Comval BK: Bojonegoro Social Innovation on Extractive Revenue

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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

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  • 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?
  • Comval BK: Bojonegoro Social Innovation on Extractive Revenue

    1. 1. LESSON LEARN FROM BOJONEGORO SOCIAL INNOVATION: TRANSFORMING EXTRACTIVE REVENUE INTO SUSTAINABLE DEVELOPMENT JOKO PURWANTO BOJONEGORO INSTITUTE
    2. 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. 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. 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. 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. 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. 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
    8. 8. BOJONEGORO INNOVATION
    9. 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. 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. 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. 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. 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. 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. 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
    16. 16. BOJONEGORO INNOVATION

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