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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