................................. 41

Table 4.5 The outputs of respondents and their input sources....................... 42




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LIST OF FIGURES

Page

Figure 2.1 West Nusa Tenggara (NTB) Province................................................ 3

Figure 2.2 Distribution of NTB GRDP by economic sector in current price,

2000-2011 (%) .................................................................................. 5

Figure 2.3 Population of NTB Province, 2006 – 2011 (person) ......................... 6

Figure 2.4 Unemployment Rate in NTB, 2006 – 2011....................................... 8

Figure 2.5 West Sumbawa District .................................................................... 11

Figure 2.6 Distribution of KSB GRDP by economic sector in current price,

2000-2011 (%) .................................................................................. 13

Figure 2.7 Population in KSB, 2006 – 2011 (person) ......................................... 14

Figure 3.1 PT NNT sales, 2006-2011.................................................................. 19

Figure 3.2 NTB GRDP with and without PT NNT, 2006-2011 ............................ 20

Figure 3.3 Contribution of PT NNT to NTB GRDP, 2006-2011........................... 20

Figure 3.4 KSB GRDP with and without PT NNT, 2006-2011............................. 21

Figure 3.5 Contribution of PT NNT to KSB GRDP, 2006-2011............................ 21

Figure 3.6 Growth of PT NNT sales, KSB GRDP, and West Nusa Tenggara

GRDP................................................................................................. 22

Figure 3.7 The Accumulation of PT NNT Fiscal Contribution, 2005-2012 (Rp

billions) ............................................................................................. 29

Figure 3.8 PT NNT’s Fiscal Contribution to NTB budget, 2005-2012 (Rp

millions and percent)........................................................................ 30

Figure 3.9 PT NNT’s Fiscal Contribution to KSB budget, 2005-2012 (Rp

millions and percent)........................................................................ 30

Figure 4.1 Procurement Spending of PT NNT in 2012 (percent)....................... 37

Figure 4.2 Type of Survey Respondents ............................................................ 39

Figure 4.3 Source of Input of Respondents....................................................... 41




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Chapter 1

INTRODUCTION

1.1. BACKGROUND

Resistance of local community over the activities of extractive industries has been

continually growing in recent years in resource rich districts of Indonesia. This is due to the

fact that local community feels that these industries do not bring significant benefit. This

seems to be supported by the low Human Development Index (HDI) of related district. Most

of natural resource extractive industries are located in remote area, where local community

is commonly poor due to limited economic and social access, thus contributing to low HDI.

The benefit of extractive industry to local economies is actually quite significant. In the case

of mining, for example, the contribution of PT Newmont Nusa Tenggara in 2009 to National

GDP and GRDP of West Nusa Tenggara were estimated to reach 0.12% and 15% respectively.

While the fiscal contribution to budget of West Nusa Tenggara province, and budget of West

Sumbawa district are projected to reach 3.74% and 16.73% respectively in 2009 (LPEM-FEUI,

2007).

Similar pattern of significant contribution to local economy will be found in other resource

rich districts where extractive industries operated. Yet, the expected “trickling down” effect

is felt to be slow. Therefore, the condition of local people seems to be slowly improving.

Sources of problem may be hypothesized, among others are, first, there is very limited

connection of extractive industry to the local economy. Second, the fiscal revenue from

extractive industry in local budget is dominantly disbursed for routine expenditure, such as

salary, creating limited fiscal space for government program and investment. Third, local

people do not have the capability and skill to be involved in skilled activities required by this

kind of industry. Other causes are also possible.

According to the World Bank and IFC (2002) there are often substantial social and economic

benefits to local communities from mining operations, but that these do not come

automatically. Lesson learned from several mining companies in South America reveals some

important aspects: (i) benefits have to be sustainable, and outsource is the key; (ii)

companies need a “social license” to operate, and a trilateral dialogue with open

communication is key to achieving this; and (iii) a successful community development

process will build social capital, but it needs management and funding. First aspect needs

special attention. It means that outsourcing is the key and will create huge multiplier effects




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to the local economy, thus more employment may be created and is expected to bring

wealth to the region. This research addresses the extractive industry and local community.

PT Newmont Nusa Tenggara (PT NNT) in West Sumbawa District is used as a case.

1.2. OBJECTIVE OF THE RESEARCH

The objectives of the study in general are to identify economic contribution of extractive

industry to the local economy and to identify some problems related to extractive industry

and the local economy.

1.3. METHODS OF THE RESEARCH

The method of the research consists of three phases:

Phase 1: Conducting descriptive data analysis. In this initial phase, the research focuses on (i)

conducting regional data analysis, based on secondary data; (ii) estimating economic and

identifying fiscal impact of PT NNT to the local economy as well as the employment creation

of PT NNT by using Interregional Input Output Method, (ii) developing relevant instruments

for analysis, such as questionnaires which will be used as guidelines for in-depth interviews

and local FGDs to capture stakeholder perception on local employment creation.

Phase 2: Conducting survey, in depth interviews, field study and observation to selected

district. During this secondary phase, the research conducted field survey by interviewing

local stakeholder on local employment created by PT NNT. The stakeholders may include

Bappeda, Office of Mining and Energy, Office of Trade and Industry, Small and Medium

Enterprises, Office of Labor, and PT NNT. Field survey was done in mid-end of May 2013.

Phase 3: Analyze the findings and provide recommendation. In this final stage, the findings

from the first two phases will be presented for further analysis. Some recommendations will

also be provided to address the problems.




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Chapter 2

REGIONAL PROFILE

2.1. WEST NUSA TENGGARA PPROVINCE

West Nusa Tenggara has a provincial status by the Law No. 64/1958 on the Establishment of

Bali, West Nusa Tenggara (NTB), and East Nusa Tenggara Provinces (NTT). Two largest islands

in this province are Lombok island in the west and Sumbawa island in the east (Figure 2.1).

the capital of the province is Mataram located in Lombok island.

The NTB consists of 8 districts and 2 cities. The districts are (i) Bima, (ii) Dompu, (iii) Lombok

Barat, (iv) Lombok Tengah, (v) Lombok Timur, (vi) Lombok Utara, (vii) Sumbawa, and (viii)

West Sumbawa. While cities are (i) Mataram, and (ii) Bima.

Figure 2.1

West Nusa Tenggara (NTB) Province

Source: NTB dalam Angka (BPS, 2012)

2.1.1. NTB Economic Profile

Mining and quarrying dominates the GRDP of NTB Province, even though 50 percent of NTB

population still works in agricultural sector (Table 2.1). Since 2006, mining and quarrying has

contributed consistently about 30 percent of GRDP. It is followed by agriculture and trade,




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hotel, and restaurant as the second and third major contributors to the GRDP. Their

contributions are approximately 25 percent and 13 percent respectively.

The contribution of agricultural sector has been declining for the last seven years (except in

2008 and 2011). This indicates that NTB experience structural transformation from

agriculture-based economy to manufacturing and services in the long term. It is supported

by the fact that the contribution of services, financial, and trade sectors have increased in

GRDP composition.

Table 2.1

GRDP of NTB by Economic Sectors In Current Prices 2006-2011 (Rp billions)

Description 2006 2007 2008 2009 2010 2011

1. Agriculture 6,505 7.181 8.319 9.117 10.038 11.350

2. Mining and quarrying 10,104 12.669 10.870 15.851 18.048 12.888

3. Manufacturing 948 1.083 1.279 1.491 1.638 1.758

4. Electricity, gas, and clean water 112 130 153 178 204 226

5. Construction 1,649 1.917 2.299 1.854 3.086 3.473

6. Trade, hotel and restaurant 3,384 3.951 4.625 5.411 6.264 7.215

7. Transportation and Communication 2,236 2.456 2.772 3.027 3.270 3.545

8. Financial, real estate, rent, services 1,141 1.315 1.590 1.878 2.159 2.486

9. Other services 2,512 2.816 3.403 4.203 4.849 5.785

TOTAL GRDP 28,596 33.522 35.314 44.014 49.559 48.729

Source: NTB dalam Angka (BPS, various years)

GRDP of NTB nominally increased significantly from approximately Rp 28.60 trillion in 2006

to Rp 48.73 trillion in 2011. During the same period, average GRDP growth was 11.58

percent per annum. The growth of NTB’s GRDP is mostly supported by the growth in mining

and quarrying sector and financial, real estate and rental services which grow about 68.56

percent per annum and 3 percent per annum respectively.




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Figure 2.2

Distribution of NTB GRDP by economic sector in current price, 2000-2011 (%)

0% 20% 40% 60% 80% 100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011y

ea

r

%

Agric Mining Manuf Electr Construct Tra de, hotel Tra nsport Fina nce serv other serv


In fact, there is strong correlation between the growth of NTB’s GRDP with the growth of

mining and quarrying sector. Table 2.2 shows that during the period of 2006 and 2011 the

mining sector of NTB experienced negative growth twice, in 2008 and 2011 respectively. In

those years the growth of GRDP is low, reaching 5.35 percent and even -1.67 percent in 2008

and 2011 respectively. While the other sectors of the economy have positive growth. This

indicates that mining and quarrying has a strong impact to NTB’s economy.

Table 2.2

The growth of NTB GRDP by economic sector in current price, 2000-2011 (%)

Description 2006 2007 2008 2009 2010 2011

1. Agriculture 11.87 10.39 15.85 9.59 10.10 13.07

2. Mining and quarrying 8.79 25.39 -14.20 45.82 13.86 -28.59

3. Manufacturing 9.22 14.24 18.10 16.58 9.86 7.33

4. Electricity, gas, and clean water 13.13 16.07 17.69 16.34 14.61 10.78

5. Construction 12.18 16.25 19.93 -19.36 66.45 12.54

6. Trade, hotels, and restaurant 15.77 16.76 17.06 16.99 15.76 15.18

7. Transportation and communication 12.14 9.84 12.87 9.20 8.03 8.41

8. Finance, real estate, and rent Services 14.33 15.25 20.91 18.11 14.96 15.15

9. Other services 13.00 12.10 20.85 23.51 15.37 19.30

TOTAL GRDP 11.35 17.23 5.35 24.64 12.60 -1.67





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2.1.2. Demographic Profile

The population of NTB in 2011 was 4,540,060 person (Figure 2.3). Given NTB’s total area of

20.153 km2, the population density was about 225 person/km2. The population of NTB is

mostly concentrated in Lombok island in which three districts are densely populated (Table

2.3).

Since 2006, the population of NTB has shown an increasing trend. Population growth is

about 1.32 percent per year. Given increasing trend of population growth, employment

opportunity has become a major challenge for the local government.

Figure 2.3

Population of NTB Province, 2006 – 2011 (person)


Table 2.3

Population by Districts/Cities in NTB Province, 2011

District/City Jumlah Penduduk

Lombok Timur 1.116.745

Lombok Tengah 868.895

Lombok Barat 606.044

Bima 443.663

Sumbawa 419.987

Kota Bima 406.910

Dompu 221.184

Kota Mataram 202.092

Lombok Utara 144.018

Sumbawa Barat 116.112

Source: NTB dalam Angka (BPS, 2012)

About 45 percent of the population works in agriculture (Table 2.4 and 2.5). It is followed by

trade, hotel, restaurant (about 17.5 percent) and financial real estate, and rent (about 12

percent), as the second and third largest sectoral employments. Even though the agriculture

sector employs highest worker, the trend is declining toward 2011. Employment in




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agriculture sector declines about 0.19 percent per year. This fact supports the argument

above that the economy of NTB is experiencing structural transformation.

Table 2.4

Population 15 Years of Age and Over Who Worked by Economic Sector in NTB,

2006 – 2011 (person)

Description 2006 2007 2008 2009 2010 2011

1. Agriculture 899.526 929.975 866.695 884.215 1.005.240 872.088

2. Mining and quarrying 42.772 30.895 41.475 33.068 62.373 49.587

3. Manufacturing 190.271 195.357 209.940 213.099 204.111 169.577


5. Construction 65.587 92.263 96.900 93.951 85.007 89.284

6. Trade, hotel and restaurant 346.017 350.279 326.537 347.247 372.560 370.239

7. Transportation and Commu-

nication 114.523 121.228 122.575 127.792 109.118 85.578

8. Financial, real estate, rent,

services 14.864 17.539 16.167 14.220 15.307 29.560

9. Other services 232.080 217.239 219.804 247.358 274.291 293.819

TOTAL 1.906.816 1.956.182 1.904.781 1.967.380 2.132.933 1.962.240


If we analyze the employment figures for the last two years (2010 and 2011), the number of

people working in financial, real estate and rental services has increased significantly.

Number of people working in this sector in 2011 increased 93.11 percent compared to the

subsequent year. In the same time, sector experiencing significant decline in number of

worker is electricity, gas, and clean water by 49.09 percent.

Table 2.5

Percentage of Population 15 Years of Age and Over Who Worked by Field in NTB,

2006 – 2011 (Percent)

Description 2006 2007 2008 2009 2010 2011

1. Agriculture 47,17 47,41 45,5 44,94 47,13 44,44

2. Mining and Quarrying 2,24 1,58 2,18 1,68 2,92 2,53

3. Industry 9,98 10,01 11,02 10,83 9,57 8,64

4. Electricity, Gas, and Water Supply 0,06 0,07 0,25 0,33 0,23 0,13

5. Construction 3,44 4,73 5,09 4,78 3,99 4,55

6. Trade, Hotels, and Restaurants 18,15 17,95 17,14 17,65 17,47 18,87

7. Transportation and Communication 6,01 6,21 6,44 6,5 5,12 4,36

8. Financial, Rental, and Business Service 0,78 0,9 0,85 0,72 0,72 1,51

9. Services 12,17 11,13 11,54 12,57 12,86 14,97

TOTAL 100 100 100 100 100 100


Level of open unemployment in NTB is low (Figure 2.4). In 2011 the level is 3.52 percent.

