Transparancy of Extractive Industry in

IndonesiaRidaya Laodengkowe

Coordinator, National Coalition Publish What You Pay Indonesia

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Republic of Indonesia Capital: Jakarta Provinces: 33 490 regencies/municipalities Total Area: 1,919,440.00 sq km (741,099.93 sq mi,

almost three times the size of Texas) Population 237.556.363 (PS 2010), Estimated

Population in 2050: 337,807,011 Languages Bahasa Indonesia (official, modified form of

Malay) GDP (2010) $ 672,450 million, Tax Ratio 11,9 % (2010) Natural Resources petroleum, coal, copper, gold, tin,

nickel, bauxit

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Extractive industries in Indonesia National Revenue 2011 (estimate): US $ 1.100 billion GDP composition by sector:

– Agriculture: 14,4%– Industry: 48,1% (including petroleum and mining)– Services: 37,5%

Oil production: 970,000 bbl/day (2011 estimated), last year (2011) targeted 965 but only 947 in realisation

Natural gas production: 56 billion cum (2007 estimate) Indonesia is a former member of OPEC (until 2008) Currently Indonesia is a net oil importer (consumes

around 1,2 million bopd), but oil and gas is still one of the major export commodity

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Indonesia energi & mineral resources

Resources

Oil 86,9 billion barrel

Gas 384,7 TCF

Coal Bed Methane (CBM) 453,30 TCF

Coal 104,76 billion ton

Nickel 1,9 billion ton

Copper 68,96 million ton

Bauksit 648,88 million ton

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Source: MENR, February 2009

State revenue from extractive industries2004-2008 (sourse: MEMR 2008)

RevenueAnnual Revenue (in million USD)

2004 2005 2006 2007 2008

1. Oil & Gas Revenue 12,18 14,26 21,02 20,53 26,35

2. Mining Revenue1,01 1,82 3,27 4,11 3,66

a. Tax 0,72 1,33 2,54 3,15 2,62 b. Non-tax 0,29 0,49 0,73 0,96 1,05

3. Others revenue 0,02 0,03 0,07 0,14 0,10TOTAL 13,21 16,11 24,36 24,77 30,12Total State Revenue 45,37 51,28 72,28 77,92 83,69% contribution of the sector 29,1% 31,4% 36,1% 30,2% 36,0%

Exchange rate (Rupiah/US$) 8.884 9.657 9.119 9.093 11.500

ICP (US$/barel) 37,17 51,84 63,86 69,69 103,31

Lifting (thousand bopd) 1.036 1.003 957 899 931

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Extractive industries problem (1)

Resource rich areas tend to have history of vertical conflict (Aceh, Papua)• Unsatifaction with revenue sharing ---- Greater autonomy status

receive more natural resources revenue transfer from central government

Resource rich areas tend to have high poverty rate Excess of decentralisation (since 2000): irresponsible

concession awarding by local governments (KP; 7.000): no competitive bidding process, no appropriate regulatory institutions, unclear revenue stream

History of violence and human rights violation in resource rich areas

“Local resource curse”: social-economic problems surrounding mining projects, environmental damages, public facilities disturbances (road, bridges), air pollution

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Extractive industry problems (2)

Weak environmental standard applied Tax evasion politico business connection,

corruption in tax institutions Lack of transparency Revenue data available in aggregated, difficult

even to reconcile sub-data in National Budget Contracts of mining are available by request, not

PSC documents (including POD, WP and Budget) Different view among Ministries: Energy and

Mineral Resources versus Ministry of Finance and Ministry of Environment

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..... Some progress

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Main features Public financial management reform Access to public information Law Extractive Industry Transparency

Initiative (EITI) adoption (2010) Mining Law Number 4/2009 --- put

some transparency measures Environment Protection and

Management Law Preparation of Petroleum Law

Revision

Public financial management reform

Put more transparency in budget process and management

There is space for public engagement, but very limited

Audit of government financial statements (agency by agency) are disclouse

Information of extractive revenue transfer are available, though questions remain

Limited disclousure on (country) revenue from extractive industry

Access to Public Information Law

Initiated by the House of Representative (DPR)

Government agencies mostly do n ot realize the significant of the law

CSOs have been using this for demanding document related to extractive industry

Become the legal basis for adopting EITI

Adopting EITI Government of Indonesia took 2,5 years to come

up with Presidential Decree to adopt EITI ---- extensive coordinating works inside government

Become candidate country on December 20, 2010 ------ 2 years to achieve compliance country

Bring uniqueness in EITI implementing countries:• Oil and gas• Mining• Sub-national

Promote EITI in regional level ---- ASEAN (Association of South East Asia Nations, 10 countries)

Openess of the House of Representative toward NGOs

Growing demand for specific laws Limited capacity of the House’s

members and their staff Tendency to ‘compete’ with

government whose staff are more experienced, or more chance to hire independent experts

Why the Government takes reform action toward transparency

Awareness of the important to draw reform agenda in public finance management (MoF): efficiency, uplift Indonesia position in global arena

Awareness of the important to response to new investment challenges (MoF, MENR)

There are growing concern internationally on the important of transparency and accountability

Need to balance decentralisation with ‘ACCOUNTABILITY’ (MoF, MOHA)