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Report: Extractive Industries Revenue Transparency and Local Public Financial Management in West Nusa Tenggara Province

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West Nusa Tenggara (Nusa Tenggara Barat, NTB) is a province in Indonesia’s Nusa Tenggara islands (also known as the Lesser Sundas) in which Newmont Nusa Tenggara (NNT), Indonesia’s second largest gold and copper company is located. NTB has a population of 4.5 million whose livelihoods are based mostly on agriculture, trade, services and home industries. Economic growth in NTB in 2009 was 9.07% in the oil & gas sector and 14.89% in the non-oil & gas sector (Bureau of Statistics, 2013). In the first quarter of 2010, economic growth in NTB was the second highest in the national, after West Sulawesi province. The number of poor people in NTB has also decreased year by year. In 2010, the poverty rate in NTB was 21.55% (1,009,351 people), it decreased in 2011 to 19.73% (894,770 people). The economy of NTB in 2009 developed rapidly in the sectors of
mining, industry, electricity sanitation, property, trade, hotels and restaurants, as well as the financial and service sectors.

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Report: Extractive Industries Revenue Transparency and Local Public Financial Management in West Nusa Tenggara Province

  1. 1. Synopsis of report Extractive Industries Revenue Transparency and Local Public Financial Management in West Nusa Tenggara Province Prepared by: SOMASI – West Nusa Tenggara (Publish What You Pay Indonesia Coalition Member) Background West Nusa Tenggara (Nusa Tenggara Barat, NTB) is a province in Indonesia’s Nusa Tenggara islands (also known as the Lesser Sundas) in which Newmont Nusa Tenggara (NNT), Indonesia’s second largest gold and copper company is located. NTB has a population of 4.5 million whose livelihoods are based mostly on agriculture, trade, services and home industries. Economic growth in NTB in 2009 was 9.07% in the oil & gas sector and 14.89% in the non-oil & gas sector (Bureau of Statistics, 2013). In the first quarter of 2010, economic growth in NTB was the second highest in the national, after West Sulawesi province. The number of poor people in NTB has also decreased year by year. In 2010, the poverty rate in NTB was 21.55% (1,009,351 people), it decreased in 2011 to 19.73% (894,770 people). The economy of NTB in 2009 developed rapidly in the sectors of mining, industry, electricity sanitation, property, trade, hotels and restaurants, as well as the financial and service sectors. The last 1.5 decades have been an era of decentralization in Indonesia. The purpose of transferring government affairs to the Local Government is intended to bring improved public services to improve the welfare of the people. This is in line with expanded access to and utilization of state revenue deriving from extractive industries (EI). Attempting to keep track of local EI revenues is an initiative that encourages EI transparency, both on the government and on the company side, known as Extractive Industries Transparency Initiative (EITI), which is regulated by Presidential Regulation 26/2010. Since 2010, CSOs in Indonesia have increasingly strengthened themselves to campaign in a more massive and widespread way on the importance of state and local revenues from the extractive industries (oil, gas and mining) being managed in a transparent and accountable manner for the greatest welfare of the people. SOMASI NTB, as a part of Publish What You Pay Indonesia coalition, has developed a work agenda for encouraging local extractive industry transparency implementation, as well as to contextualize the findings of EITI Indonesia implementation for local audiences. We conducted action research on the relationship between the findings of the EITI Indonesia report and local public financial management and social economic development. Objectives and Methods This research aims to find out the extent to which development planning and budgeting in NTB are addressing the availability of extractive industries revenues, corporate social responsibility funds, dividends earned by local government as a result of shares that it holds in NNT, and other forms of revenue collected from the extractive industries. This research also analyzes the impact of revenues from the mining industries (if any) on development, social welfare, and governance, as measured by social development indices such as the human development index, the illiteracy index, the poverty rate, and other indicators. The research collected information on the NTT Contract of Work as well as on locally-licensed mines (IUPs) in two districts, Lombok Barat and Sumbawa Barat, on Lombok and Sumbawa Islands, respectively. Information collected included, but was not limited to, payments to both national and provincial/district governments by mines. This research also examines transfers to the local government (province/district) from the revenue sharing (DBH) scheme.