Since 2006-2011, the level of open unemployment in NTB has shown a decreasing trend, i.e.

approximately 10.07 percent per year. It might be interpreted that employment opportunity

has increased during the period resulting in higher labor absorption in the economy.




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Figure 2.4

Unemployment Rate in NTB, 2006 – 2011

Source: NTB dalam Angka (BPS, from various years)

Labor education level in NTB is not too good (Table 2.6). Highest level of education achieved

by most of working population in NTB is primary school, i.e. approximately 27 percent.

Ironically, percentage of working population who are not graduated from primary school is

higher than those who graduated from high school, diploma, or even university. Since 2006-

2011, number of working population who do not graduated from primary school does not

show a declining trend.

Table 2.6

Population 15 Years of Age and Over Who Worked by Level of Education in NTB,

2006 – 2011 (Person)

Description 2006 2007 2008 2009 2010 2011

1. No Schooling 301.856 326.415 289.241 298.058 303.359 327.392

2. Not Completed Primary School 309.618 327.814 452.386 468.827 466.397 359.862

3. Primary School 613.309 603.875 475.052 506.404 499.961 452.497

4. Junior High School 289.468 300.995 280.765 307.403 342.311 273.453

5. Senior High School 290.995 298.151 266.765 303.173 391.084 376.830

6. Diploma 47.445 38.294 32.096 28.625 40.948 44.364

7. University 54.125 55.638 108.192 54.791 88.873 127.842

Total 1.906.816 1.951.182 1.904.781 1.967.380 2.132.933 1.962.240


Table 2.7

Percentage of Population 15 Years of Age and Over Who Worked by Level of Education in

NTB, 2006 – 2011 (Percent)

Description 2006 2007 2008 2009 2010 2011

1. No Schooling 15,83 16,73 15.19 15.15 14,22 16,68

2. Not Completed

Primary School 16,24 16,8 23.75 23.83 21,87 18,34

3. Primary School 32,16 30,95 24.94 25.74 23,44 23,06

4. Junior High School 15,18 15,43 14.74 15.62 16,05 13,94

5. Senior High School 15,26 15,28 14.01 15.41 18,34 19,2

6. Diploma 2,49 1,96 1.69 1.45 1,92 2,26

7. University 2,84 2,85 5.68 2.78 4,17 6,52

Total 100 100 100 100 100 100

Source: Calculated from Table 2.6




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Low level of labor education in NTB becomes major challenge to local government,

especially when the economy undergoes structural transformation. The uncompetitive level

of labor education in NTB will minimize the employment opportunities in labor market.

Furthermore, the low level of labor education could pose a disincentive to investor who

wants to recruit local worker.

2.1.3. Fiscal Profile

During 2008 – 2011, the government of NTB applied budget surplus policy. In

macroeconomic theory, budget surplus policy is good for suppressing demand pressure to

slow down overheating economy. It is not clear however whether this budget policy is

directed to slow down economic growth or not. The regional budget of NTB nominally also

shows an increasing trend.

The level of dependency of regional government to central government to obtain financial

support is relatively high (Table 2.8). More than 50 percent of NTB budget revenue is from

balancing fund (dana perimbangan) given by central government. Own regional revenue

(pendapatan asli daerah/PAD) is about 40 percent of budget revenue. PAD of NTB however

has been increasing since 2008. The increase is due to management of local wealth

(kekayaan daerah), averaging 8,462.2 percent per year. Local tax revenue and retribution –as

part of PAD- also increase averaging 13.81 percent and 18.21 percent respectively. Increasing

tax revenue indicates that tax incidence in NTB is relatively good.

Table 2.8

Realization Revenue of NTB Provincial Budget, 2008-2011 (Rp million and %)

value % value % value % value %

I. Own Regional Revenue 413,161 39.36 474,454 40.35 515,340 40.51 741,291 43.88

1. Local Tax Revenue 348,568 33.21 369,172 31.39 391,690 30.79 506,909 30.01

2. Local Retribution 36,680 3.49 50,047 4.26 54,900 4.32 59,556 3.53

3. Separated Wealth Management revenue 100 0.01 25,192 2.14 40,937 3.22 135,639 8.03

4. Other Legal Revenue 27,812 2.65 30,041 2.55 27,812 2.19 39,185 2.32

II. Balancing Funds 626,994 59.73 701,179 59.63 756,256 59.44 855,310 50.63

1. Tax and Non Tax Revenue Sharing 78,492 7.48 98,723 8.39 158,426 12.45 162,674 9.63

2. General Allocation Funds 511,286 48.71 554,431 47.15 573,065 45.04 646,671 38.28

3. Specific Allocation Funds 37,215 3.55 48,024 4.08 24,764 1.95 45,964 2.72

4.Contingency Funds 0 - 0 - 0 - 0 -

III. Other Legal Revenue 9,500 0.91 341 0.03 620 0.05 92,749 5.49

1. Revenue from Grants - - - 5,449 0.32

2. Emergency and Special Autonomy Funds 9,500 0.91 341 0.03 620 0.05 87,300 5.17

3. Other Revenue - - - -

TOTAL 1,049,655 100.00 1,175,974 100.00 1,272,216 100.00 1,689,350 100.00

2011201020092008Description


From expenditure side, the regional spending is relatively good. During 2008 – 2011,

realization of local expenditure was more than 92 percent. It means that 92 percent of

planed expenditure for government programs was able to be implemented. It is only once

that expenditure realization in NTB is below 90 percent.




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Expenditure consists of indirect and direct expenditures. Indirect expenditure is government

spending which does not relate to implementation of government programs and activities.

Direct expenditure is the opposite of indirect expenditure. The expenditure that has great

impact to the economy is direct expenditure, since it is intended for purchasing goods and

services, and capital locally thus creating multiplier effect. The expenditure of NTB budget

tends to prioritize indirect than direct expenditures (Table 2.9). More than 50 percent of NTB

budget expenditure is spent on indirect expenditure.

Table 2.9

Realization Expenditure of NTB Provincial Budget, 2008-2011 (Rp million and %)

value % value % value % value %I. Indirect Expenditure 590,847 56.82 724,553 65.84 859,304 67.36 886,085 53.68

1. Public Services Expenditure 284,952 27.40 357,906 32.52 385,403 30.21 426,228 25.82

2. Subsidy Expenditure 8,902 0.86 6,542 0.59 4,929 0.39 2,994 0.18

3. Grants Expenditure 55 0.01 29,666 2.70 116,432 9.13 138,283 8.38

4. Social Expenditure 107,416 10.33 847 0.08 96,006 7.53 99,291 6.02

5. Expense of Sharing Holder 118,225 11.37 164,138 14.91 201,232 15.77 176,666 10.70

6. Expense of Financial Aid 163 0.02 80,725 7.34 53,986 4.23 40,632 2.46

7. Unpredicted Expense 5 0.00 872 0.08 1,315 0.10 1,988 0.12

II. Direct Expenditure 449,099 43.18 375,984 34.16 416,441 32.64 764,516 46.32


2. Goods and Services Expenditure 217,322 20.90 196,983 17.90 227,678 17.85 276,464 16.75

3. Capital Expenditure 173,739 16.71 133,813 12.16 144,557 11.33 450,063 27.27

Total Expenditure 1,039,946 100.00 1,100,537 100.00 1,275,746 100.00 1,650,601 100.00

Description2008 2009 2010 2011


2.2. WEST SUMBAWA DISTRICT

West Sumbawa district (Kabupaten Sumbawa Barat/KSB) is located in Sumbawa island, West

Nusa Tenggara (Figure 2.5). The district was originally part of Sumbawa district and formally

split out on December 18, 2003 to form a new district called KSB according to Law Number

30 Year 2003 on the Establishment of West Sumbawa District in West Nusa Tenggara

Province.

The district is headed by a definitive Bupati in 2005. The capital of KSB is in Taliwang. The

district consists of 8 sub districts, namely Brang Ene, Brang Rea, Jereweh, Maluk, Poto Tano,

Sekongkang, Seteluk, and Taliwang.




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Figure 2.5

West Sumbawa District

Source: KSB dalam Angka (BPS, 2012)

2.2.1. Economic Profile

Macroeconomic condition of KSB could be analyzed from Gross Regional Domestic Product

(GRDP) perspective. GRDP represents incomes of all economic agents in KSB. Before PT NNT

operated in the district in 2000, agricultural sector dominates the district economy,

especially crops to meet local needs. In same time, local community also raises cattle as part

of their farm activities and catch fish in the sea1.

GRDP of KSB by economic sectors in nominal term and percentage are presented in Table

2.10 and Figure 2.6 respectively. Mining and quarrying has dominated KSB economy since

2000. The contribution was more than 90% each year. This is primarily due to the

contribution of PT NNT. The mining, mills, and infrastructure projects were completed in

1999 and PT NNT fully operated in 2000.

1 LPEM-FEUI (2007)




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The contribution of mining and quarrying in KSB tends to increase overtime in nominal

terms. In 2000 the contribution was Rp 2.98 trillions or 92.3% of GRDP while in 2011 the

contribution reached Rp 12.00 trillions or 92.4% of GRDP2. It is clear that the KSB economy

reflects the intensity of PT NNT activities.

Total contribution of the other 8 sectors in GRDP of KSB only accounted about 10 percent.

Second largest contributor of KSB GRDP is agriculture sector which contribute about 2

percent. With no significant change during 2006-2011, it can be said that diversification of

economic sector has not occurred in KSB. Mining and quarrying has been engine of growth

in KSB and it is very risky to the local economy, especially when the mining and quarrying

production or product price are declining.

Table 2.10

GRDP of KSB by economic sectors in current prices 2000-2011 (Rp billions)

Description 2006 2007 2008 2009 2010 2011

1. Agriculture 175.646 190.993 216.480 231.775 257.380 288.272

2. Mining and quarrying 9.527.789 12.163.942 10.271.273 15.097.359 17.098.138 12.002.526

3. Manufacturing 14.369 15.820 16.987 19.075 20.067 21.711


5. Construction 62.705 85.864 109.661 145.084 176.252 202.631

6. Trade, hotel and restaurant 111.756 123.445 144.946 170.180 194.277 226.420

7. Transportation and Communication 69.159 74.150 85.028 90.895 99.121 110.746

8. Finance, real estate, rent, ser 14.974 16.670 18.536 21.234 23.754 26.527

9. Other services 48.077 52.221 63.150 77.671 89.726 103.797

Total GRDP 10.026.376 12.725.366 10.928.669 15.856.352 17.962.226 12.986.557

Source: LPEM-FEUI (2007) and KSB dalam Angka (BPS, 2012)

During the last six years all sectors show an increasing GRDP contribution in absolute term. It

seems logical to say it is a result of NNT activities. For example, the absolute contribution of

agricultural sector has been increasing from Rp 104.51 billions to Rp 288.27 billions. Average

annual growth of the sector is 9.7%. Its relative contribution to GRDP however is decreasing

from 3.23% to 2.22%. This is mainly due to higher contribution of PT NNT to GRDP of KSB

overtime.

2 Based on Head of Bappeda’s interview, the mining and quarrying sector contributes about 88.0% of GRDP

in 2011 in constant price.




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Figure 2.6

Distribution of KSB GRDP by economic sector in current price, 2000-2011 (%)

0% 20% 40% 60% 80% 100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

year

%

Agric Mining Manuf Electr Construct Trade, hotel Transport Finance serv Other serv

Source: LPEM-FEUI (2007) and BPS (2012)

During 2006 – 2011, KSB experienced an economic stagnation (Table 2.11). It could be

detected from the slow growth of KSB real GRDP which was only 0.83 percent per year on

average. During that period the growth of GRDP frequently fluctuates from positive to

negative growth. Slow growth of GRDP might potentially hinder the effort to accelerate the

unemployment and poverty reduction in KSB.

The GRDP fluctuation in KSB is caused largely by fluctuation in the growth of mining and

quarrying sector. Mining and quarrying sector only grow 0.43 percent per year on average. In

the mean time, the other 9 sectors showed a positive growth during the same period.

Construction has the highest growth rate averaging 15.97 percent per year.




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Table 2.11

Growth Rate of KSB GRDP in Constant 2000 Price by economic sector, 2006-2011 (percent)

LAPANGAN USAHA 2006 2007 2008 2009 2010 2011

1. Agriculture 2.97 -0.25 5.38 0.55 3.39 4.49

2. Mining and quarrying -6.02 5.29 -10.45 29.82 12.96 -29.00

3. Manufacturing 5.25 4.81 3.78 5.62 4.03 4.62


5. Construction 12.12 28.82 13.34 21.74 12.21 7.59

6. Trade, hotels, and restaurant 9.77 4.53 5.60 9.31 8.22 7.65

7. Transportation and communication 7.31 4.54 5.10 3.78 5.91 6.39

8. Finance, real estate, rent services 6.10 4.52 4.21 6.36 4.24 5.15

9. Other services 3.51 4.29 3.45 15.05 5.26 7.05

GRDP TOTAL -5.13 5.34 -9.09 27.76 12.46 -26.33

Source: LPEM-FEUI calculation (2013)

2.2.2. Demographic Profile

Population of KSB in 2011 was 116.112 person (Figure 2.7). Given total area of 1,849.02 km2,

population density in KSB was 62,8 person/km2. Since 2006, population of KSB tends to

increase with population growth of 1.84 percent per year.

