LESSONS LEARNED FROM BOJONEGORO’S ON TRANSPARENCY MECHANISM

Good Governance for Sustainable Development BY :

BOJONEGORO REGENTH. S U Y O T O

Presented in the Ford Foundation Meeting on“Reversing the Resources Curse” Initiative

Ghana, 26 August 2013

Introduction

Thank you for the invitation, trust, and honor given to me, to share information and experience in developing Oil Transparency Mechanism in Bojonegoro, East Java Province, Indonesia.

We all are faced with the same challenges and responsibility on preserving the earth future, finding solutions on global, regional and local issues related to exploitation of our natural resources.

OIL AND GAS POTENTIAL IS LIKE “TWO SIDES” OF COIN

BENEFITS:• THE INCREASE IN LOCAL GOVERNMENT INCOME FROM

OIL AND GAS SECTOR WILL HAVE AN IMPORTANT EFFECT IN DEVELOPMENT OF BOJONEGORO

• HIGH EXPECTATIONS ON OIL AND GAS REVENUE TO TRANSFORM FROM POOR TO RICH DISTRICT

• A LARGE OF EMPLOYMENT OPPORTUNITIES

• ENVIRONMENTAL DAMAGE, INFRASTRUCTURE DAMAGE, HAS THE POTENTIAL TO CAUSE A DISASTER

• PEOPLE LOST THEIR LANDS FOR THE PROJECT, CONFLICT ON EMPLOYMENT OPPORTUNITIES, CAN BE VULNERABLE TO CAUSE SOCIAL CONFLICT

• CREATING NEWLY RICH GROUP BUT ALSO NEWLY VULNERABLE/POOR GROUP

MUST BE MAINTAINED BY THE GOOD PLANNING,

ACCOUNTABLE AND TRANSPARENT SYSTEM

The year I took the office

BOJONEGORO INNOVATION

A study of the oil and gas rich regions in Indonesia indicate specific problems occur:• Income fluctuation,

difficult to plan• Neglect of the non-oil

sector• inefficient spending• Corruption• Vulnerable on social &

environmental issues (conflict)

SHARE ON WHAT THE CHALLENGES THAT WE FACE?

WHAT WE HAVE BEEN DOING NOW?

THE FUTURE AND SUSTAINABLE SOLUTIONS

Extractive Sector Value Chain

• Good governance should be implemented in the whole process from the extraction of natural resources.

• Advocacy choose 2 focus : transparency of income/revenue and development plans

Decision to extract/not to extract

Awarding of contracts/licenses

Fiscal Terms

Extraction prosess

Trading of commodities

Tax and revenue collection

Development project/policies

Revenue Management and allocation

PROGRAM FOCUSBOJONEGORO INNOVATION

Oil and Gas Transparency Mechanism

• Revenue transparency (and related information) oil and gas will make:– Maximize the revenue comes

from oil and gas– Facilitate planning (usage

revenues, designing policies)– preventing corruption– minimize conflicts

Tax and revenue collection

Development project/policies

Revenue Management and allocation

Oil and Gas Transparency MechanismBOJONEGORO INNOVATION

WHY I NEED TRANSPARENCY

• To full fill the citizen right• To reach out public participation from multi

stake holder• To eliminate assimetric information as obstacle

of development. (Such us the of judgement and the voice of sinical)

• I don't want make a corruption, and making clean government

• I don't want get losses trust from public

Participatory Planning & Sustainable Development

• Sustainable Development and Participatory Planning are use for:– Ensure revenues are invested

properly (ensure sustainable development)

– Taming income fluctuations – Minimize conflicts, prevent

social problems / environmental

Tax and revenue collection

Development project/policies

Revenue Management and allocation

Sustainable Development Planning

The Regulation (Policy)

• Transparency in oil and gas extractive governance (2012)

• Planning System and regional development (2012)• Equity / investment / savings (2011)• Optimization of the local economic potential / Local

content (2011)• Distribution of revenue-sharing funds to the village

(2011)• CSR governance (2011)

BOJONEGORO INNOVATION

• The lack of public access to basic information related to revenue sharing, such as: production rate, the amount of investment credit, cost recovery, DMO, and the Gas Tax and Document PSC / PSC (contracts.

• Lack of capacity and bargaining power of local governments in the lifting reconciliation forum, organized by the Ministry of Energy-SKK Migas and by the Ministry of Finance.

