Transparency, Collective Spirit for Improving Governance of Extractive Industries

event Published at: 2016-04-07

Transparency is a collective spirit to strive for improving resource governance in Indonesia. In addition to the data openness, transparency requires political will and incentives in order to apply consistently throughout the decision chain of extractive industries.

The forum defined the essential of transparency at the workshops facilitated by the Research Center for Politics and Government (PolGov), FISIPOL, UGM on April 6 to 7 in Jakarta. The workshop entitled "Transparency as Passion" was supported by the Coordinating Ministry for Economic Affairs, Indonesia EITI Secretariat, Global Affairs Canada, Natural Resources Governance Institute (NRGI), and the World Bank. The workshops were attended by representatives of the parties in the management of extractive industries in Indonesia, including the government, practitioners, academics, and activists of civil society organizations.

Prominent resource persons were presented as speakers including Assistant Deputy Extractive Industries of the Coordinating Ministry for Economic Affairs Ahmad Bastian, Head of Section Impact of Tax Policy Directorate of Potential, Compliance and Revenue Adriansyah, Acting Head of Public Relations at Special Task for Upstream Oil and Gas Business Activities (SKK Migas) Gamil Abdullah, former Chairman of the Indonesian Petroleum Association (IPA) as well as practitioners of Bimasena Energy Society Ananda Idris, and the Executive Director of the Center for Analysis Indonesia Taxation Justin Prastowo.

The Chairman of Indonesia EITI Secretariat Edi Effendi Tedjakusuma said that transparency is the global norm, foothold of transparency in the extractive sector to encourage utilization of mining for welfare of the people. The involvement in global norms of transparency schemes such as Extractive Industries Transparency Initiative (EITI) is one of the strategies to boost openness upon mining contract (kontrak karya), management report, and managing revenues of the extractive industries in Indonesia.

"Although it has been running in its sixth year, the capacity of EITI stakeholders needs to be improved. Why (capacity) is essential? It relates to a significant sector, namely oil and gas and mining. About 30 percent of the country revenues come from these, "said Edi.

Program Director of Resource Governance in Asia Pacific (Regina-PolGov) Purwo Santoso highlighted that the increasing of EITI network capacity is part of the citizens understanding. Transparency is not only talking about data availability and utilization, but also considering transparency as mastering knowledge at all aspects by the citizens.

"My point is not only taking over knowledge, but achieving state goals through knowledge system. As the exponent accomplishing the mandate of Constitution 1945, government should disseminate the knowledge in order to be the common knowledge - Citizen Understanding. Transparency as a passion is how transparency by means of collective intelligence overcomes the resource curse, "said Purwo.

Incentives and Political Commitment

The forum highlighted the need of political commitment and consistent implementation of the policies for applying transparency in the whole decision chains. Political commitment is also needed to ensure the incentives that the benefits of applying transparency perceived by numerous parties.

Adijanto, the participant from the Directorate General of Treasury emphasized the political commitment requisite to ensure that region already implemented transparency obtains the incentives. The framework is important in order to maintain the stability of central and local relations. "During these years, locals have not obtained the incentives of transparency yet eventually they are needed. The Ministry of Energy and Mineral Resources needs to broadcast information about rights and obligations since numerous regions not yet understanding, for example the arrangement of local returns from sharing mining revenue, "said Adijanto.

Rini G Ranti, participant from Indonesian Mining Association also stressed that political will from the government is required to confirm that EITI scheme ensued accordance with local needs.

Rini worked at the tax department of Freeport Indonesia Corp said "The Implementation at the region like Papua, the low level of education as well as the insufficient of human resources causing they could not manage on their own even though there are a lot of money (from the mining compensation and trading). Central and locals coordination is essential for applying a reputable EITI scheme comprehensively."

Insufficient incentives for parties implement transparency also of concern to practitioners of Bimasena Energy Society Ananda Idris. According to him, the lack of incentives for those involved plus the complexity of the problems of transparency in the extractive industries in Indonesia led to a number of contactors are still reluctant to comply with EITI Indonesia scheme.

"The head offices of the multi corporations and their representatives have been required to be transparent. However, it is difficult to invite my fellows KKKS here to comply with EITI Indonesia, they said that Chevron in the US or BP in London have followed the International EITI so no need to follow the EITI Indonesia, "Ananda said.

Challenges to EITI

The workshop also discussed issues in the extractive industries possibly the hitches for the future of EITI in Indonesia. Forum raised various problems including deficiency of coordination among governments, dispute of cost recovery, and doubtful mining contracts. Meanwhile, corruption and rent seeking put complexity of the problems reason many people skeptical of the EITI scheme.

2015 EITI report shows the discrepancies of the data between one to three percent between the royalties paid by the taxpayer corporation and the receiving tax in the Directorate of Taxes. A number of large companies are identified paying relatively lesser than the average payment of comparable companies. Without political commitment, those EITI findings are difficult to be followed by legal action. Data from the Directorate General of Finance shows the realization of oil and gas mining sector tax revenue of 116 billion rupiah, or about 11 percent of total revenue in 2015.

According to Director of Analysis of Legislation Bappenas Diani Sadia Wati, a political commitment from the government is demonstrated by improving regulation to certify good mining practices throughout the chain decisions. The government is eventually focused on efforts to cut inefficient regulations to support investments comfort. She said her authority had reviewed about 4,200 laws throughout the years 2006-2013.

Diani said, "The approach taken by Bapennas, now with multi-stakeholder approach, where Bapennas assigned as a system integrator by the President and also budget approach with money follows program are expected to boost those endeavors upon the decision chain."

Director of the Centre for Indonesian Taxation Analysis (CITA) Justin Prastowo criticized the government as a regulator still seems ambiguous to take solutions upon overlapping regulations. The separation between the regulator and the operator is only valid in the oil and gas sector, while mineral and coal sector is still the tug in the revision of the Mining Law No. 4 of 2009.

Justin said, "That situation affects many aspects, such as the tax sector, consistency of tax treatment for different mining regimes. Whether prevailing or nailed down - subject to contract or subject to the applicable rules. Each office has differing interpretations cause no legal certainty. The government is not just a regulator and facilitator, but it should be an accelerator for a crisis situation, the mine already sunset naturally. "(ISW)

See also our video on transparency [Related link]

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