Rate of open unemployment in KSB fluctuates during 2007 to 2011. It was increasing in until

2009, but decreasing toward 2011. Unemployment rate in KSB is considered low, it is about

4.99 percent in 2011.

Figure 2.7

Population in KSB, 2006 – 2011 (person)

Source: KSB dalam Angka (BPS, various years)

Observing by economic sector in KSB, agricultural sector dominantly employs labor (Table

2.12). More than 30 percent of KSB labor working in agricultural sector. Even though many

people working in the agricultural sector, the sector does not contribute significantly to local

economy, i.e. only about 2-3 percent of GRDP. It is suspected that inefficiency occurs in

human resource allocation at farm level. Service is the second largest sector that employs




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labor in KSB.

Percentage of labor who works in the mining sector was 4.79 percent in 2011. For a single

mining company, like PT NNT, the percentage is quite meaningful. Some workers outside KSB

might be also worked for PT NNT. The decision to recruit non KSB labor is probably due to

education background of labor in KSB which will be explained in the next section.

Table 2.12

Percentage of Population 15 Years of Age and Over Who Worked by Field in KSB,

2010 – 2011

Economic Sector 2010 2011

1. Agriculture 33.32 37.7

2. Mining 6.28 4.79

3. Trade 19.9 16.05

4. Services 24.2 25.43

5. Others 16.3 16.03

Total 100 100


Labor level of education in KSB is not good (Table 2.13). During 2007- 2011, about 30

percent of labor in KSB is primary school graduated. Percentage of labor who never goes to

school or graduated from primary school is higher than those who graduated from senior

high school, diploma, or university. Toward 2011, there is no tendency for improvement in

the percentage of labor whose never goes to school or graduated from primary school.

Given the data on labor education background, the employment opportunities is very

limited, especially in sector which needs skilled worker. This could be the reason why only

small number of worker could be employed by PT NNT in production and managerial

position. As the result, local labor who graduated from high school might end up working in

agricultural sector or equip herself with courses that may improve their skill, such as driving,

computers, etc. to work in services industry.




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Table 2.13

Percentage of Population 15 Years of Age and Over Who Worked by Level of Education in

KSB, 2006 – 2011

Description 2007 2008 2009 2010 2011

1. No schooling and Not Completed Primary School 16.76 17.74 20.49 23.24 22.98

2. Primary School 40.56 36.37 31.09 25.81 30.03

3. Junior High School 14.39 15.02 15.51 16.01 14.24

4. Senior High School 23.52 23.94 24.99 26.05 22.45

5. Diploma and University 4.76 6.94 7.91 8.89 10.3

Total 100 100 100 100 100


2.2.3. Fiscal Profile

During 2008 - 2011, source of KSB revenue has been mostly from balancing fund (Table

2.14). Balancing fund is fund transferred by central government. Therefore KSB budget

revenue depends on central government transfer. Percentage of balancing fund is more than

50 percent each year.

An interesting feature of KSB budget is that the contribution of other legal revenue is quite

large. It contributed approximately 22 percent of total revenue which was higher than own

regional revenue with 19 percent. Other legal revenue might consist of revenue from share

in PT DMB and scrap metal given by PT NNT. The share of NTB province and KSB on PT NNT

will be presented in the next chapter.

Table 2.14

Realization Revenue of KSB, 2008 – 2011 (Rp million and %)


I. Own Regional Revenue 16,559 4.80 22,058 5.05 8,937 2.78 122,933 18.94

1. Local Tax Revenue 1,864 0.54 1,665 0.38 1,935 0.60 11,767 1.81

2. Local Retribution 1,091 0.32 1,020 0.23 907 0.28 3,439 0.53

3. Separated Wealth Management revenue 923 0.27 1,090 0.25 613 0.19 21,094 3.25

4. Other Legal Revenue 12,679 3.67 18,283 4.19 5,481 1.70 86,123 13.27

II. Balancing Funds 294,743 85.39 314,597 72.07 271,660 84.39 384,301 59.21

1. Tax and Non Tax Revenue Sharing 77,124 22.34 95,164 21.80 94,779 29.44 144,229 22.22

2. General Allocation Funds 180,749 52.37 173,465 39.74 147,770 45.90 214,927 33.12

3. Specific Allocation Funds 36,869 10.68 45,967 10.53 29,110 9.04 25,143 3.87

III. Other Legal Revenue 33,862 9.81 99,861 22.88 41,328 12.84 141,765 21.84

Total Revenue 345,164 100.00 436,517 100.00 321,925 100.00 649,000 100.00

2011Description

2008 2009 2010


KSB expenditure showed an increasing trend in 2008-2011 (Table 2.15). The highest

expenditure was for direct expenditure. Based on Minister of Interior Regulation No 13 Year

2006, the indirect expenditure is local government spending not related to government

programs and activity implementation (apparatus spending), while direct expenditure is the

opposite (public spending). In addition, capital expenditure within direct expenditure is an




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expenditure intended for the provision or development of fixed asset for long term use, such

as infrastructure facilities.

Table 2.15 below shows that the highest direct expenditure was for capital expenditure,

followed by good and services expenditure and public services expenditure. This proportion

of spending in the expenditure is quite good, since capital expenditure will support capital

formation which is required to expand the local economy. However further information on

how direct expenditure was spent based on sectoral activities –such as education, health,

etc- was not available when this study is conducted. That kind of information will provide an

explanation on the quality of expenditure.

Table 2.15

Realization Expenditures of KSB, 2008 – 2011 (Rp million and %)


I. Indirect Expenditure 126,558 41.40 144,749 27.61 208,474 45.46 243,085 37.46


2. Subsidy Expenditure 0 0.00 0 0.00 835 0.18 4,900 0.76

3. Grants Expenditure 0 0.00 0 0.00 33,259 7.25 9,224 1.42

4. Social Expenditure 4,903 1.60 12,381 2.36 9,640 2.10 10,497 1.62

5. Expense of Sharing Holder 0 0.00 13,102 2.50 0 0.00 0 0.00

6. Expense of Financial Aid 11,932 3.90 0 0.00 15,836 3.45 19 0.00

7. Unpredicted Expense 1,266 0.41 3,550 0.68 1,853 0.40 3 0.00

II. Direct Expenditure 179,109 58.60 379,440 72.39 250,071 54.54 405,914 62.54


2. Goods and Services Expenditure 59,799 19.56 83,870 16.00 80,116 17.47 127,569 19.66

3. Capital Expenditure 106,523 34.85 264,407 50.44 139,110 30.34 257,788 39.72

Total Expenditure 305,667 100.00 524,189 100.00 458,545 100.00 649,000 100.00

2011Description

2008 2009 2010





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Chapter 3

THE CONTRIBUTION OF PT NNT

PT Newmont Nusa Tenggara (PT NNT) has signed Contract of Work Agreement in 1986 with

the Government of Indonesia to conduct exploration and exploitation in the Contract area of

West Nusa Tenggara Province. In 1990 PT NNT found copper reserve, which is later called

Batu Hijau (green rock).

After the find, technical and environmental studies were done for 6 years. The studies were

approved by the government in 1996 and served as the basis for the development of Batu

Hijau Mining Project valued at US$ 1.8 billions. The mining, mills, and infrastructure projects

of PT NNT were done in 1999 and PT NNT was fully operational in 2000. Newmont and

Sumitomo serve as operators of PTNNT's Batu Hijau mine. Batu Hijau is a copper-gold mine

located in the south west region of the Island of Sumbawa, Sekongkang sub-district, West

Sumbawa district, West Nusa Tenggara province, Indonesia. More specifically the project and

its facilities cover Maluk, Sekongkang, and Jereweh sub districts.

Under the terms of a contract signed in 1986, the company’s shareholders -Newmont Mining

Corp. and Sumitomo- must divest 51 percent of their shares in PT NNT to local investors after

five years of commercial operation. The firms have divested 24% of their shares to PT Multi

Daerah Bersaing, a joint venture of PT Multicapital -a business unit of PT Bumi Resources,

which owns 18 percent share- and PT Daerah Maju Bersaing -consisting of three regional

governments which own 6 percent share, i.e. the provincial government of West Nusa

Tenggara, district of Sumbawa, and district of West Sumbawa. Therefore PTNNT is currently a

joint venture company that is owned by Nusa Tenggara Partnership (Newmont and

Sumitomo) 56 percent, PT Multi Daerah Bersaing (PTMDB) 24 percent, and PT Pukuafu Indah

20 percent. A further divestation of 7 percent from 56 percent Nusa Tenggara Partnership

share is expected in the current year.

3.1. ECONOMIC CONTRIBUTION OF PT NNT

The economic contribution of PT NNT to the local economy relates to the sales of PT NNT.

Higher sales growth will have positive impact to local economy, and vice versa. Historical

data on PT NNT sales –in term of shipment- is presented in Figure 3.1.




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Figure 3.1

PT NNT sales, 2006-2011

-

500

1,000

1,500

2,000

2,500

2006 2007 2008 2009 2010 2011

year

US$

mil

lio

n

sales

Source: PT NNT, 2013

Note: sales is approximated by the value of shipment

The figure shows a fluctuating value of PT NNT sales. During 2006-2011, the highest sale was

in 2010 where shipment reached 831,177 dmt (dry metric ton). However in 2011, when the

price of copper was higher than in 2010, the shipment was only 537,505 dmt. It created a

slow down in sale in 2011.

From theoretical perspective, economic impact of PT NNT to GRDP is transmitted by copper-

gold concentrate export in the mining sector at national, provincial, and district levels. In IO

and IRIO models, the copper-gold concentrate shipment/sales will act as final demand

shifter that increases GRDP through inter-industry and/or inter regional linkages. These

direct and indirect effects might be analyzed by multiplier effects.

The economic impacts of PT NNT to NTB province (by using IRIO3 analysis) and KSB (by using

IO4 analysis) are presented in Figure 3.2 – 3.5. The contribution of PT NNT to NTB GRDP

ranges from 25 – 37 percent of the total GRDP. While the contribution to KSB GRDP ranges

from 75 – 99 percent.

3 IRIO model is presented in the Appendix

4 IO model is presented in the Appendix




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Figure 3.2

NTB GRDP with and without PT NNT, 2006-2011

-

10,000

20,000

30,000

40,000

50,000

60,000

2006 2007 2008 2009 2010 2011

year

IDR

bil

lio

n

GRDP with PT NNT GRDP without PT NNT

Source: LPEM-FEUI calculation, 2013

Figure 3.3

Contribution of PT NNT to NTB GRDP, 2006-2011

37 37

28 28

34

25

0

5

10

15

20

25

30

35

40

2006 2007 2008 2009 2010 2011

year

perc

en

t (%

)





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Figure 3.4

KSB GRDP with and without PT NNT, 2006-2011

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2006 2007 2008 2009 2010 2011

year

IDR

bil

lio

n

GRDP with PT NNT GRDP without PT NNT


Figure 3.5

Contribution of PT NNT to KSB GRDP, 2006-2011

99

9287

75

89 91

-

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011

year

perc

en

t (%

)





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Based on economic profile and economic impact analysis by using IRIO table, it is clear that

the mining sector, i.e. PT NNT, has been the major contributor of NTB and especially KSB

economies. Its share in KSB GRDP has been more than 90 percent on average during period

of 2006-2011. It can be said that the economy of KSB depends heavily on the PT NNT

activity.

Figure 3.6 shows further that the growth of West Nusa Tenggara GRDP and KSB GRDP

correspond to the growth of PT NNT sales. The reduction of production capacity of PT NNT

due to mining expansion site in 20115, for example, has lowered the contribution of mining

sector to the local economy. A 26 percent decrease in PT NNT sales growth was followed by

a decrease in KSB GRDP growth about 28 percent. In the same, growth of NTB’s GRDP

growth declined about 1.7 percent, since KSB GRDP contributes significantly to NTB GRDP.

Figure 3.6

Growth of PT NNT sales, KSB GRDP, and West Nusa Tenggara GRDP

-40

-30

-20

-10

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011

year

%

growth of PT NNT sa les growth of KSB GRDP

growth of WNT GRDP

Source: LPEM-FEUI calculation from BPS (2012) and PT NNT (2012)

From economic model construction, IO/IRIO model provides three methods of GRDP

calculation. The methods include the calculation from (i) expenditure/final demand

approach, (ii) income/primary input approach, and (iii) production approach. Those three

approaches should yield the same number.

5 http://www.thejakartapost.com/news/2010/01/07/ri-copper-gold-output-fall-2011.html




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To estimate how much percentage of GRDP that stays in NTB, we may use income/primary

input approach. The income approach measures gross domestic product by summing

incomes originating from production within the geographical boundaries of NTB. Factor

incomes, so named because in a general way they correspond to the economic factors of

production, labor and capital. In IRIO table, they are represented by (i) wages and salary; (ii)

surplus; (iii) depreciation; and (iv) indirect tax. According to 2005 IRIO table, the proportion

of each primary inputs are presented in Table 3.1.

Table 3.1

The Proportion of Primary Inputs of NTB Province in Mining Sector based on 2005 IRIO

Table

No Description % Explanation6

1 Wages and salary 29.9 income paid to labor, either in cash or in kind

2 Surplus 55.2 include property rent, nett interest, and gross firm profit

3 Depreciation 7.5 allocating firm profit to replace capital good that wears of

4 Indirect tax 7.4 Tax levied by the government for every firm's sales

Total 100.0

Source: 2005 IRIO Table (BPS and Bappenas, 2006)

Wages and salary comprise about 30 percent of NTB GRDP from income approach. Assuming

68 percent of PT NNT workers are NTB’s origin7, it means about 21 percent of wages and

salary paid is enjoyed by NTB province.

