Lesson Learn from Bojonegoro Social Innovation:
Transforming Extractive Revenue into Sustainable Development
Joko Purwanto, Bojonegoro Institute
Compostela Valley - Bantay Kita - Article 33 Indonesia
SUBNATIONAL CONFERENCE ON
EXTRACTIVE INDUSTRY TRANSPARENCY INITIATIVE
Davao City, The Philippines, August 22-23, 2013
Comval BK: Bojonegoro Social Innovation on Extractive Revenue
1. LESSON LEARN FROM BOJONEGORO
SOCIAL INNOVATION: TRANSFORMING
EXTRACTIVE REVENUE INTO SUSTAINABLE
DEVELOPMENT
JOKO PURWANTO
BOJONEGORO INSTITUTE
2. BOJONEGORO
INNOVATION
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)
3. 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/polici
es
Revenue Management
and allocation
PROGRAM FOCUSBOJONEGORO
INNOVATION
4. 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
BOJONEGORO
INNOVATION
5. 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
6. 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)
BOJONEGORO
INNOVATION
7. •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.
BOJONEGORO
INNOVATION
9. 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 85/15
Tax Rate 44%
(tax article 2000)
EQUITY TO BE SPLIT
CONTRACTOR ENTITLEMENT
26,7857%
GOVERNMENT ENTITLEMENT
73,2143%*
CORPORATE TAX
35%
BRANCH PROFIT TAX
20%18,75%
NET CONTRACTOR SHARE
15%
GOVERNMENT
REVENUE
GOVERNMENT TAKE (NON TAX
REVENUE)
LOCAL GOV
15%
CENTRAL GOV
85%GENERAL
REVENUE
ALOCATION
Source: Indonesian Finance Ministry
9
3 %
province
related
6 %
Cities/distric
s related
6 %
Othet
cities/districs
related
LOCAL
EITILOCAL
EITI
EITI
EITI
EITI
10. BOJONEGORO
INNOVATION
Transparency
Team
Company : MCL,
Petrochina,
Pertamina
Government: Department of
Natural
Resources, DPPKAD, Depart
ment 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
– Disseminate and publication relating data of revenue collection to public. The team also
possible to make policy recommendations to the relevant stakeholders.
11. SCOPE OF TRANSPARENCY MECHANISM
REVENUE
INFORMATION
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
BOJONEGORO
INNOVATION
12. 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
BOJONEGORO
INNOVATION
13. 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
BOJONEGORO
INNOVATION
14. 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
BOJONEGORO
INNOVATION
15. 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.
BOJONEGORO
INNOVATION
In trying to work towards the Good Governance agenda Revenue Watch Institute uses the “EI Value Chain” model. This ValueChain model is derived from proposals by Oxford economist and RWI advisory board member Professor Paul Collier. The Value Chain is a living concept that has been adapted to reflect RWI’s experience working with various issues in the field – the Value Chain helps us to scrutinize the various critical steps where public officials conduct performances and allocate oil, gas, mineral and metal resources, regulate the extraction processes, collect revenues, and allocate revenues for various purposes.Idealy there needs to be civil society oversight throughout the phases of the entire value chain. Explain all the links briefly: Decision to extract or not to extract: Here it is important that local communities (in many cases Indinegous People) are also included in the decision making process and are facilitated to be able to make prior informed decisions, be their consent of rejection of a project. In this decision making process the government and the companies involved need to be transparent about the environmental and social costs sch a project will entail. Awarding contracts/liscenses = is this process trasparent, are the responsible government officials ensuring the government and the public are getting the best deal, or is the handing out of contracts shrouded by opacity?Fiscal terms – does the government have the ability to negotiate the best fiscal terms for the country?Extraction process – are environmental and social costs being externalized onto the local communities and environment?Trading of commodities = is the government agency responsible for the trading of government shares of commodities doing it in a transparent and accountable way?Tax and revenue collection = are taxes and reveues collected by the government being accounted for in a trasparent manner?Revenue management and allocation = how is the government managing it’s revenues to address the various challenges related to EI revenues? Is it aboe to save prodently in times of great windfall? Does it go on a spending spree on projects that do not contribute to sustainable development?Development projects/policies= is the government carying out development in consideration of the fact that EI resources are finite/ Is it strengthening other sectors of its economy? How is spending on health, infrastructure and education?
In trying to work towards the Good Governance agenda Revenue Watch Institute uses the “EI Value Chain” model. This ValueChain model is derived from proposals by Oxford economist and RWI advisory board member Professor Paul Collier. The Value Chain is a living concept that has been adapted to reflect RWI’s experience working with various issues in the field – the Value Chain helps us to scrutinize the various critical steps where public officials conduct performances and allocate oil, gas, mineral and metal resources, regulate the extraction processes, collect revenues, and allocate revenues for various purposes.Idealy there needs to be civil society oversight throughout the phases of the entire value chain. Explain all the links briefly: Decision to extract or not to extract: Here it is important that local communities (in many cases Indinegous People) are also included in the decision making process and are facilitated to be able to make prior informed decisions, be their consent of rejection of a project. In this decision making process the government and the companies involved need to be transparent about the environmental and social costs sch a project will entail. Awarding contracts/liscenses = is this process trasparent, are the responsible government officials ensuring the government and the public are getting the best deal, or is the handing out of contracts shrouded by opacity?Fiscal terms – does the government have the ability to negotiate the best fiscal terms for the country?Extraction process – are environmental and social costs being externalized onto the local communities and environment?Trading of commodities = is the government agency responsible for the trading of government shares of commodities doing it in a transparent and accountable way?Tax and revenue collection = are taxes and reveues collected by the government being accounted for in a trasparent manner?Revenue management and allocation = how is the government managing it’s revenues to address the various challenges related to EI revenues? Is it aboe to save prodently in times of great windfall? Does it go on a spending spree on projects that do not contribute to sustainable development?Development projects/policies= is the government carying out development in consideration of the fact that EI resources are finite/ Is it strengthening other sectors of its economy? How is spending on health, infrastructure and education?