  2. 2. The main methods used in this research were: data collection through requesting of information from relevant government agencies and companies, as well as secondary data collection. SOMASI also held dialogues between CSOs, local government and companies, as well as communicating EITI Indonesia’s findings in the wider context of development. We led multi-stakeholder discussions. Our communications strategy included local television and other forms of media. Results and Discussion Extractive Industries Company Information This research collected information on the NTT Contract of Work, and IUPs in two districts: West Sumbawa and West Lombok. 1. PT. Newmont Nusa Tenggara (NNT) NNT is affiliate of Newmont Mining Corporation, a leading gold and copper company listed on the New York Stock Exchange (NYSE) as well as stock exchanges in Australia and Toronto. There remains one subsidiary of Newmont in Indonesia, Newmont Nusa Tenggara (NNT) in West Nusa Tenggara. NNT is a joint venture owned by Nusa Tenggara Partnership (Newmont and Sumitomo), PT. Pukuafu Indah (Indonesia) and PT. Multi Daerah Bersaing (a nominally local government- owned company which fronts for Indonesia’s notorious Bakrie family). Newmont and Sumitomo act as operator. Table 1 below shows some general figures relating to NNT. NNT signed the Contract of Work with the Indonesian Government in 1986, to conduct exploration and exploitation in its Contract of Work area. NNT discovered porphyry copper deposits in 1990, and this deposit was referred to as Batu Hijau. After discovery and technical and environmental assessment over a period of six years were approved by the government, in 1996 the construction of the Batu Hijau Mine Project commenced, with total investment of US$1.8 billion. Mine development, plant and infrastructure were completed in 1999 and became fully operational in March 2000. The Batu Hijau mine is located on the southwest of Sumbawa Island, in the district of West Sumbawa. Table 1: NTT key facts
  3. 3. Name PT. Newmont Nusa Tenggara Main mineral types Gold and Copper Area Initially - 197,746 hectares. Now- 87,540 hectares Metal reserves Cu (copper) 9,106 million pounds Au (gold) 9,197,000 ounces Ag (silver) 31,325,000 ounces Phase of Activity a.Survey 2 December 1986 until 1 December 1987 b.Feasibility Study Block: Batu Hijau: 2 December 1987 until 1 December 1992 Blocks: Elan, Rinti, North Luyuk, Teluk Panas 1 March 2000 until 28 February 2003 c. Production Shareholders Pusat Investasi Pemerintah (Indonesia) :7% Nusa Tenggara Mining Corp. B.V (Netherlands) : 49% PT. Pukuafu Indah (Indonesia) : 17.6% PT. Multi Daerah Bersaing (Indonesia): 24% PT. Indonesia Masbaga Investama (Indonesia): 2.2%% Status Clean and Clear 2. IUPs in NTB and Clean and Clear Status Local governments have authority to release mineral licenses in their province/regency areas, known as IUP (Ijin Usaha Pertambangan). Starting from 2011, the Directorate General of Minerals and Coal, in the Ministry of Energy and Mineral Resources, launched a program for certifying these local mining licenses called the Clean and Clear (CnC) program. CnC’s requirements are that IUP may not overlap with other mining concessions, must pay state revenues, and must have proper documents, including environment impact analyses, as well as exploration and feasibility studies report for those with licenses to produce. Table 2 below shows the number of IUP in NTB and their CnC status. Table 2. IUPs in Nusa Tenggara Barat No Regency/City IUPs Status Exploration Production Total C & C Total C & C 1 Sumbawa 17 14 3 1 2 West Sumbawa 5 2 1 - 3 Mataram - - - - 4 West Lombok 13 3 1 3 5 Central Lombok - - - - 6 East Lombok 1 1 - - 7 Dompu 12 2 1 1 8 Bima (Regency) 5 1 7 5 9 Bima (City) - - - - 10 North Lombok - - - - CSR by Extractive Companies