Firm’s surplus is the highest contributor of NTB GRDP from income approach. It contributes

more than a half of GRDP, about 55 percent. As explained in the table, surplus may consist of

several items, such as property rent, net interest and gross firm profit. While gross firm

profit consist of before tax profit and shareholders right (dividend). After all payment

obligation is deducted, the share of NTB in firm’s surplus is likely to be small. As already

mentioned, the three local governments of NTB – Provincial government, Kabupaten

Sumbawa Barat, and Kabupaten Sumbawa- only own 6 percent of PT NNT share. Therefore

NTB only receives a small amount of income from firm surplus.

Depreciation will go to the owner of capital good used in PT NNT activities. Since most of

capital goods used are machinery imported from other regions or even abroad, this income

from capital is slightly received by NTB province.

6 Daryanto and Hafizrianda (2010)

7 Data from PT NNT




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Indirect tax will most likely be collected by central government. So tax revenue will go to

central government. The tax revenue is used for financing national development. However

tax revenue may be redistributed again to local governments across Indonesia as part of

fiscal balance mechanism between central and local governments. Therefore, some of

indirect tax revenue will be enjoyed by NTB province.

Another economic impact of PT NNT operation is employment generation. Using the latest

and verified Indonesian Interregional Input-Output (IRIO) Table in 20058, the research tries

to estimate the employment generation by using the production value of PT NNT in 2011 as

shock to regional economy. Table 3.2 shows employment generation due to PT NNT activity

in KSB. The production value of PT NNT in 2011 has created direct and indirect employment

about 57,687 jobs across Indonesia. The total job is resulted from inter-industry and inter-

regional linkages.

Table 3.2

Employment Generation of PT NNT across sector and region in Indonesia based on IRIO

Model in 2011

No Description SumatraJava and

BaliNTB* Kalimantan Sulawesi Others** Total

1 Agriculture 7,522 5,992 3,783 518 186 864 18,865

2 Mining: oil and gas 28 135 - 31 - 1 195

3 Mining: non oil and gas 59 2 3,556 - - - 3,617

4 Manufacture 1,453 4,870 1,711 127 21 5 8,187

5 Electricity, gas, and clean water 14 12 20 1 - - 47

6 Construction 47 115 784 4 1 1 952

7 Trade, hotel and restaurant 845 1,989 9,579 119 53 35 12,620

8 Transportation and communication 161 440 5,616 31 7 5 6,260

9 Financial institution, real estate, and rent services 143 243 3,633 22 6 5 4,052

10 Public, social, and private services 127 394 2,348 19 3 1 2,892

Total 10,399 14,192 31,030 872 277 917 57,687

Percentage by region 18.03% 24.60% 53.79% 1.51% 0.48% 1.59% 100.00%

Source: LPEM-FEUI calculation based on 2005 IRIO table

Note: * including West Sumbawa district

** Others consist of Papua, Maluku, North Maluku, and East Nusa Tenggara Provinces

The highest employment is created in NTB (including KSB), followed by Java and Bali; and

Sumatra. Total employment created in NTB is about 31,030 jobs or approximately 54 percent

of total national employment creation. Despite mining sector itself, the highest employment

generations in NTB are in (i) trade, hotel and restaurant; (ii) transportation and

communication; (iii) agriculture; and (iv)financial institution, real estate, rent services

sectors.

In the production activity of PT NNT, the mobility of goods and services (people) to and from

8 Methodology for IRIO is presented in the Appendix.




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PT NNTs mining site will be frequent. The mobility of goods and service will increase

transportation activities and at the same induce trade activities. People mobility also relates

to higher demand for food and accommodation (hotel and restaurant).

PT NNTs employee and their family concentration in KSB will also create demand for goods

and services. The demand for financial and housing services will increase the financial

institution and real estate sectors. Furthermore, the demand for agricultural products will be

supplied by agricultural sector in the region. All increase in those sectors will create job

opportunities.

The second and third largest employment generations related to PT NNT are in Java and Bali;

and Sumatra which account about 14,192 persons and 10,399 persons respectively. They

work on agriculture and manufacturing sectors. Agricultural products in Indonesia are mostly

produced in Java and Bali (crop, fruit, meat, etc.) and Sumatra (fruit, palm oils, etc.). They

are distributed to other provinces, including NTB province. A mining activity in KSB will

demand food products to feed their employee. As the result agricultural activities in

producing regions will increase and creating employment opportunity in the sector.

The same analogy applies to high employment generation in manufacturing sector. For

example, the need for steel of PT NNT is supplied from a vendor in Medan, North Sumatra.

Further demand of steel due to PT NNT production activities will induce steel production

which employs additional worker.

The actual number of employee of PT NNNT however is higher than the ones predicted by

the IRIO model. PT NNT’s data in Table 3.3 shows that the company directly employs 4,297

workers compared to 3,566 workers generated by the model. Based on Table 3.3, PT NNT

employee who is NTB residents is about 68 percent of total Indonesian Nationality of which

37 percent are specifically KSB resident.

The slight discrepancy between two figures might be caused by the definition of PT NNT

employee. It might be that there is PT NNT workers who are hired from local labor services,

such as security, cleaning services, driver, etc. So these kinds of workers are calculated as

employment generated in services sector, and not in the mining sector. The number of

workers in the IRIO model calculation is worker of PT NNT actually working in the mining

sector.




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Table 3.3

PTNNT’s Direct and Indirect Employee based on Nationality

No Description worker

I PT NNT Employee

a. Indonesian Nationality

(i) KSB 1,572

(ii) West Nusa Tenggara province, non KSB 1,333

(iii) Non West Nusa Tenggara province 1,350

Sub total 4,255

b. Expatriate 42

Total PT NNT Employee 4,297

II PT NNT Contractor and Sub contractor employee

a. Indonesian Nationality 4,363

b. Expatriate 55

Total PT NNT Contractor and Sub-con employee 4,418

Source: PT NNT (2012)

In the mean time, the number of workers working for PT NNT Contractor and Subcontractor

are obviously distributed in sectors other than mining. They may work in services,

transportation, trade sectors, etc.

3.2. FISCAL CONTRIBUTION OF PT NNT

As business entity, PT NNT pays tax and non tax revenues to central governments under

prevailing tax law. Taxes and non taxes payments will become domestic revenue in state

budget (APBN). Then part of state revenue will be transferred to regional governments as

regional expenditure. These transfers include tax and natural resource revenue sharing (BHP

and BHSDA), general allocation fund (DAU), and specific allocation fund (DAK). These will

become revenue in regional budget (APBD). Therefore the taxes and non taxes payment of

PT NNT will benefit central and regional governments (Table 3.4).




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Table 3.4

Fiscal Impact Scheme of PT NNT to Central and regional Government

Source: Law No.33/2004, Law No. 28/2009, and Government Regulation PP No. 55/2005.

Despite taxes and non taxes paid to central government, PT NNT also pays local tax and

retributions to regional governments, both provincial and district governments. Local taxes

and retribution include surface water tax, public road lights tax, vehicles tax, building license

permit, etc. Thus local government will obtain benefit from PT NNT. Table 3.5 shows the

distribution of tax and natural resource sharing, local tax and retribution related to the

mining industry.

FISCAL IMPACT CENTRAL GOVERMENT

REGIONAL GOVERNMENT

PRODUCING REGIONNON-PRODUCING

REGION

DIRECT IMPACT I. Domestic Revenue I. Regional Revenue I. Regional

Revenue

1. Tax revenue 1. Own Revenue (PAD)

a. Domestic Tax a. Regional tax

i. Income tax b. Retribution

ii. Value added tax

iii. Land and building tax (PBB)

iv. Excise 2. DP (Direct) 1. DP (Direct)

v. Other tax a. Revenue sharing a. Revenue sharing

b. International trade tax i. PBB iii. SDA

i. Import duty ii. PPh Ps 21, Ps 25, Ps 29

ii. Export tax iii. SDA

2. Non Tax Revenue

a. Natural Resource Revenue

b. State Owned Enter. Profit

c. Other non tax revenue (PNBP)

INDIRECT IMPACT II. Regional Expenditure 3. DP (Indirect) 2. DP (Indirect)

1. Balancing fund (DP) a. DAU a. DAU

a. Revenue sharing fund b. DAK b. DAK

i. PBB

ii. PPh PS 21, Ps 25, Ps 29

iii. SDA

b. General Allocation Fund (DAU)

c. Specific Allocation Fund (DAK)

TOTAL IMPACT Domestic Revenue – Regional

Transfer/Expenditure

PAD+DP (DIRECT) + DP

(INDIRECT)

DP (DIRECT AND

INDIRECT)

FISCAL IMPACT CENTRAL GOVERMENT

REGIONAL GOVERNMENT

PRODUCING REGIONNON-PRODUCING

REGION

DIRECT IMPACT I. Domestic Revenue I. Regional Revenue I. Regional

Revenue

1. Tax revenue 1. Own Revenue (PAD)

a. Domestic Tax a. Regional tax

i. Income tax b. Retribution

ii. Value added tax

iii. Land and building tax (PBB)

iv. Excise 2. DP (Direct) 1. DP (Direct)

v. Other tax a. Revenue sharing a. Revenue sharing

b. International trade tax i. PBB iii. SDA

i. Import duty ii. PPh Ps 21, Ps 25, Ps 29

ii. Export tax iii. SDA

2. Non Tax Revenue

a. Natural Resource Revenue

b. State Owned Enter. Profit

c. Other non tax revenue (PNBP)

INDIRECT IMPACT II. Regional Expenditure 3. DP (Indirect) 2. DP (Indirect)

1. Balancing fund (DP) a. DAU a. DAU

a. Revenue sharing fund b. DAK b. DAK

i. PBB

ii. PPh PS 21, Ps 25, Ps 29

iii. SDA

b. General Allocation Fund (DAU)

c. Specific Allocation Fund (DAK)

TOTAL IMPACT Domestic Revenue – Regional

Transfer/Expenditure

PAD+DP (DIRECT) + DP

(INDIRECT)

DP (DIRECT AND

INDIRECT)




Final Report


28

Table 3.5

The Distribution of Tax and Revenue Sharing, Local Tax and Retribution Related

to Mining Industry

Percentage Sharing (%)

No Type of Payment Central Province

Producing

district

Neighbor.

districts Total

Explanation

1 Profit tax: PPh 4, 14, 23 100 0 0 0 100

2 Individual income tax: PPh 21,

25/29

80 8 8.40 3.6 100

3 Corporate income tax: PPh 22, 27 100 0 0 0 100

4 Deviden interest and royalty

income tax: PPh 26

100 0 0 0 100

5 Value added tax and Luxury good

value added

100 0 0 0 100

6 Imported goods tax 100 0 0 0 100

Collected by

central

government

7 Land rent 20 16 64 0 100

8 Royalty 20 16 32 32 100

Applied in general

mining

9 Surface water rent tax 0 100 0 0 100

10 Vehicle tax 0 100 0 0 100

11 Vehicle ownership 0 100 0 0 100

12 Public road light tax 0 0 100 0 100

13 Land and Building tax 10 16.2 64.8 0 91

14 Betterment tax 0 0 100 0 100

15 Other regional tax 0 0 100 0 100

Regional tax

16 Regional retribution 0 0 100 0 100

17 Building license permit 0 0 100 0 100

18 Other regional retributions 0 0 100 0 100

Regional

retribution

Source: Law No.33/2004, Law No. 28/2009, and Government Regulation PP No. 55/2005.

By using the formula stated in Table 3.5, the accumulation of fiscal contribution of PT NNT to

central and regional budgets during 2005-2012 can be traced. The result is presented in

Table 3.6 Figure 3.7. Total payment of PT NNT amounted to about Rp 31.85 trillion. The

payment to central government alone was about Rp 31.55 trillion or on average about 0.4%

of domestic revenue of central budget.

Figure 3.7 shows that about Rp 9.55 trilion of Rp 31.55 trilion is spent by central government

for regional expenditure, such as DAU, DAK, etc9. While central government developed a

fiscal distribution formula with the intention to reduce disparity among regions, the result

however shows that NTB region only received Rp 2.02 trillion (22 percent), while other

regions (provinces) across Indonesia enjoyed the rest of Rp 7.52 trilion (78 percent). Looking

more detail, during 2005-2012 the producing region (NTB, KSB, and other regencies/cities in

9 The figures presented in this part of analysis are estimated figures based on the fiscal model. The actual

figures may differ from the estimated ones.




Final Report


29

NTB) received about Rp 675 billion, Rp 703 billion, and Rp 638 billion respectively from PT

NNT fiscal contribution.

Table 3.6

PT NNT Fiscal Contribution to Central and Regional Budgets, 2005-2012 (Rp billions)


Figure 3.7

The Accumulation of PT NNT Fiscal Contribution, 2005-2012 (Rp billions)


At regional level, the contribution of PT NNT fiscal payment to NTB budget was ranging from

4.2–9.9 percent during 2005-2012. On average it was about 7 percent of NTB budget (Figure

3.8). While the fiscal contribution of company to KSB budget was higher, ranging from 10.7 –

59.9 percent, or 24 percent in average during the same period (Figure 3.9).

