KEMENTERIAN KOORDINATOR BIDANG
PEREKONOMIAN
EITI Implementation, Indonesian
Initiative to Reform Governance in
Extractive Industry Sector
Presentation to multi-stakeholder forum for the ASEAN member
Jakarta, 28 November 2014
Ambarsari Dwi Cahyani
Revenue Specialist/Act. Deputy Head
Secretariat of Extractive Industry Transparency Team (EITI Indonesia)
http://eiti.ekon.go.id
ambarsari@eiti.ekon.go.id
Introduction
• In its ongoing fight against corruption, one cannot help
considering that Indonesia will resist the idea that
transparency is a powerful concept whose time has come.
• Being a resource rich nation there has been perceptions that
extractive industry firms are not transparent in declaring its
production, its operational costs and its revenues.
• CSO’s also noted the inconsistency of disclosed data on the
industry
• Indonesia’s position in the international corruption perception
index is among the lowest.
Background
What is Indonesia’s Main
Challenge as a Nation?
(Kompas, 2010)
Among the Most Corrupt Country?
Source: Corruption Perception Index, Transparency International, 2010
Fights Against Corruption
Repressive
Measures
•
•
•
•
Pre-investigation
Investigation
Prosecution
Assets Tracing
Public
Trust
Preventive
Measures
•
•
•
•
Bureaucracy reforms
Wealth Declaration
Transparency
Whistleblower
What is EITI?
•
•
•
A globally developed standard that promotes
revenue transparency in the exploitation of non
renewable energy resources at a local level.
A voluntary coalition of government institutions,
companies, civil societies, investors and
international organizations.
Principles should oversee that management and
use of natural resources from the extractive
industries for energy must be done in accordance
with the principles of good governance,
openness, sustainable development and the
improvement of the investment climate.
EITI Evolution
2003
2005
EITI Principles
EITI Criteria and Sourcebook (non binding guidance)
2008
2011
2013
EITI Validation Guide (binding requirements)
EITI Rules and Validation Guide
EITI Standard
EITI Requirements
EITI Standar
EITI Rules
Companies
Disclose
Payments
Licensing
Government
Discloses Receipt of
Payments
Transfers to local
Information Production
government
Data
Production
Companies Government
Budget
Contract
publish
publish
State
Allocations
(Encouraged))
Independent
payments
receipt
Ownership
State owned
of
TransitVerification
payments
Enterprises
Beneficial (Encouraged)
Tax & Company
Royaltysocial
ownership
& infrastructure
Payments
(encouraged)
A national multi-stakeholder
group decides how their EITI
process should work. Agrees EITI
workplan with objectives linked
to national priorities for the
extractive sector.
investment
This Oversight
group publishes
by a an EITI
Report
where government
Multi-Stakeholder
revenuesGroup
and other data
are disclosed and
independently assessed.
The findings are analyzed and
communicated to create
public awareness and debate
about how the country
should better manage their
resources.
How is value captured?
What information does the EITI capture?
Revenue
Collection
Production
Data
Allocation of
Rights
What the EITI requires:
Taxes & primary revenues(§4.2(a))
In-kind revenues(§4.1(c))
Infrastructure/ barter provisions(§4.1(d))
Transportation Revenues(§4.1(f))
What the EITI requires:
Exploration activities (§3.3)
Production volumes & values (§3.5(a) &
§3.4(e))
Export volumes & values (§3.5(b))
Economic contribution (§3.4(a)-(c))
What the EITI requires:
Legal framework & fiscal regime (§3.2 )
Register of licenses(§3.9)
License award/transfer process & any deviations (§3.10)
*Beneficial ownership (§3.11)
*Contract/license disclosure(§3.12)
SubNational
What the EITI requires:
Direct payments/receipts (§4.2(d))
Mandated sub-national transfers (§4.2(e))
SI
Where do benefits go?
What information does the EITI
capture?
What the EITI requires:
Employment §3.4(d)
Mandated social payments (§4.1(e))
Revenue
Management
What the EITI requires:
Revenues recorded & not recorded in
national budget (§3.7)
*Earmarked revenues &
budget/audit processes
(§3.8)
Why do
countries sign for EITI?
• Countries with non-renewable natural resources need to
manage them in a way that generates economic growth,
promotes welfare to the population and is environmentally
sustainable.
• To improve sovereign and corporate ratings and lower the
investment risk
• Consider the possibility to yield additionnal revenues through
a review of past accounting practices
• Platform for moving to a wider governance reform
• Build a framework for collaboration and understanding
between government, civil society and corporations.
EITI Benefits to
• COUNTRIES: economic and political stability and sends a positive
signal to foreign investors by fostering sound, sustainable
development and poverty reduction
• COMPANIES: emergence of stable economic and political
conditions an improved investment climate over the long term
• CIVIL SOCIETY : Supports good governance, strengthens public
institutions and raises public awareness. Helps to understand better
the private sector and, consequently, improves its relations with it.