• Late payment / transfer revenue from center gov to the regions : making delays in some development programs at the local level, which impacted to bad public services

• Volatility of oil and gas extraction which depends on the market price is a challenge for local governments : make development planning in managing oil and gas revenues for the foreseeable future and ongoing needs.

BOJONEGORO INNOVATION

THE

PRO

BLEM

S

REVE

NU

E FL

OW

BOJONEGORO INNOVATION

TRAN

SPAR

ENCY

, WH

ERE?

BOJONEGORO INNOVATION

-Government take-Dues exploration and production-Pertamina Retention-The Tax (VAT, land tax)-Import Duties-Local tax and retributions-Cost recovery

Net Split 85/15Tax Rate 44%(tax article 2000)

EQUITY TO BE SPLIT

CONTRACTOR ENTITLEMENT26,7857%

GOVERNMENT ENTITLEMENT

73,2143%*CORPORATE TAX

35%

BRANCH PROFIT TAX20%18,75%

NET CONTRACTOR SHARE15%

GOVERNMENT REVENUE

GOVERNMENT TAKE (NON TAX REVENUE)

LOCAL GOV15%

CENTRAL GOV85%GENERAL

REVENUE ALOCATION

Source: Indonesian Finance Ministry19

3 % province related

6 % Cities/districs related

6 % Othet

cities/districs related

LOCAL EITILOCAL

EITI

EITIEITI

EITI

BOJONEGORO INNOVATION

Multistakeholder Transparency

Team

Company : MCL, Petrochina, Pertamina

Government: Department of Natural Resources, DPPKAD,

Department of the Environment, Council

Civil : NGO, Community Leader,

Sector

• Designated by the Regents, funded by government• Local transparency mechanism is expected to be integrated

and mutually inline with a model of transparency in national income (Extractive Industries Transparency Initiative / EITI)

• The Team have duties and functions:– Requesting information/data, collecting, verification and analysis– Disseminate and publication relating data of revenue collection to public. The team

also possible to make policy recommendations to the relevant stakeholders.

THE

INST

ITU

TIO

N

SCOPE OF TRANSPARENCY MECHANISM

REVENUE INFORMATIO

N & OPERATION (POD, WP&B,

AFE)

SOCIAL & ENVIRONMENT INFORMATION

CORPORATE SOCIAL

RESPONSIBILITY FUND

INFORMATION

• Access to document / information related to oil and gas revenues : production / lifting, cost recovery, revenue sharing, profit sharing participating interest, oil taxes.

• Local oil and gas revenue projections : 1-5 years

• Analysis and policy recommendations related to oil and gas revenues

• Publications/reports oil and gas revenues to public

• Socialization environmental impact of oil and gas operations to the public in the affected area

• Socialization implementation of security standards and safety environment (HSE Standard) and standard to handling dangerous situations (contingency plan) from oil and gas operations

• Strengthening local communities on handling danger situation and handling industrial accidents

• Policy recommendations related to the Public Agency

• Synchronization: Company planning CSR programs VS government planning programs (avoid double budgeting)

• Socialization: CSR planning program (needs assessment, budget, objectives and program plans)

• Monitoring and reporting: implementation of CSR programs

• Analyst, evaluate and recommendation

BOJONEGORO INNOVATION

CHALLENGES AND GOOD PRACTICES• Strong Leadership on the

implementation• Consistently on policy and regulation-

and its law enforcement (such us in development planning & budgeting)

• Building strong foundation and trust between multi-stakeholders

BOJONEGORO INNOVATION

LESS

ON

LEA

RNT

CHALLENGES AND GOOD PRACTICES• Transparency is easy, only the first step,

but the final aim is accountability, responsive government/company/society:– Revenue transparency issue is only the first

entry step. Bojonegoro case advance the innovation into other issue: employment, environment, investment, development program and executing its programs.

BOJONEGORO INNOVATION

LESS

ON

LEA

RNT

CHALLENGES AND GOOD PRACTICES• Establish the innovation is easy, but

building its institutionalization is the real challenge:– Mechanism is easy to set up, but

preserving the changing in behaviour such us the central government public officer, company operators, is a challenging. Bojonegoro endorse institutionalization through regulation and build broad awareness stakeholders.

BOJONEGORO INNOVATION

LESS

ON

LEA

RNT

Thank You

BOJONEGORO INNOVATION