NO. Description 2005 2006 2007 2008 2009 2010 2011 2012 2005-2012

IPTNNT Payments to Central and Regional

Govts1,163.34 1,444.33 2,621.79 4,575.53 3,931.52 8,512.99 8,080.53 1,524.02 31,854.05

II Domestic Revenue in APBN 1,162.18 1,406.57 2,587.23 4,507.11 3,897.74 8,480.40 8,041.86 1,466.99 31,550.07

III Regional Transfer/ Expenditure in APBN 427.5 513.8 872.6 1,127.3 1,328.5 2,434.1 2,312.4 530.4 9,546.7

IV Revenue in APBD of NTB Region*) 198.2 202.3 224.3 231.5 314.7 354.3 296.1 194.9 2,016.4

V

Revenue in APBD of other province in Indonesia

**)230.5 349.3 682.9 964.2 1,047.6 2,112.4 2,054.9 392.5 7,834.3

VI Revenue in APBD NTB Province 45.0 73.4 75.6 103.7 93.3 97.4 93.3 93.2 675.0

VII Revenue in APBD of Kab. Sumbawa Barat 83.7 71.2 79.0 68.0 114.4 123.2 100.5 63.0 703.1

VIII

Revenue in APBD of other Reg/city in NTB

Province69.5 57.6 69.7 59.8 107.0 133.6 102.3 38.8 638.3

*) Consolidated for NTB Region (Province + Regency/City)

**) Consolidated for regions outside NTB (Province + Regency/City)

NO. Description 2005 2006 2007 2008 2009 2010 2011 2012 2005-2012

IPTNNT Payments to Central and Regional

Govts1,163.34 1,444.33 2,621.79 4,575.53 3,931.52 8,512.99 8,080.53 1,524.02 31,854.05

II Domestic Revenue in APBN 1,162.18 1,406.57 2,587.23 4,507.11 3,897.74 8,480.40 8,041.86 1,466.99 31,550.07

III Regional Transfer/ Expenditure in APBN 427.5 513.8 872.6 1,127.3 1,328.5 2,434.1 2,312.4 530.4 9,546.7

IV Revenue in APBD of NTB Region*) 198.2 202.3 224.3 231.5 314.7 354.3 296.1 194.9 2,016.4

V

Revenue in APBD of other province in Indonesia

**)230.5 349.3 682.9 964.2 1,047.6 2,112.4 2,054.9 392.5 7,834.3

VI Revenue in APBD NTB Province 45.0 73.4 75.6 103.7 93.3 97.4 93.3 93.2 675.0

VII Revenue in APBD of Kab. Sumbawa Barat 83.7 71.2 79.0 68.0 114.4 123.2 100.5 63.0 703.1

VIII

Revenue in APBD of other Reg/city in NTB

Province69.5 57.6 69.7 59.8 107.0 133.6 102.3 38.8 638.3

*) Consolidated for NTB Region (Province + Regency/City)

**) Consolidated for regions outside NTB (Province + Regency/City)

31,854 31,550

9,547

2,016

7,834

675 703 638

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Pembayaran PTNNT

ke Negara dan

Daerah

Penerimaan Dalam

Negeri APBN

Transfer/Belanja

Daerah dalam APBN

Penerimaan APBD

Wilayah Provinsi

NTB*)

Penerimaan APBD

Wilayah Lain di

Indonesia **)

Penerimaan APBD

Provinsi NTB

Penerimaan APBD

Kab. Sumbawa Barat

di Prov. NTB

Penerimaan APBD

Kab/Kota Lain di

Prov. NTB




Final Report


30

Figure 3.8

PT NNT’s Fiscal Contribution to NTB budget, 2005-2012 (Rp millions and percent)


Figure 3.9

PT NNT’s Fiscal Contribution to KSB budget, 2005-2012 (Rp millions and percent)


From producing region perspective, the percentages of fiscal contribution to NTB and KSB

budgets from the total fiscal payment accumulation from 2005-2012 paid by the company

were 2.11 percent and 2.21 percent respectively. Some say that fiscal payment returned to

producing regions are very small. While at the same time local people believe that

company’s fiscal contribution is very huge. The discrepancy between expected and actual

contribution has not been publicly discussed.

45

73 76

104

93 97

93 93

8.5

9.9 8.8

9.9

7.9 7.7

5.5

4.2

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

-

20

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010 2011 2012

(%)

(Rp

. M

ilia

r)

Kontribusi Fiska (Rp. Miliar)l Share (%)

84

71 79

68

114

123

101

63

59.9

32.5

26.4

19.7

28.8 28.7

19.0

10.7

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

-

20

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010 2011 2012

(%)

(Rp

. M

ilia

r)

Kontribusi Fiska (Rp. Miliar)l Share (%)




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31

3.3. CSR CONTRIBUTION OF PT NNT

PT NNT commits to contribute on community development especially for people living

surrounding the mining activities and PT NNT believes that taking part on social

responsibility is important to do their business. Hence PT NNT developed the Strategic Plan

of Community Development Program. First phase of strategic plan was done for period 2005

– 2009, and it is continued to the second phase of Strategic plan 2009 - 2013. The program

focuses on three subdistricts. Those subdistricts are Maluk, Sekokang and Jereweh. The

vision and mission of community development program of PT NNT is shown in Box 1 below.

Box 1

Community Development Program Strategic Plan (2009-2013)

Vision: Develop a healthy, smart, self-sufficient, prosperous and religious community.

Mission:

1. Improve the quality of health human resources.

2. Improve the quality of smart and productive human resources.

3. Encourage and facilitate the creation of business opportunity and community

economic activities.

4. Develop the natural potential of the area to an optimal, competitive and

sustainable level.

5. Develop art, cultural and religious values in the effort of attaining a

harmonized civil society.

Source: “Social Impact Assessment – Batu Hijau Project Sumbawa Indonesia”, PT NNT and AMEC

Geomatrix, 2010

To implement the missions, based on the presentation from community development

(comdev) PT NNT (2013) the community development programs focuses on five main sectors

namely health sector, education sector, business of economy sector, agriculture, fishery and

tourism sector and religion, social and cultural sector. The program was planed based on

participatory method. To do those programs PT NNT involved the local government, NGOs,

contractors and consultants, universities and schools and also community groups/societies.

PT NNT has allocated large amount of fund for community development program. Table 3.7

shows that during 2000 – 2012, PT NNT has spent US$ 107.4 million or US$ 8.3 million per

year in average.




Final Report


32

Table 3.7

PT NNT Spending for Community Development, 2006-2012 (in thousands US$)


Table 3.8

PT NNT Spending for Community Development, 2006-2012 (percent)


Infrastructures development receives the highest portion of PT NNT community

development spending (Table 3.8). The total share of infrastructure expenditure in PT NNT’s

community development from 2006 – 2012 was about 38 percent compared to capacity

building that only received 19 percent. The high percentage of infrastructure expenditure

has created criticism. The company is expected to allocate more fund for capacity building,

preparing the local community to participate in economic activities created by PT NNT and

also to deal with post mining era. It is local government’s role to finance infrastructure

development, not the company. However, PT NNT argued that infrastructure development is

important since it could create access for local people to education, health, and

transportation. Furthermore, local government is lack of funding ability to finance local

infrastructure projects due to limited budget.

The infrastructures development in comdev programs could in fact stimulate additional

economic impact to the local economy through construction sector, thus creating additional

job. This study, however, does not estimate the employment generation due to

infrastructure development in comdev programs.

Based on the presentation from community development of PT NNT (2013), the progress of

the CD programs in 2012 is more than 90% and the program has some good achievements.

Type of works 2006 2007 2008 2009 2010 2011 2012Total

2000-2012

Infrastructures 1,769 1,731 1,832 2,430 5,387 12,703 3,566 41,117

Capacity Building 1,167 1,176 1,587 1,415 2,599 5,946 2,873 20,345

Contribution/donation 1,102 925 1,316 749 1,171 2,918 11,694 24,140

Operational cost 1,621 1,842 2,059 1,538 1,946 2,155 6,227 21,837

Total in thousand US$ 5,660 5,675 6,796 6,133 11,104 23,724 24,361 107,440


2000-2012

Infrastructures 1,769 1,731 1,832 2,430 5,387 12,703 3,566 41,117

Capacity Building 1,167 1,176 1,587 1,415 2,599 5,946 2,873 20,345

Contribution/donation 1,102 925 1,316 749 1,171 2,918 11,694 24,140

Operational cost 1,621 1,842 2,059 1,538 1,946 2,155 6,227 21,837

Total in thousand US$ 5,660 5,675 6,796 6,133 11,104 23,724 24,361 107,440


2000-2012

Infrastructures 31.26% 30.51% 26.97% 39.62% 48.51% 53.55% 14.64% 38.27%

Capacity Building 20.62% 20.73% 23.36% 23.08% 23.41% 25.07% 11.80% 18.94%

Contribution/donation 19.47% 16.30% 19.37% 12.21% 10.55% 12.30% 48.00% 22.47%

Operational cost 28.64% 32.46% 30.31% 25.09% 17.53% 9.08% 25.56% 20.33%


2000-2012

Infrastructures 31.26% 30.51% 26.97% 39.62% 48.51% 53.55% 14.64% 38.27%

Capacity Building 20.62% 20.73% 23.36% 23.08% 23.41% 25.07% 11.80% 18.94%

Contribution/donation 19.47% 16.30% 19.37% 12.21% 10.55% 12.30% 48.00% 22.47%

Operational cost 28.64% 32.46% 30.31% 25.09% 17.53% 9.08% 25.56% 20.33%




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33

The key performance indicator of PT NNT community development program is presented in

Table 3.9. In health sector, PT NNT claims that the program done by CD program contributes

to reduce malaria incident rate. In education sectors, PT NNT states that the study assistance

program for students on junior secondary level and senior secondary level has contributed

to increase graduation rate. Besides there was IDR 18 billion scholarship fund distributed to

3,242 students. Furthermore PT NNT also built some health and education infrastructures

such as drainage, clean water facility, some community health centre and schools.

Table 3.9

The Five Years Goal Indicator of Success


In agriculture sector, the intensification program using SRI (System of Rice Intensification)

method done in 10 villages in three targeted districts has resulted in the increasing rice

production from 4.59 ton per hectare in 2005 to 6.40 ton per hectare in 2012. Infrastructure

of irrigation built by PT NNT also supported the improvement of agriculture productivity. In

business sector, PT NNT has stimulated the growth of SMEs in KSB and NTB. From 2001 to

2012 PT NNT spent USD 313,318,000 for procurement to the local vendors and contractors.

Major Field Indicators of Success 2013 Target 2012 Progress

Health Numbers of malnutrition children in Sekongkang, Maluk, Jereweh,

monthly average

<1% 0.33%

Numbers of people with clean and healthy behaviour in 15 RT > 90% 89.19%

Malaria SPR in Sekongkang, Maluk, Jereweh < 2% 1.47%

Education Graduation rate at Junior High School level in KSB 85% 99.66%

Graduation rate at Senior High School level in KSB 80% 99.90%

Graduation rate at Vocational School level in KSB 80% 99.66%

Enrollment rate at Elementary School level in KSB *) n/a 99.68%

Enrollment rate at Junior High School level in KSB*) n/a 96.79%

Enrollment rate at Vocational and Senior High School level in KSB*) n/a 75.39%

Economy Income per capita at Sekongakng, Maluk, Jrwh (/day) Rp30,000 Rp35,742

Employment Rate in Sekongkang, Maluk, Jereweh (%) >90% 93.21%

Omzet/capita/month of local SME labor under NNT supervision

(xRp1000)

1,000 901

Agriculture, Marine, and Tourism

Farm income (xRp1000/HH/month) 1,500 1,163

Fisheries income (xRp1000/HH/month) 1,500 1,733

Growth of tourism arrival (/th) 20% -

Religion and Social-Culture

Number of preserved NTB traditional culture 3 -

Religious conflict 0% 0%

Major Field Indicators of Success 2013 Target 2012 Progress

Health Numbers of malnutrition children in Sekongkang, Maluk, Jereweh,

monthly average

<1% 0.33%

Numbers of people with clean and healthy behaviour in 15 RT > 90% 89.19%

Malaria SPR in Sekongkang, Maluk, Jereweh < 2% 1.47%

Education Graduation rate at Junior High School level in KSB 85% 99.66%

Graduation rate at Senior High School level in KSB 80% 99.90%

Graduation rate at Vocational School level in KSB 80% 99.66%

Enrollment rate at Elementary School level in KSB *) n/a 99.68%

Enrollment rate at Junior High School level in KSB*) n/a 96.79%

Enrollment rate at Vocational and Senior High School level in KSB*) n/a 75.39%

Economy Income per capita at Sekongakng, Maluk, Jrwh (/day) Rp30,000 Rp35,742

Employment Rate in Sekongkang, Maluk, Jereweh (%) >90% 93.21%

Omzet/capita/month of local SME labor under NNT supervision

(xRp1000)

1,000 901

Agriculture, Marine, and Tourism

Farm income (xRp1000/HH/month) 1,500 1,163

Fisheries income (xRp1000/HH/month) 1,500 1,733

Growth of tourism arrival (/th) 20% -

Religion and Social-Culture

Number of preserved NTB traditional culture 3 -

Religious conflict 0% 0%




Final Report


34

Chapter 4

SURVEY RESULTS

4.1. STAKEHOLDER INTERVIEWS

4.1.1. Economic Aspects

Despite so many economic contributions of PT NNT to the local economy, Bappeda of KSB

said that the economic benefit did not stay in KSB10

. He suspected that regional leakage has

occurred in KSB, i.e. the economic benefit of PT NNT went to other regions. He estimated

that only 5% economic benefit stays in KSB.