Strengthens ties with investors and international organizations.
• LOCAL COMMUNITIES: potentially receive a greater share of oil,
gas and mining revenues.
• STAKEHOLDERS : Create trust environment among stakeholders
EITI Implementing Countries
 48 EITI implementing countries, 30 compliant countries, 17 candidate
countries (USA and UK join in 2014), 1 country suspended.
 Indonesia became compliant country in October 2014.
 Indonesia is the first EITI compliant country in ASEAN.
Why did
Indonesia file for EITI?
(Presidential Regulation 26/2010)
Considering:
a. That the use of extractive resources, which are nonrenewable, should be done efficiently and effectively in
order to advance general prosperity.
b. That the management and use of natural resources must
be done in accordance with the principles of good
governance, including transparency, the inclusion of
relevant stakeholders, openness, sustainable
development, and the improvement of the investment
climate.
Challenges in
Implementing EITI in Indonesia?
• Participating parties need to understand better the benefit transparency
brings to the country (question often asked …what’s in it for us?)
• Decentralization laws give a lot of power to the regions. Communication
with local levels is a must.
• Companies and government institutions governed by rules and
regulations that limit their liberty to disclose certain financial data.
• Ultra nationalistic thinking that EITI would be used as an attempt by
international institutions to control Indonesia’s natural resources.
• Some thinking that transparency data could be misused for political
purposes
• After being admitted as a Compliant Country in October 2014,
Indonesia has 3 years to go through the process for validation in
accordance to the new EITI Standard.
• Understanding and coordination within the Multi-Stakeholder
Implementing Team is key to this success until the real EI good
governance impacts appear at National and Local levels.
The Indonesian MSG Meetings
• Key activity to monitor EITI implementation in Indonesia
• Leads by the Head of the Implementing Team (MSG) or
who represents.
• Decision making : consensus
• At least every 3 months, held in the Coordinating
Ministry for Economic Affairs office.
EITI Indonesia Reports
• The 1st Report (2009) was published in April 2013.
• The 2nd Report (2010 and 2011) consist of Oil & Gas
Sector (published in April 2014) and Mineral & Coal
Sector were published in June 2014.
• The 3rd Report (2012 and 2013) will be published in June
2015. The scoping study will be released in December
2014.
Brief of
the 2nd EITI Indonesia Report
(2010-2011 Calender Years)
Revenue Streams
Oil and Gas
Industry
Government
DG of
Budget
SKK Migas
DG of Oil &
Gas
• Corporate & Dividend Tax (USD)
• Production Bonus (USD)
• Over/(Under) Lifting Oil&Gas (USD)
Operator
Partner
• Total Lifting Oil (Barrels) & Gas
(MSCF)
• GOI Lifting Oil (Barrels) & Gas (MSCF)
• DMO (Barrels)
• DMO Fee (USD)
• Over/(Under) Lifting Oil&Gas (USD)
• Signature Bonus (USD)
71 reported
88 reported
11 no report
Revenue Streams
Mineral and Coal
Industry
Government
DG of
Mineral &
Coal
DG of Tax
DG of
Budget
• Royalty
• Sales Revenue Shares
(Coal)
• Income Tax
• Dividend
74 reported
9 refused
Reconciliation Result
Oil and Gas
Tax - Corporate & Dividen Tax
99%
USD 9,1
USD 9,1
Non-tax - Prod. Bonus, Signature Bonus, DMO
Fee, Over Under Lifting Oil & Gas
100%
USD 13,1
USD 13,1
(in billions)
2
4
6
8
10
12
Reconciliation
Govt Financial Statement
14
Reconciliation Result
Mineral and Coal
Tax – Income Tax
60%
IDR 42,44
IDR 71,57
Non tax - Royalty and Sales Rev.shares
IDR 21,32
90%
IDR 23,98
(in trillions)
2
4
6
8
10
Reconciliation
Govt Financial Statement
12
14
Lessons
Importance of Speed
• It has taken EITI Indonesia four years to get where it is. Could it
have gone faster?
• Governments have to realize that leadership of an Initiative
requires not just a willingness to make important announcements,
but also to take a thousand other small but necessary steps.
• Multi stakeholders have to realize to follow up the
recommendations for improving the governance, otherwise no
real impacts appear on the ground.
Communications
• EITI is not a Stealth Initiative. It is a Public Initiative.
• Therefore, communications is important.
• The awareness of government, industry and civil society must
be actively built through numerous workshops.
• The press must be informed of relevant developments.
• A communications strategy is vital.
Conclusion
• Bad governance means bad business.
• Transparency ensures the access to information required
for accountability and correction of performance.
• Transparency provides information and insight needed to
build trust and to address stakeholder's key concern about
company business and performance.
• Independent surveys show that a main impediment to new
investment in the extractive industry in Indonesia is the lack
of certainty with regards to tax and revenue issue.
• Indonesia implements EITI, this would contribute to a more
proper policy formulation and predictable business
environment where new investments would take place.