event Published at: 2015-11-30

On 25 November 2015, Resource Governance in Asia Pacific (RegINA) at Department of Politics and Government (PolGov), Universitas Gadjah Mada (UGM) facilitated the meeting to look over legal drafting of establishing sovereign wealth fund of Bojonegoro. This is the first innovation to avoid resource curse that arose from the sub-national level of government by effort to set a reserved fund derived from oil revenue. Local government has nailed down the initiative since Bojonegoro oil-rich district was targeted to meet up to 20 percent of the national oil production.

This meeting was held at Faculty of Social and Political Science, UGM, Yogyakarta. The meeting that is supported by Natural Resources Governance Institute had confirmed local initiative on setting up a local regulation to save a portion of its sub-national government share of oil revenues. In attendance were member of Government of Bojonegoro, civil society organization, and academia. The meeting included a panel discussion with Mariana Dyah Savitri from Directorate General of Fiscal Balance, Ministry of Finance; Rahmah Yabbar, Head of Technical Implementation Unit of Regional Financial Department, East Java Province; Miftah Adi Iksanto, expert of Politics of State Finance from PolGov and Emanuel Bria, and Asia Pacific Senior Officer of NRGI. Nur Azizah and Hasrul Hanif were serving as moderator for the meeting.

In his opening remark, Secretary of Bojonegoro Government Sohadi Moeljono said that the legal draft of endowment fund is problematic to be addressed since yet regulated by national legal framework. National fiscal rules, which are typically difficult to change, have not provided to establish a petroleum fund, either at national nor sub-national level government. However, Sohadi believes that Bojonegoro has a pronounced opportunity to initiate a reserve fund as sovereign wealth fund.
“What we have done in Bojonegoro is indispensable. We need, however, a kind of specific regulation to support our legal drafting not encounter the existing rules. We seek opportunity preparing ourselves to protect our future,” Sohadi told to the forum, Wednesday (25/11).

In the same way, the expert of Politics of State Finance from PolGov Miftah Adi Ikhsanto stressed public fairness is an essential area of state financial principles to ensure public services. He emphasized the significance of a feasibility study prior to setting fund which is considering some indicators in the last-five years, including ratio of fiscal capacity and fiscal needs more than 1, product domestic regional brutto (PDRB) over 5 percent, and Human Development Index more than 70. “Bear in mind that establishment of reserved fund do not interfere in public services. It is necessary to set a transitional mechanism in order to found feasibility of a reserved fund. I believe, this point is critical to be specified in the article within the local law,” Miftah said.

Head of Sub Directorate of Investment and Capacity of Local Finance Mariana Dyah Savitri expressed her appreciation to Bojonegoro’s initiative on maintaining oil price volatility as well as protecting future generation. Nevertheless, Savitri has highlighted a range of concerns that need to be clarified amid complex funding sources. “I suggest government of Bojonegoro consult with Ministry of Internal Affairs since adjustment mechanism is essential to be clarified in local law for anticipating if there was deficiencies of the transferred revenue-sharing from central government which is not conformed to the prior plan,” said Savitri.

By the same token, Senior Researcher of Bojonegoro Institute Iskandar Saharudin showed his support to Bojonegoro government on focusing human development quality. Besides, he remarked that government needs to deeply define the reserved fund since the national fiscal rule regulates reserved fund merely to defray the expenses of the infrastructures.

Apart from funding resources, the forum discussed various points that are considered in legal drafting, specifically formation of local public services agency as the implementing agency, recruitment of the board of trustee (Wali Amanah) as advisory board, and conducting the ballot (referendum) as mechanism prior to redemption.

The initiative was raised since Bojonegoro oil-rich district has experienced budget volatility in recent years. The deterioration of world oil price in 2014 impacted on local budget since central government reduced around 60 percent of oil and gas revenue transfer to Bojonegoro by mid-2015. The need to stabilize local budgeting and spending becomes essential. Government of Bojonegoro has decided to start establishing a petroleum fund through local regulation in the late 2014. Apart from stabilizing local budget, this an on going effort aims to provide reserved funding to cushion the negative externalities of oil and gas industry for the current generation as well as deliver the positive externalities for the next generation. (isw)