Bappeda already identified several factors that contributed to regional leakages, among

others are:

a. Lack of PT NNT’s backward and forward linkages with local economic sectors

Most of PT NNT inputs are imported from other regions and the concentrate produced

is exported. It means that there is no linkage with local economic sectors. While

forward linkage is not possible due to the exported copper concentrate, backward

linkage of PT NNT activity with local economic sector is expected.

b. Wage and salary spent in KSB is relatively small

Wage and salary is payment to input factor which is labor. It is one component of GDP

from income approach. Theoretically, spending of wage and salary locally will

stimulate the local economy. Bappeda KSB estimated that only 34% of PT NNT current

workers are KSB residents who spend their wage and salary locally. The remaining 66%

will potentially spend their wage and salary outside KSB, thus creating regional

leakage.

c. The extractive industry surpluses go out of the KSB region

Other component of GDP from income approach is surplus received by the company

for entrepreneurship. In the input-output table, surplus is translated as profit. In this

case, profit will be enjoyed by the company and distributed to the shareholders. The

majority of shareholders of PT NNT are foreign companies and non KSB companies.

Therefore the surpluses of extractive industry will go out of KSB region.

10 Based on the interview with the Head of Bappeda of KSB




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35

d. Tax revenues mostly go to central government

Tax revenues could be used to finance government programs. The important and high

valued taxes are collected by central government (see Table xx). They include profit

tax, individual income tax, corporate tax, and value added tax.

Bappeda has been thinking of how to solve these regional leakage problems and take more

benefit from PT NNT. First, concerning the local economic sector involvement in PT NNT, the

most promising sector is agriculture, since other sectors in KSB have not developed yet.

Agriculture is the second largest contributor to GRDP of KSB and expected to be able to

supply the need for agricultural products of PT NNT. However there has to be serious and

continuous effort to develop the sector, since continuity and quality of local supply to PT

NNT are still the major issues.

Staple food in KSB –such as rice, maize, and sweet potato- is currently adequate. In some sub

districts rice consumption is larger than production. However, horticultural products are

quite limited. Some horticultural products like fruits and vegetables are rarely grown locally.

Plantation product is dominated by coconut and cashew nuts. Local people raise cows,

buffalo, goat and horses. They also catch fish in the sea. Pedigree chicken is not so popular

until it has just recently been opened. It seems that agricultural sector requires a further

boost.

Secondly, to increase the wage and salary locally, the KSB government has issued Bupati

Regulation Perbup No.9/2010 on the policy to employ local residents. The regulation said

that PT NNT and its contractors should hire KSB residents at least 50% of their total workers.

The regulation is implemented by coordination with PT NNT. There is no explicit punishment

if the company could not accomplish the target.

The local government declares that Local Economic Development Plan of KSB has been

developed through cooperation with several institutions, such as PT NNT, CPR-Indonesia,

and PSP3 IPB. The strategy is directed toward the development of: (i) micro scale agri

business, (ii) micro scale non agri business, (iii) small enterprises, (iv) small medium

enterprises (SME) in ecotourism, and (v) Green SME.

For local economic sustainability post mining closure, local government has developed the

Master Plan of Community Based Area Development in the Year 2010-2014. The plan

specifies 6 packages to accomplish the objectives:

a. Policy package, which consists of (i) blue print of KSB local economic development, (ii)

community empowering institution, (iii) marine culture and coastal area, (iv)

optimizing forest area use for low emission(REDD)




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36

b. Human resource package, which consists of (i) community empowerment etos, (ii)

entrepreneurship design and strengthening education

c. Business package, directed toward (i) seaweed, (ii) shrimp pond, (iii) SME in

food/animal husbandry, (iii) agro forestry industry based on rattan and ecotourism.

d. Financing packages, aimed at micro and small scale business, and investment in

business and industry,

e. Cluster development package, intended for (i) export oriented sales, (ii) household

based partnership and cooperation, and (iii) infrastructure

f. Management package, in the form of (i) central management office in 3 locations, and

(ii) Expert workshop.

4.1.2. Employment Aspect

There is no economic sector that can employ new labor force that come into market in KSB,

since the economy has not developed yet. Their only hope is working for PT NNT that is seen

as big company in KSB. Every student graduated from high school thinking of working in PT

NNT. Bappeda estimated that the growth of labor force is 0.55 percent per year.

In the mean time non mining wage is very uncompetitive compared to mining wage. The

wage in non mining activity is Rp 30.000/personday, while wage in mining activity is Rp

75.000/personday. It almost two times the difference. Therefore, it is unattractive for

younger generation to work in non mining activity, such as agriculture sector.

There is also concern on income disparities in the community due to PT NNT operation. A

general perception has also been formed that financial status of PT NNT and PT NNT

contractor workers is better compared to other occupation. This creates jealousy and at the

same time pressure to work in PT NNT.

To lift the pressure on the obligation of PT NNT to recruit local labor, a strategy should be

employed. One strategy is through community empowerment by providing training given in

Balai Latihan Kerja (BLK/Vocational Training center). The curriculum for the training is

adjusted so participant may become PT NNT worker or independent worker. However, Local

Labor Office said that this strategy has not been effective yet, since the BLK is built in wrong

location (by the sea).

Local Labor Office also urges PT NNT to apply one door policy when recruiting local worker.

Both of them form an institution called Batu Hijau Recruitment Committee (BHRC). This

institute is managed by Human Resource Division of PT NNT and supervised by Local Labor

Office in the process of local recruitment. The decision to hire local worker should be

approved by Local labor Office.




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As already mentioned, at the same time local government issued Regulation Perbup

No.9/2010 on the policy to employ local residents. The regulation said that PT NNT and its

contractors should hire KSB residents at least 50% of their total workers. While the spirit is

understandable, the regulation seems to be not effective. First, there is no explicit

punishment by violating the regulation, since local government prefers to prioritize

communication and negotiation on the implementation of the regulation. Secondly, the

regulation said that who is meant by local resident is people who already live in KSB for 5

years. If the definition is literary translated, then it must be more than 50% of current worker

of PT NNT are KSB resident. Thus, PT NNT already complies with the regulation.

There is also issue of low capacity of business actors in KSB, both at individual and

institutional level. Most individual business actor is in the stage of trial and error, while

business institutions in KSB mostly are co-op, CV, and PT that need empowerment and

coaching. Government regulation to empower these business actors has not been effective

either. For example, local government has issued Bupati Regulation Perbup No.5/2010 that

provides economic stimulus to local business actor by establishing cooperation between

government and banking sector. However the result is not there yet.

Due to the nature of commodities supplied and the capability of the companies to supply PT

NNT, the procurement spending of PT NNT in 2012 was about 50 percent from foreign

companies (Figure 4.1). About 47 percent was procured from national company located

outside NTB, whereas 2 percent was from KSB and 1 percent was from NTB.

Figure 4.1

Procurement Spending of PT NNT in 2012 (percent)

2% 1%

47%

50%

KSB NTB non KSB National Off-shore





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38

Purchases that were made locally in KSB dan NTB provinces have the same characteristic,

they are small scale general services which can be easily found locally, such as vehicle

vendors, general contractors, general procurement, employment agencies, printing and

advertisement agency, office supply/equipment, limestone quarry, and transportation

services.

While purchases made from other regions (nationally) is mostly for specific products that

can not be produce/found locally, such as coal, heavy equipment, iron and steel foundry,

mining equipment, fuel provider (PT Pertamina), medical evacuation, survey instruments,

etc.

4.1.3. Fiscal Aspect

When discussing PT NNT in KSB, it should be understood that it administratively involves

three levels, i.e. central government, provincial government, and district government (KSB).

Since PT NNT has a contract with central government, the obligation related to fiscal terms is

largely directed to central government.

Bappeda identifies potential additional revenue for KSB budget. For example, corporate tax

which 100 percent collected by central government. The local government seems to be

interested to take some shares from this tax revenue. Secondly, the role of local government

has been acknowledged in the Law No 4/2009 on Minerals and Coal which give authority to

local government to issue mining permit. Third, KSB government demands higher

percentage of allocation fund from NTB government when discussing regional budget

allocation. Since KSB GRDP contributes 26 percent of NTB GRDP, government of NTB should

apply affirmative policy for KSB.

The government of KSB is pleased that they currently have shares in PT NNT, by joining

consortium of PT Daerah Maju Bersaing (PT DMB). It means that the regional government

will receives part of the surplus. In 2009 three regional governments as members of the

consortium received US$ 38 millions as share compensation. The fund is distributed 40% for

NTB, 40% for KSB, and 20% for Sumbawa.

KSB government and PT NNT cooperate in managing the fund for local empowerment

program. KSB provides the fund and PT NNT evaluates business proposal sent by local

entrepreneur to be financed. The fund is called DPPM (Dana Pengembangan dan

Pemberdayaan Masyarakat) or Community Development and Empowerment Fund.

Last year KSB also received grant from PT NNT valuing US$ 9 million in metal scrap. The grant

is recorded and added as additional revenue to the KSB budget.




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39

Having understood the important role of direct expenditure in stimulating the economy,

Bappeda also tries to allocate more budget to indirect expenditure. Currently the allocation

of direct and indirect expenditures ranges between 35-40 percent and 60-65 percent,

respectively. For example, if the budget of KSB is Rp 661 billion, then indirect and direct

budget would be Rp 280 billion and Rp 380 billion or 42 percent and 58 percent respectively.

In the mean time, the local government offices (SKPD) demand Rp 2 trillion for financing

their programs. Bappeda has to allocate budget wisely on local programs that stimulate the

economy.

4.2. SUPPLIER’S SURVEY

To verify the model estimation and stakeholder interview, this study conducted a small

survey to the vendors or suppliers of PT NNT in NTB. The objective of the survey is mainly to

verify a pattern of local content and local job creation generated by the vendors and their

supplier.

The respondents are divided into three categories (Figure 4.2), i.e. (i) the vendor that

directly supply goods and services to PT NNT; (ii) layer 1 respondent which is the

supplier of PT NNT’s vendor, and (iii) layer 2 which is the supplier of layer 1

respondent. The source of data on vendor is provided by PT NNT, while layer 1 and

layer 2 respondents are generated directly from the interview with the vendor.

Figure 4.2

Type of Survey Respondents

Source: LPEM-FEUI Survey 2013

The survey took sample of vendor and their suppliers in KSB, Mataram city and West Lombok

District which represent the impact of PT NNT in NTB region (local economy). The total

respondents are 39 companies. Sometimes vendor respondent does not want to share

information on layer 1, since it is confidential. As the result, only small number of layer 1 and

layer 2 respondents could be obtained. The distribution of respondent by location and type

of respondent is presented in Table 4.1.

PT NNT

Vendor/

Supplier

Supplier of

Vendor

(layer 1)

Supplier of

supplier

(layer 2)




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Table 4.1

Distribution of Respondent by Location and Type

Survey Location

KSB

Mataram

City

West

Lombok

Total

14 11 0 25 Vendor

56% 44% 0% 100%

7 4 1 12 Layer 1

58% 33% 8% 100%

1 1 0 2

Type of

Respondent

Layer 2 50% 50% 0% 100%

22 16 1 39 Total

56% 41% 3% 100%


Based on the year of established, 75 percent respondents in Mataram city have started

before year 2000 (Table 4.2). Those respondents already operated before PT NNT started its

operation in 2000. However, 82 percent of respondents in KSB were established after the

year 2000. It means that the respondents in KSB have strong correlation with PT NNT which

started to operate in 2000. Even 37 percent of the respondents in KSB just established after

year 2008.

Table 4.2

Year of Established of Respondents

Year of Establishment

< 2000 2000 - 2008 > 2008

Total

KSB 4 10 8 22

Mataram City 12 3 1 16 Survey

Location West Lombok 1 0 0 1

Total 17 13 9 39


Most of respondents surveyed are not only specialized in one type business. Some of them

provide two or more type of business. Table 4.3 presents type of business of the

respondents. The highest type of business is in trading which accounts about 37 percent of

the respondents. It is then followed by services (31 percent), production (22 percent), and

agriculture (10 percent).

Table 4.3

Respondent’s Type of Business

Type of business

Trading Services Production

Agriculture/

Animal

production

Total

Vendor 12 16 7 1 36

Layer 1 5 0 4 4 13 Type of

Respondent Layer 2 2 0 0 0 2

Total 19 16 11 5 51





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Table 4.4 presents the origin of worker of respondents. Total respondents employ 98 percent

of their worker from NTB province in which 40 percent of worker from KSB. Only 2 percent

of workers are originated from other province. This pattern is also found from respondent by

type. Approximately between 96 – 100 percent of worker of respondent are from NTB

Province. It means that PT NNT created local employment for local worker within the

province significantly. It does not necessarily in the mining sector, but also in other sectors in

the economy.

Table 4.4

Percentage of Workers Origin by Respondent

Worker’s Origin

KSB NTB

Other

Province Foreign country

Total

Vendor 39% 59% 1% 0% 100%

Layer 1 30% 66% 4% 0% 100% Type of

Respondent Layer 2 76% 24% 0% 0% 100%

Total 40% 58% 2% 0% 100%


Source of input used in the production process of respondent is presented in Figure 4.3.

About 67 percent of production input of the respondent is from NTB province, in which 26

percent is specifically from KSB. Production inputs used from KSB are generally from (i)

quarrying and construction materials, such as sand, brick, etc.; and (ii) agricultural products,

such as woods, seeds, and manure. These kinds of products are available locally in KSB.