  4. 4. 1. CSR figures related to PT. Newmont Nusa Tenggara in West Sumbawa The basic principle of CSR and/or community development, according to NNT, are sustainability, partnership (with government, NGOs, communities and local organizations), developing appropriate technology, as well as contribution from private sectors and public. Chart 1 presents the community development expenditures of NNT. Chart 1. Community Development Expenditure of PT. NNT The CSR program of NNT is concentrated on human resources development and the utilization of basic natural resources, which is in line with sustainable development planning. It is achieved through four main pillars: improved health, education, economy as well as infrastructure development. Table 3, below, shows the composition of CSR funds that are allocated in West Sumbawa, the district in which NNT’s operations are located. Table 3: Composition of CSR expenditures of NNT in West Sumbawa : 2007 – 2009 No Program Areas Realisation per Year (Million Rupiah) 2007 2008 2009 2010 (plan) 1 Development of Infrastructure 15,643 22,337 23,281 27,113 2 Social Development - education programs - health programs - local economic development 1,158 2,743 - 1,557 3,599 - 1,003 1,865 - 3,572 955 950 3 Development of agriculture 1,291 2,143 1,843 1,714 4 West Sumbawa Economic Foundation - Yayasan Pengembangan Ekonomi Sumbawa Barat (YPESB) 1,657 2,128 1,477 2,090 6 Olat Parigi Foundation - Yayasan Olat Perigi (YOP) 4,227 5,003 4,785 5,225 7 Donations to Village Funds 2,000 2,194 1,900 1,900 Note: 10,000 Indonesian rupiah are approximately equal to 1 US dollar The implementation of CSR programs depends on the dynamics of relationships between the government, local communities and the company itself. In an interview, Abdul Muis, of the Development Plan Body (Bappeda) of West Sumbawa district, said that “to some extent, CSR still is in the interest of the company, and not of all of the people.” In other word, there is limited ownership in company-led CSR by the citizens.
  5. 5. Popular demonstrations for more CSR funds, to some extent, result mostly in CSR funds from the company being captured by political elites. Prayogo (2008, 64) points out that CSR programs only slightly relieve or mitigate the anger of citizens, and do not solve the problems of poverty, inequality or injustice. 2. CSR Figures related to PT. Indotan Lombok Barat Bangkit in West Lombok PT. Indotan Lombok Barat Bangkit is a gold company that gets IUP from local government in 2011 with area of concessions: 10,088 hectares, located in 3 villages (Kedora, Buwun Mas and Pelangon) in Sekotong Sub-District, West Lombok District. Directorate General of Minerals and Coal data from February 2013 shows that the mine is authorized only to explore, and not to produce. Table 4 below shows the details of what PT. Indotan regards as its CSR program. Table 4: CSR Program of PT. Indotan Lombok Barat Bangkit in West Lombok No Activities Explanation A Road Reconstruction 1. Reconstruction from Sepi to Pelangan Type of work : Government and Road Widening Width : Between 8-10 Meters Length : More than 20 Km Budget : Rp. 700.000.000, - Contractors : Local Contractor 2. Reconstruction of Kedaro village Type of work : Road Reconstruction Length : 3 Km 3. Reconstruction of Camp Selodong Type of work: