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TRANSFORMING EXTRACTIVE REVENUE INTO SUSTAINABLE DEVELOPMENTPresented on Field Study Aspac Hub

Joko PurwantoBOJONEGORO INSTITUTE

• Bojonegoro regency is one of 38 regencies in east java. The total area of Bojonegoro regency is 235.000 Ha

• The total of citizenries of Bojonegoro now is 1.209.334 persons, 70% work in agriculture sector.

• 40,15% is area of country’s forest, 32,58% is area of farming, 22,42% is dry land and others 4,85% is garden and etc.

• Oil and gas are found in some areas in Bojonegoro and Bojonegoro is known as producer of oil and gas

Bojonegoro in potrait

Oil and Gas, where?

Exploitation Sukowati block,

40.000 bpdExploitation

Cepu block, 21.000 bpd (160.000)

ExplorationNona block

ExplorationBlora block

2008 2009 2010 2011 2012 -

100,000,000,000.00 200,000,000,000.00 300,000,000,000.00 400,000,000,000.00 500,000,000,000.00 600,000,000,000.00 700,000,000,000.00 800,000,000,000.00 900,000,000,000.00

PAD DBH

DAU DAK

OTHERS

INCOME 891.861.096.759,99

928.092.988.283,98

1.228.576.589.782,32

1.508.114.648.941,32 1.861.387.567.942,7

4

PAD 58.690.962.773,99

70.233.938.303,98

79.891.483.832,32

164.585.991.460,32 159.247.616.976,74

DBH 182.845.133.986,00

150.076.354.973,00

297.131.042.726,00

351.733.793.770,00 584.651.305.357,00

DAU 586.814.000.000,00

596.430.263.000,00

593.763.532.000,00

665.218.290.000,00 785.584.826.000,00

DAK 10.042.000.000,00

42.913.000.000,00

57.373.200.000,00

67.916.900.000,00 68.347.170.000,00

Miscellaneous Income 53.469.000.000,00

68.439.432.007,00

200.417.331.224,00

258.659.673.711,00 263.556.649.609,00

Income Structure

Revenue Sharing, How Much?

2009 2010 2011 2012 20130

500

1000

1500

2000

2500

3000

APBDTAXDBH

On Billion Rupiah (source finance agency)

The amount of revenue sharing which increased sharply from year to year. Base on plan of development (POD), this revenue will continue to rise until 2019 (peak production). In that time, revenue is projected to reach bojonegoro under 4 Trillion Rupiah, with 50% contribution from revenue sharing.

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

difficult to plan• Neglection of the non-oil

sector• Inefficient spending• Corruption• Vulnerable on social &

environmental issues (conflict)

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 FOCUS

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 Mechanism

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

• 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)

• 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.

• Weak capacity of local governments to understand the mechanism of the calculation flow and the oil and gas revenues sharing. This, resulted in a lack of awareness and the desire of local governments to make predictions for their own share.

• 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.

THE

PRO

BLEM

S

REVE

NU

E FL

OW

TRAN

SPAR

ENCY

, WH

ERE?

-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 Ministry

13

3 % province related

6 % Cities/districs related

6 % Othet

cities/districs related

LOCAL EITILOCAL

EITI

EITIEITI

EITI

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 supportive with a model of transparency in national income (Extractive Industries Transparency Initiative / EITI

• Team have duties and functions:– Requesting information/data, collecting, verification and analysis : counting and projection

revenue sharing– 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 INFORMAT

ION

SOCIAL & ENVIRONMENT INFORMATIONt

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 (contigency 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

CHALLENGES AND GOOD PRACTICES• Need to build a strong foundation of trust

between stakeholders– Different stakeholder, different interest:

companies, governments, civil society. Trust was built by awareness of the common goal: avoid resource curse, reap the blessing of oil revenue

– More working outside of table: informal meeting, maintain relationship

– Need to maintain neutral position, and perceived to be neutral

LESS

ON

LEA

RNT

CHALLENGES AND GOOD PRACTICES• Building an effective Multistakeholder

Group:– Need to find the right champion with the

right power to lead MSG. Continuous actor mapping would be important.

– Need to increase the capacity of all member of MSG to understand the nature and business of extractive

– Need to strengthen the demand for transparency

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

LESS

ON

LEA

RNT

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

preserving it through institutionalization is the real challenge:– Mechanism is easy to set up, but preserving

the changing in behaviour, practice, is challenging. Bojonegoro endorse institutionalization through regulation and broad awareness stakeholders.LESS

ON

LEA

RNT

Thank You