Figure 4.3

Source of Input of Respondents

41.2%

31.2%

1.2%

26.5%

KSB NTB non KSB Other Provinces Others





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Some illustrations on the outputs of respondents and their input sources are presented in

Table 4.5. For some specific outputs, such as safety equipments and building materials, the

inputs definitely come from other regions outside NTB, since the local economy could not

produce those inputs, such as helmed, wearpack, shoes, and building materials. However for

food services, the inputs should have been produced by local sources/economy, such as rice

and fruits. In fact, some of these products are still imported from other regions outside NTB.

Table 4.5

The outputs of respondents and their input sources

Source: LPEM-FEUI survey, 2013

Goods and Services produced by respondents

input from KSB inputs from NTB inputs from other region outside NTB

Brick Sand, woods, hoe clay sand

Limestone heavy equipment rental, fuel fuel

Fruits fertilizer fertilizer plastic bag

Roof tile clay Clay, coconut fiber

Wood trader wood wood

Construction services Sand, brick Cement, sand, brick

Ferilizer: compost terpaulin processing pot

Food services Vegetables, fruit, rice vegetables Fruit, rice

Building material sandSteel, sand, plat, cement Steel, plat, cement

Furniture tools Wood, tools Wood, tools

Paving block Sand, wood sand Cement, wood

Trading services: livestock knife Cow, cement, knife Cow, cement

Safety EquipmentHelmet, wearpack, shoes

Helmet, wearpack, shoes

Cow cow cow

Fish supplier Fish, vessel fish, vessel fuel

Employment agency Labor Labor Labor

Brick Sand, wood cement

House Keeping services Labor labor

Construction services Cement, labor, sand, brick fuel

General contractor LaborLabor, project material project material

Nursery Seed Fertilizer, plastic pot

Goods and Services produced by respondents

input from KSB inputs from NTB inputs from other region outside NTB

Brick Sand, woods, hoe clay sand

Limestone heavy equipment rental, fuel fuel

Fruits fertilizer fertilizer plastic bag

Roof tile clay Clay, coconut fiber

Wood trader wood wood

Construction services Sand, brick Cement, sand, brick

Ferilizer: compost terpaulin processing pot

Food services Vegetables, fruit, rice vegetables Fruit, rice

Building material sandSteel, sand, plat, cement Steel, plat, cement

Furniture tools Wood, tools Wood, tools

Paving block Sand, wood sand Cement, wood

Trading services: livestock knife Cow, cement, knife Cow, cement

Safety EquipmentHelmet, wearpack, shoes

Helmet, wearpack, shoes

Cow cow cow

Fish supplier Fish, vessel fish, vessel fuel

Employment agency Labor Labor Labor

Brick Sand, wood cement

House Keeping services Labor labor

Construction services Cement, labor, sand, brick fuel

General contractor LaborLabor, project material project material

Nursery Seed Fertilizer, plastic pot




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Chapter 5

SOCIO ECONOMIC ANALYSIS

As extractive industry presence ‘dominates’ local economy and surpasses the role of regional

government, local expectations to the company in managing natural resources and relation

with local community surrounding mining area has increased. These expectations are at least

motivated by two aspects. First, mining activity has a potential damage to the environment

that may affect local community. Therefore managing natural resources responsibly and

sustainably and maintaining a good community relation should become the main priority of

company. Secondly, increasing domestic and international pressure groups in monitoring

mining practices and conflicts demand an active role of the company to respond

appropriately.

In the mean time, local community feels that they directly bear the negative impact and only

obtain little benefit from mining activity, especially related to employment where local

workers may have been less hired by the company due to capital-intensive nature of the

industry. This chapter will review some socio-economic impacts of PT NNT mining activities

to local economy/community, especially in KSB. The materials have been summarized from

in-depth interview with stakeholders and some previous studies on the issues.

5.1. SOCIO-CULTURAL CHANGES

PT NNT presence has obviously brought good and bad cultural changes in terms of values

and norms of local community. Values are beliefs that guide people’s life, while norms are

rules how people should conduct (code of conduct). Changes in norm occurred at individual

as well as community levels.

Company’s presence has an impact on changes in community values, especially in economic

ones. For example, industrial culture brought by the company has increased how community

valued their land higher than before, especially in areas related directly or indirectly to

mining activities. The land value increase is caused by the expectation that the opportunity

cost of land for agriculture uses is lower than that of (mining) industry.

Industrial culture also causes an increasing wage. It is supported by the expectation that

wage in industrial sector is higher than other sector (such as in agricultural sector). New

value also emerges that payment for labor should be in terms of monetary values (wage)

which once may be paid in kind. It should be acknoweldged that these facts are also driven




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by massive information and new culture. However, it can not be denied that the company

presence is the main triger and accelerating the value changes.

Industrial transformation has also driven mobilization from agricultural sector to industrial

(mining) sector. This is caused by the belief that working industrial sector is more prestigious

and rewarding. This fact produces an impact that new generation start leaving the old

tradition of working in agricultural and forestry sectors. This is also accelerated by the fact

that agriculture land decreases caused by land conversion which seek higher return.

At the same time, the behavioral changes also happened in consumption pattern. Increasing

income is followed by less expenditure for food and more on non food consumption, i.e.

tertiary goods such as motorcyles (LPEM-FEUI 2007 and AMEC Geomatrix, 2010).

Entertaining services then grows around mining area to cater consumption pattern changes,

such as restaurant, hotel, café, bar, etc. While these establisment enjoy the economic benefit

from company presence, they have disturbed traditional cultural value which give negative

stigma, especially from religious perspective professed by the majority of the community.

The company presence also changes levels of cooperation and conflict in the region. LPEM-

FEUI (2007) reported that level of cooperation in local community surrounding mining area is

quite good. However, the cooperation between the company and local community based on

social status tends to benefit middle-high income group of the community (village elite

group). The company usually uses village elite group to approach local community for

community development programs. Therefore, this village elite grup may benefit individually

and/or their communities (see also Welker, 2007).

Socio-cultural impact that has been directly felt by local community after the company

presence is the jealousy among community members (LPEM-FEUI, 2007 and AMEC

Geomatrix, 2010). There are at least two factors creating social jealousy. First, elite group

due to their position could tap greater opportunities from the company related to job

recruitment information and funding for program implementation. Second, some

community members are recruited by the company. As company workers, they received

relatively high fixed income compared to local standard and are guaranteed a decent living.

The income inequality between the company workers and other community members

clearly appeared from their homes, lifestyles, consumption pattern, etc. Social jealousy

among community is at least sourced from income inequality.

Social jealousy also emerges among subdistrict levels. As already set by the standard

operating procedures, community development program of the company are focused on the

areas surrounding mining operation, meaning only three subdistricts of Maluk, Sekongkang,

and Jereweh. Substantial amount of fund has been allocated for comdev programs in these




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subdristricts. The results are better infrastructures, health, education, and economic

opportunities compared to other subdistricts in KSB. These facts create a demand for equal

treatment of the company by the other subdistricts. Even the Bupati once said that the

comdev programs should be better coordinated with local government programs.

The LPEM-FEUI report (2007) also stated that conflict was rarely happened in mining area.

Perception survey found that 24 percent of respondents said that conflict frequently

occursed in his/her area against 76 percent who said there was no conflict in his/her area.

The conflict occurred due to interaction between local community and the company, and

interaction among community members (horizontal conflicts). The top three sources of

conflict between company and local community are caused by lack of PT NNT contribution

to village development, lack of compensation for (agricultural) land taken over by the

company, and lack of local employment opportunity in the company.

On the others side, there is however good cultural changes due to the company presence

(LPEM-FEUI, 2007). Local community has increased their awareness on the importance of

formal education. Again, this value transformation is the impact of industrial culture,

especially in the areas surrounding mining activities. People clearly begin to understand that

formal education and training could produce skilled labor needed by the industry. Therefore

by attending formal education, they expect to be able to participate in the company as

worker.

5.2. ECONOMIC IMPACT

Mining activities in NTB certainly has an impact at national, regional, and local levels. It

creates additional economic and fiscal impacts, directly through input demand for mining

activities or indirectly or multiplier effect through demand for food and services to meet

mining workers needs.

The economic impact of PT NNT has been discussed in the previous chapter. The analysis

rested on GRDP contribution and employment generation by the company. Yet, some say

that the benefit of employment generation is relatively small in KSB. LPEM-FEUI (2007)

reported that the impact of PT NNT presence in KSB to the employment creation consisted

of two parts. First, PT NNT certainly needs big amount of workers for its operation, including

local workers which has been targeted to 60 percent of total labor as part of corporate social

responsibility. The problem is that few local workers can only be employed due to the

qualification of local workers who are dominated by unskilled-labor and do not match the

company’s qualification. In addition the number of job offered is limited.




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As the result, this employment problem frequently trigers conflict between the company

and local community. In addition, jealousy between those who works and do not work for

the company has become community internal problem which indirectly impact the

relationship between community and company. In an occasion, the company has to accept

the unqualified worker and considered them as reserve workers to lower local labor tension.

This action does not eliminate the problem when these reserve workers demand the same

right with PT NNT workers.

Secondly, PT NNT presence has reduced the access of local community to their livelihood,

due to limited access to the forest, especially those who depend on forest products. People

who used to have an easy access to forest products –such as rattan, enau, wood, etc.- could

not benefit from the forest any more since the forest has became mining area which is

protected by working contract between Government of Indonesia and the company. Some

cases emerge from this problem.

Therefore, small number of employment creation do not necessarily means that the

company do not largely employ local workers, but more on the final result of two forces. The

number of local workers employed by the company is about the same as those who lost

their livelihood.

Another problem on the economic impact is due to lack of backward linkage with local

economy. It does not mean that the company is not aware on this problem. Welker (2007)

stated that dominant wisdom of CSR in mining holds that companies whose presence is

depended on the exhaustible resources must avoid creating relation of dependences of local

people, i.e. they should empower local people. Rather than spending large money on

unsustainable projects and infrastructures, the company should work through

“participatory” mechanism to “empower” people to help themselves towards modest goals

of improved education, agriculture practice, and small enterprises.

Based on those premise, the company launched comdev program on agricultural practices.

However, the programs was not sustainable and not properly designed (LPEM-FEUI, 2007).

For example, fruit planting program was done up to production process only, while the

product marketing was not facilitated. The result was excess of supply. Program participants

were only taught how to produce but not how to market the product. Furthermore, the

most important thing is that the program was not directed to supply the company need for

fruit, while at the same time local content for the company’s input from local economy is still

low.




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The company should extend the program up to coaching stage. It will ensure company’s

target cooperation or small enterprise to be able to meet the rquirements set by the

company in the bidding process. Without coaching, they would lost against more

experienced suppliers. In other word, they would face same level playing field. This kind of

affirmative action is needed to create linkage between the company and local economy.

The company’s CSR also need further criticism. It is shown in the previous chapter that about

38 percent of CSR fund is allocated for infrastructure development while only 19 percent for

capacity building. Following Welker (2007) argument, the practice is against the wisdom of

CSR that avoid large spending on unsustainable projects or infrastructure. She believed that

CSR spending for capacity building will assist local community to better prepare for future

condition, thus creating more sustainable and diversified economy.

However, the company argued that it is good intention of the company to assist regional

government developing infrastructure. Under current Laws, only small fraction of fiscal

contribution paid by the company returned to producing region as revenue budget. In

addition to finance infrastructure development, regional government should also finance

routine expenses, such as civil servant salaries. This creates limited fiscal space in regional

budget to finance infrasructure development. While at the same time local community

expect more infrastructure services as the large company operates in their region. Not

surprisingly, local community sometimes directly asks the company. Regional government

also tries every effort to get extra revenues from the company, central, and provincial

governments. Therefore local community should know that Fiscal Balance Law does not

favor producing region.

Welker (2007) provided another explanation that village elites regard the company as the

potential conduit of modern development. Village elites may mobilize young men, and

sometimes women and children, to demonstrate for mine jobs, contracts for local

businesses, new community infrastructures, and other material flows. Because a one day

mine shut-down would cost severely to the company, village elites can force the company to

respond to their understanding of development and the mine’s social obligation.

However village elite plays a dual role. Despite forcing the company to fulfill their demand,

they also cultivate relations of interdepence with the company by defending it against village

critics as well as external activists who attack the company’s social and environmental

records.

She added further that in response to village elite’s demand, the company has become

primary agent of development in KSB, building, maintaining, or subidizing roads, health

facilities, schools, dam, tourist facilities, mosques, power generators, etc. Thus the company




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is caught between sustainable development trends and the economic rationale that

legitimizes its presence in the region, i.e. acquiring social licence to operate.

From discussion above it is imperative that the long term interest of global investor, central

government, regional government, and local community should be harmonized. Global

investor need a conducive environment in doing business locally to earn sufficient profit.

Central and regional governments’ interests are to have economic and fiscal benefits from

global investor presence to accelerate national development. While local community expect

that they can participate in the economic changes brought by the global investor and

improve their livelihood.