Reconstruction Selodong - Jurang Maling 4. Reconstruction of Dusun Desa Pelangan Type of work : Reconstruction of Road 5. Reconstruction of Dusun Tembowong Type of work : Reconstruction of Dusun Tembowong villB Construction of Education Facilities 1. Construction of Elementary School facilities in Buwun Mas Village 2. Supporting Facilities of Laboratory in SMK C Construction of Religious Facilities 1. Construction of Nurul Yakin Mosque in Dusun Medames, Desa Kedaro 2. Construction of Nurul Huda Mosque in Dusun Rejekan, Desa Kedaro 3. Construction of Mushalla Tanaq Abang, Desa Pelangan 4. Construction of Domed Mosque, Dusun Tembowong, Sekotong Barat Village D Construction of Sport Facilities 1. Construction of Sports Facilities for youth in Pelangan 2. Construction of Sports Facilities for youth in Tembowong E Construction of Village Infrastructure 1. Construction of Village Hall and child care facility 2. Construction of water dump in Dusun Tembowong F Recruitment of Employment 1. Local Security consisting of: · 10 people from each village surrounding the mine. · 10 people consist of : 4 from TNI and 6 from KODIM · 20 people from Police (Polsek Sekotong dan Polres Lobar) 2. Local Laborers : 352 people (Daily freelancers)
  6. 6. G Motorcycle Grant Type of Activity: Motorcycle grant to Kades, Polsek, Koramil Objective: To support mining operations. Of interest in Table 4, above, is that the mine, Indotan Lombok Barat Bangkit, considers the hiring of police and army officials to provide security and additional reimbursements to them for the costs of transportation by motorcycle to and from the mine, to constitute CSR. Revenue Sharing (DBH) and Production Figure Non-tax revenues (both land rent and/or royalties) are paid by mining companies to the national government are then re-distributed back to the local governments in the jurisdiction in which each company is physically located, both to the provincial government and to district governments, according to pre-set formulas. Table 5, below, shows the flow of land rent and royalty revenue sharing to NTB provincial government, and all district governments within the province. Table 5: Recapitulation of the sharing of revenues (DBH) originating from mining activities with provincial and district governments, NTB, 2009 – 2011 No Province/District Revenue Sharing (DBH) – IDR 2009 2010 2011 Land Rent Royalty Land Rent Royalty Land Rent Royalty 1 Bima 52.852.746 7.213.583.948 318.391.200 5.777.845.700 2.525.062.400 6.807.613.550 2 Dompu 36.044.588 7.213.583.948 201.865.600 5.777.845.700 76.113.878 6.787.126.439 3 West Lombok 870.304 7.213.583.948 5.440.000 5.777.845.700 106.833.020 6.787.126.439 4 Central Lombok 1.000.584 7.213.583.948 9.878.400 5.777.845.700 2.074.170 6.787.126.439 5 East Lombok 7.213.583.948 5.777.845.700 6.787.126.439 6 Sumbawa 778.470.919 7.213.583.948 886.134.400 5.777.845.700 858.499.083 6.788.881.467 7 Mataram City 7.213.583.948 5.777.845.700 6.787.126.439 8 Bima City 12.709.926 7.213.583.948 32.000.000 5.777.845.700 6.787.126.439 9 West Sumbawa 1.046.448.483 64.922.255.934 997.665.200 52.000.611.300 543.033.699 61.061.895.811 10 North Lombok 7.213.583.948 5.777.845.700 6.787.126.439 11 Province 459.823.178 32.461.127.767 612.843.700 26.000.305.600 459.257.576 30.542.068.975 Total 2.087.937.088 162.365.638.833 3.064.218.500 130.001.528.200 2.298.362.050 152.710.344.876 Land rent is supposed to be paid by all CoW and IUP to the central government, based upon the land area of the mine. Table 6 below shows land rent paid by mines located in West Lombok regency.
