event Published at: 2018-08-27

Transparency in the extractive sectors has been strongly promoted in Indonesia over the last decade. The latest effort is the issuance of Presidential Regulation on recognizing and disclosing the beneficial ownership of corporation (Peraturan Presiden no 13 Tahun 2018) can be seen as an implementation to institutionalize commitment of advancing transparency in the sector. This new regulation provides a legal framework for the government, in the name of public interest, to inquire beneficial ownership of the extractive business with the goal of curbing corruption, tax avoidance, funding for terrorism, and money laundering.

By doing so, the extractive sector is set to be one of the priorities of practising transparency relate to the notion of this sector that is prone to corruption practices. For example, the work by Corruption Eradication Commission (2012) revealed that corruption in the extractive sectors may have resulted in approximately USD 2.2 billion annual loss in state revenues from around 3,500 licences were not accountable due to clear and clean (CnC) requirements. Beneficial ownership disclosure has fitted out the previous instruments in advancing transparency in the extractive sectors. The national government has implemented the Extractive Industries Transparency Initiative (EITI) and Open Government Partnership (OGP) that promote citizens’ access to information about the industries and the revenues it generates.

However, implementing transparency faces formidable challenges in the decentralized governance. All these efforts seem overarching the formal procedures at the national level, such as ownership, licencing, and revenue management, but limitedly encompassing informal features which are deeply ingrained in the social-political features at the local level. This article highlights the role of transparency which is actual to advance market-relevant information but insufficient to develop information which is relevant to the needs of citizens. In the absence of citizenship framework, the implementation of transparency limitedly concerns in eliminating informality to raise accountability. On the contrary, it might do undermining the community-based economy which is often stuck down by informality as the consequences.


Openness and opacity

Bojonegoro Regency, Province of East Java, which is considered as a national hallmark of the efforts to promote transparency in natural resource governance, provides a good illustration of how transparency has been problematic to be implemented at the sub-national level in a context where both formal and informal oil extraction coexists. It is one of the forerunner districts in implementing transparency in the extractive sector at the subnational level as the two periods of Bupati Suyoto's office has promoted good governance of oil and gas sector through increased transparency. This Regency stands for 20 percent of national oil production and produces around 200,000 barrels of oil per day. Currently, the largest oil company in the district is ExxonMobil Cepu Limited (EMCL).

In 2012, Bojonegoro issued a local regulation on transparency and open information for oil and gas revenue management and oil companies’ social-environmental responsibilities (Perda No 6 Tahun 2012). This regulation has been promoted as a national example of best practices in increasing transparency and was one of the reasons why the Regency was promoted as Open Government Subnational pilot project in 2016. Through the local initiatives, information that previously was not made publicly available, for example, on oil lifting and revenue spending, can now be found on Bojonegoro government’ web pages and other official sources, such as www.bojonegorokab.go.id and www.kanalbojonegoro.com.

While information for large oil companies and fields such as EMCL and its Cepu Block are being public, the informal and small-scale oil businesses run by cooperatives and artisanal drillers in Wonocolo Village, Bojonegoro Regency, an inheritance oil field from the Dutch colonial era, has barely been revealed by the transparency initiatives. Despite since 1988 the field has been under control of Pertamina EP Asset IV Field Cepu, a subsidiary of the state-owned oil and gas company PT Pertamina, the basic info about number and ownership of the wells, workers, lifting, and trading has never been publicly informed. As the oil reserves in Wonocolo are no longer economical for large-scale production, Pertamina EP has established a work-contract with the Village Cooperative (KUD) that oversees the local community-based cooperatives of oil drillers. On the paper, Wonocolo produces 400-450 barrels per day, but this only includes the oil that is formally supplied to Pertamina EP.

In addition to the oil supplied to Pertamina comes the artisanal refined oil which is estimated to be three times the amount supplied to Pertamina. The local refiners, often onsite in Wonocolo, produce low-quality diesel oil. Supplying crude oil to the artisanal refineries is much more lucrative compared to trading with Pertamina. Despite the artisanal refining in Wonocolo is considered illegal, as no permits have been issued for it and no environmental impact analysis has been conducted, the practice has continued for decades.

Henceforth, local government attempts to publicly disclose data of artisanal mining in Wonocolo. Several policies implemented to make the oil governance in Wonocolo becomes formal and more accountable. Firstly, is affirming the status of ownership. Bojonegoro government together with Pertamina has set to straighten up of new oil field drilling activities deemed illegal in the Regency. Aiming to handle the negative externalities and govern oil resource in Wonocolo, the local government requested the authority of administration of oil wells from the central government’s authority. Secondly, the local government attempts to control the oil business by evaluating the permit of the village cooperative (KUD) and stopping the proliferation of the new wells excavated in 2016. Bupati Suyoto has stipulated a guide to the local authority in managing miner and groups of miners of old oil wells (Peraturan Bupati No 30 Tahun 2017). Thirdly, the local government presents the local-owned legal business, PT Bojonegoro Bangun Sarana (PT BBS), to directly intervene in the informality in Wonocolo. Competing for the KUD, PT BBS has set new contract with Pertamina to manage oil-wells.

Implementing without local community involvement, formalization policies have raised resistant primarily from the village community, who has been traditionally maintaining oil extraction and refining. For locals, oil is not the only source of revenue has been inherited for three generations, but the foundation of their cultural identity and dignity. The informality, in this case, is an instrument for locals who want to protect oil as their main livelihood from the state control. Therefore, local policies are insufficient to make oil business in Wonocolo disclose the data publicly. Some information remains kept by the influenced local actors, primarily the information relates to oil source and production, transaction, as well as beneficial ownership who enjoyed the revenues. Moreover, the lack of political pressures from the civil society makes the implemented resource governance policies are reluctant to reveal that relevant information to the public. In turn, the opacity practice in drilling and refining has been continuing through informality in Wonocolo.

This article does not say that the transparency initiatives implemented in the extractive sectors at the national level as well as in Bojonegoro today are not important. It should be highlighted that the bureaucracy and political reforms lead by the Bupati Bojonegoro are essential but need more commitment and political supports to straight the very idea of transparency, which not merely for revealing the secrecy but clearly defining for whom the openness will benefit. The citizens-needs should be the primary goal. (*)


Indah Wardhani – Researcher involved in the Resource Governance in the Asia Pacific (RegINA) Program at Research Centre for Politics and Government (PolGov), Universitas Gadjah Mada

Päivi Lujala – Professor in Geography at the Norwegian University of Science and Technology (NTNU) and University of Oulu, Finland