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Chapter 6

CONCLUSION AND RECOMMENDATIONS

6.1. CONCLUSION

a. The economy of NTB and KSB corresponds with PT NNT sales production. An increase

in sales of PT NNT will have positive impact to the economy of NTB Province and KSB,

and vice versa.

b. Mining has dominated KSB economy by contributing more than 90 percent annually

to GRDP since 2000. The same pattern also found in NTB province where mining

sector contributed more than 30 percent in total GRDP. However, NTB begins to

diversify its economy and experiences structural transformation, while KSB still

heavily depends on mining sector.

c. In economic perspective, PT NNT has contributed nationally to national GDP, and

especially regionally to NTB’s GRDP, and locally to KSB’s GRDP. In addition, PT NNT

has also created employment opportunities in 2011 to approximately 57.687 workers

across Indonesia in which 54 percent of the total occurs in NTB province.

d. PT NNT also pays taxes and non taxes to central government and local governments

(taxes and retribution). The taxes and non taxes paid to central government will

become domestic revenue in state budget where part of it will be distributed to local

governments as balancing fund. Furthermore NTB and KSB get additional revenue

from their membership in the PT DMB consortium as shareholder of PT NNT. Thus

there is fiscal benefit received by central and local governments to finance their

development programs.

e. PT NNTs Community Development program within CSR activity has benefit local

people in KSB in terms of infrastructure development, economic, health, and

education status.

f. The domination of PT NNT in KSB economy has been considered as the main job

provider for local employment. At the same time, other economic activities slowly

grow and provide salary lower than mining sector (PT NNT). It makes other sector

unattractive compared to mining sector. Furthermore, from labor perspectives,

working at industrial sector (mining) will leverage their social status compared to

agriculture sector or other non-formal sectors, in addition to higher rewards.

g. In terms of supply chain, local economy is limited by its capacity and capability in

connecting with PT NNT activities.




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h. Social jealousy exists after PT NNT presence among community members (those who

working vs. not working for PT NNT) and subdistricts (around vs. outside mining area)

6.2. RECOMMENDATION

a. Fiscal revenue received from non renewable resource extraction should be invested in

productive sector for future economy. Thus, the improvement of local government in

planning and budgeting becomes important.

b. KSB should focus on strategies on how to develop its economy sustainably based on

its comparative advantage. For example, the operation of PT NNT in KSB should be

considered as an opportunity to diversify its economic sectors, for example improving

agriculture sector to be able to integrate with PT NNT activity. Therefore KSB should

provide continuous efforts to increase the capability of agricultural sector.

c. KSB should not attempt to issue local regulations, i.e. affirmative policies, which may

not be effective and have negative impact to local investment climate.

d. Local education and training should be encouraged to open further opportunities for

local labor to work in other sectors.

e. KSB and PT NNT should foster local entrepreneurship by providing empowerment,

coaching, and business opportunities, so they are able to compete with other non

local companies and meet the requirement set by PT NNT.

f. Comdev programs need redefinition by putting capacity building as the main

objective and avoiding polarization between areas around and outside of the mine

g. A good existing cooperation and communication between Local government and PT

NNT has to be continued and intensified.




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REFERENCES

AMEC Geomatrix. 2010. Social Impact Assessment Batu Hijau Project, Sumbawa Indonesia.

AMEC Geomatrix and PT NNT, Batu Hijau.

Daryanto, Arief and Yundy Hafizrianda. 2010. Analisis Input-Output dan Social Accounting

Matrix: untuk Pembangunan Ekonomi Daerah. IPB Press, Bogor.

Bappeda Kabupaten Sumbawa Barat. 2005. Rencana Pembangunan Jangka Panjang Daerah

(RPJPD) Tahun 2005-2026 Kabupaten Sumbawa Barat Provinsi Nusa Tenggara Barat.

Bappeda Kabupaten Sumbawa Barat, Taliwang.

Bappeda Kabupaten Sumbawa Barat. 2005. Rencana Pembangunan Jangka Menengah

Daerah (RPJMD) Tahun 2005-2010 Kabupaten Sumbawa Barat Provinsi Nusa

Tenggara Barat. Bappeda Kabupaten Sumbawa Barat, Taliwang.

Bappeda Kabupaten Sumbawa Barat. 2011. Rencana Pembangunan Jangka Menengah

Daerah (RPJMD) Tahun 2011-2015 Kabupaten Sumbawa Barat Provinsi Nusa

Tenggara Barat. Bappeda Kabupaten Sumbawa Barat, Taliwang.

BPS. 2012. Kabupaten Sumbawa Barat dalam Angka. Bappeda and BPS Kabupaten Sumbawa

Barat, Taliwang.

___. 2012. Provinsi Nusa Tenggara Barat dalam Angka. Bappeda and BPS provinsi Nusa

Tenggara Barat, Mataram.

Hadi, Agus Purbathin. 2001. Hubungan antara Komunikasi Publik Perusahaan dan Sikap

Komunitas Setempat (Kasus Perusahaan Pertambangan di Nusa Tenggara Barat).

Tesis Master Program Pasca Sarjana Institut Pertanian Bogor.

LPEM-FEUI. 2007. Dampak Ekonomi PT NNT. Laporan Penelitian tidak dipublikasikan

kerjasama LPEM-FEUI dengan PT Newmont Nusa Tenggara, Jakarta.

_________. 2007. Dampak Sosial PT NNT. Laporan Penelitian tidak dipublikasikan kerjasama

LPEM-FEUI dengan PT Newmont Nusa Tenggara, Jakarta.

Malanuang, Lukman. 2009. Model Daerah Berkelanjutan Melalui Transformasi Struktur

Ekonomi Berbasis Sumberdaya Pertambangan ke Sumberdaya Lokal Terbarukan

(Studi Kasus Tambang Tembaga dan Emas Proyek Batu Hijau PT Newmont Nusa

Tenggara di Sumbawa Barat NTB). Disertasi Program Doktor, Program Pasca Sarjana

Institut Pertanian Bogor.

Miler, Ronald E. and Peter D. Blair. 1985. Input-Output Analysis: Foundation and Extensions.

Prentice-Hall, New Jersey.




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Welker, Marina A. 2007. The Rationality of Corporate Social Responsibility in Indonesia.

Mimeo, Cornell University.

______________. 2009. Corporate Security Begins in Community: Mining, the Corporate

Social Responsibility Industry, and Environmental Advocacy in Indonesia. Cultural

Anthropology, Vol. 24, Issue I, pp. 142-179 ISSN 0886-7356.

World Bank and Intenational Finance Corporation. 2002. Large Mines and Local

Communities: Forging Partnership, Building sustainability. World Bank, Washington

DC.

Call E:/1data/2013a/Extractive Industry/Final Report Extractive Industry and Local Community_130912.doc

Set : ma/16/9/13/4:56:03 PM




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Appendix

Method of PT NNT Impact Estimation

1. IO and IRIO Analysis

In estimating the economic impact of PT NNT in NTB, this study basically applies a modification of

Input-Output (IO) Analysis. IO analysis is the name given to an analytical framework developed by

Professor Wassily Leontief in the late 1930s, work for which he received the Nobel Prize in Economic

Science in 1973 (Miler and Blair, 1985). It is a method, also known as inter industry analysis that allow

us to:

a. characterized economic activity of a region in a certain time of period

b. predict reaction of a regional economy to stimulation resulting from:

• increased consumption

• changes in government policies (spending, tax policy, etc.)

• market oriented demand changes

• production by given sector

c. provides an important tool to address questions of “economic impact”

Originally, applications of the IO model were carried out at national level. More recently, interest in

economic analysis at the regional level –such as a group of provinces, metropolitan area, etc- has led

to modifications of IO model which attempts to reflect peculiarities of regional (subnational) problem.

Single region model as initially developed represents one approach to modeling a regional economy in

input-output terms. What they fail to do is to recognize in any operational way the interconnections

between regions. For a country made up of several regions, such as Indonesia, a number of important

questions have several–region implications. A production activity of PT NNT in Nusa Tenggara Barat

(NTB) province will have ramification not only within the (NTB) province where the work is done, but

also in other provinces. The total economic effect is therefore likely to be greater than regional effect

in NTB province. Firms outside NTB will produce goods that will be imported to NTB for copper

production; those firms, in turn, may import goods from other provinces for their production.

This study used input output model that attempt to capture these interregional linkages as well as the

regional aspects of production. This is interregional input-output (IRIO) model. Table 1 presents the

framework of IRIO Table.




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Table 1

The Framework of IRIO Table: Two Regions

Intermediate Demand Final Demand

Region A :

Economic Sector

Region B :

Economic Sector

Region-A Region-B Export ROR

Total

Output

1 …… n 1 …… n

Region-A :

Economic

Sect

or

1

…

n

AA

ijX

XijAB

AA

iF

AB

iF

A

iE

A

iX

Intermediate

Inputs

Region-B :

Economic

Sector

1

…

n

BA

ijX

BBij

X BA

iF

BB

iF

B

iE

B

iX

Import ROR MA

jX

MB

jX

MAF

MBF

Total Intermediate Inputs ∑=A

ij

A

j XX ∑=

B

ij

B

j XX

Total Primary Inputs (VA) A

jV

B

jV

Total Input A

jX

B

jX

Source: LPEM-FEUI, 2013

The study used 2005 National IRIO Table published by BPS (National Statistical Office) and Bappenas

(National Planning and Development Agency) in 2006. The original 2005 IRIO table consists of 30

provinces and 35 economic sectors for each province. For simplicity of the analysis, the IRIO Table was

aggregated into 6 regions and 10 economic sectors (Table 2).




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Table 2

Regional and Economic Sector Aggregation of 2005 IRIO Table

Regional Aggregation Economic Sector Aggregation

1 Sumatra NAD, North Sumatra, Riau

Island, Riau, Jambi,

Bengkulu, West Sumatra,

South Sumatra, and

Lampung provinces

1 Agriculture Paddy, other food ingredient

plant, plantation, livestock,

forestry, and fishery

2 Java and Bali Banten, DKI, Jakarta, West

Java, Central Java,

Jogjakarta, East Java, and

Bali provinces

2 Mining: Oil and Gas Mining: Oil and Gas

3 NTB West Nusa Tenggara (NTB)

province

3 Mining: Non Oil and Gas Mining: non Oil and Gas

4 Kalimantan West Kalimantan, East

Kalimantan, South

Kalimantan, and Central

Kalimantan provinces

4 Manufacture Petroleum refining; palm oil

industry; seafood processing

industry; food and beverage

industry; textile and textile

product; footwear industry;

industry of goods timber,

rattan, and bamboo; pulp and

paper industry; rubber and

rubber goods industry;

petrochemical industry;

cement industry; basic iron

steel and base metal non

ferrous industry; metal

product; machinery and

electrical equipment repair

industry; other industry

5 Sulawesi North Sulawesi, Gorontalo,

Central Sulawesi, Southeast

Sulawesi, and South

Sulawesi provinces

5 Electricity, city gas, and

water

Electricity, gas, and heat supply

6 Others North Maluku, Maluku,

Papua, and East Nusa

Tenggara provinces

6 Construction Construction

7 Trade, Hotel, and

Restaurant

Commerce, hotel and

restaurant

8 Transportation and

communication

Land transport, sea transport,

air transport, and

communication

9 Financial, real estate,

and rent services

Financial and insurance

10 Other services Public administration and

defense services

Source: LPEM-FEUI, 2012




Final Report


56

The stimulus to the IRIO model was the value of PT NNT shipment each year in Rupiah and nominal

terms to NTB province only (Table 3). It is treated as final demand shock to the local economy. The

period of analysis started from 2006–2011.

Table 3

The Value of PT NNT Shipment in 2006-2011

Item Unit 12/2006 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012

Shipment US$ 1,424,489,341 1,623,358,585 1,086,685,572 1,624,398,095 2,299,934,541 1,687,539,333 655,440,997

Exchange Rate IDR/USD 9,087 9,334 11,325 9,457 9,023 9,088 9,646

Shipment Million IDR 12,944,049.74 15,151,779.69 12,306,542.52 15,362,582.54 20,751,433.20 15,337,161.05 6,322,311.03


Note: exchange rate was from CEIC Databank, 2013

The indicators of economic impact to NTB province due to PT NNT operation were (i) output impact;

(ii) GRDP/Value added generated; and (iii) employment generation. Central to calculation was Leontief

inverse matrix which produced multipliers and was used to estimate all the economic impact

indicators. The results of last two indicators estimation have been presented in Chapter 3.

Output impact relates to the change in total sales in the economy due to PT NNT operation. The value

added generated can be estimated through a change in primary input rows. These rows represent

GRDP calculation from income approach, i.e. income of production factors owned by household, firm,

and government. In IO table, these primary inputs consist of wage and salary, trade surpluses,

depreciation, and indirect tax. While employment generation is a change in employment due to final

demand stimulus in the region, such as PT NNT activity, and calculated from employment multiplier.

Despite using IRIO analysis, the study also tried to estimate the economic impact of PT NNT to West

Sumbawa District (Kabupaten Sumbawa Barat/KSB). However, KSB does not have an IO Table. The

study therefore developed a KSB IO table based on the characteristic of NTB province production

technology. The purpose of the IO analysis is to estimate the economic impact in terms of economic

sector in KSB, with and without PT NNT.

2. Limitation of Method

There are limitations of the IO and IRIO methods which source from their basic assumptions:

a. IO table characterized economic activity of a region in a given period. In this case, the 2005

IRIO represent economic activity in 2005. Since there is no updated version of IRIO yet for

economic impact estimation, we use 2005 IRIO table to estimate the economic impact of PT

NNT in 2006 until 2011. It means that we use a strong assumption that there is no

technological change during 2005 until 2011, i.e. all multipliers remain the same.

b. The IO model assume fixed price. The stimulus therefore can not differentiate whether a

shock is due to quantity or price changes. The stimulus therefore is taken from the value of

transaction, which is a product between price and quantity.

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