  7. 7. Table 6: Recapitulation of Land rent payments, West Lombok Regency, 2012 No IUPs Status Area (Ha) Mineral Payment Land Rents (IDR) Land Rents ($ US) Date Bank Paid Royalty Date Bank Paid 1 CV LOMBOK JAYA MINERAL IUP - Exploration 1,126,125 30 May 2012 BNI 2 KUD KEDARO KP - Exploration 10 Manganese 175,000 28 May 2012 BNI 3 CV PUTRA KEDARO SEJATI KP - Exploration 15 Manganese 292,500 28 May 2012 BNI 4 CV PUTRA KEDARO SEJATI KP - Exploration 15 Manganese 569, 250 28 May 2012 BNI 5 CV PUTRA KEDARO SEJATI KP - Exploration 15 Manganese 517,000 28 May 2012 BNI 6 PT PADAK MAS IUP - Exploration 2,303,000 28 May 2012 BNI 7 PT BINTANG BULAENG PERKASA IUP - Exploration 4,500 Gold 6,000 23 April 2012 PANIN BANK 8 PT INDOTAN LOMBOK BARAT BANGKIT IUP - Exploration 10,088 Gold 25,220,000 9 March 2012 BNI Total 30,202,875 6,000 After non-tax revenues are paid to the central government, they are then redistributed back to the local governments in and around the jurisdiction in which the mines are located. Table 7 below, shows the amounts in which land rent and royalties paid by mines located in NTB province are distributed back to the district government of West Lombok. Table 7: Recapitulation of Revenue Sharing (DBH) - West Lombok, 2012 (Quarterly) in IDR District Quarter-1 Quarter-2 Quarter-3 Quarter-4 Total Land Rent Royalty Land Rent Royalty Land Rent Royalty Land Rent Royalty Land Rent Royalty West Lombok 16,140,800 1,192,923,469 NA 540,062,717 NA 387,617,092 9,528,880 695,309 25,669,680 2,121,298,538
  8. 8. Local Budget Analysis Table 8, shows the sources of various public revenues flowing to West Sumbawa district. Table 8: Revenue trends in West Sumbawa District: 2010 - 2012 Description 2010 2011 2012 Revenue/Income 523,837,455,534 697,607,158,000 605,031,213,186 ORIGINAL LOCAL REVENUE 41,820,476,099 188,374,171,324 61,491,133,000 Local Tax 7,803,198,749 8,021,103,000 11,292,033,000 Local Retribution 2,000,000,004 1,411,909,000 1,528,800,000 Retribution from Specific Licensing 2,000,000,007 464,107,000 293,000,000 Separated Wealth Management 2,000,000,008 95,674,279,000 36,033,500,000 Other original revenue 2,000,000,015 82,756,819,324 12,636,800,000 BALANCE FUNDS 347,672,758,898 366,021,468,205 415,887,978,080 Revenue sharing of tax/non-tax 141,050,622,898 126,110,109,205 127,902,186,080 Revenue sharing of tax 47,873,387,327 48,996,808,799 65,586,984,124 Revenue sharing of non-tax/natural resources 93,177,235,571 77,113,300,406 62,315,201,956 General Allocation Funds 181,740,336,000 214,767,559,000 259,334,022,000 Specific Allocation Funds 24,881,800,000 25,143,800,000 28,651,770,000 OTHER LOCAL REVENUE 134,344,229,539 143,211,518,471 127,652,102,106 Grants 10,350,000,000 0,00 81,411,330,000 Emergency Funds 0,00 0,00 0,00 Revenue sharing of tax from province and other districts 30,168,164,876 21,138,191,495 21,862,127,106 Adjustment and Special Autonomy Funds 22,887,622,600 33,309,485,000 22,330,645,000 Financial Funds from Province or Other Districts 1,024,000,000 1,024,000,000 2,048,000,000 Contribution Income 69,914,442,061 87,793,841,976 0,00 In the three years covered by the Table 8 (above), the highest local revenue was achieved in 2011. Revenues were so high in this year due to significant inflows of two categories of revenue, “separated wealth management” and “other original local revenue.” Of interest to this report, the category of “separated wealth management’ refers to profits and dividends deriving from the district government’s part ownership of PT. Newmont Nusa Tenggara via the Bakrie family-controlled company Multi Daerah Bersaing (MDB). In 2012, receipts from this category fell markedly. Table 9, shows the official figures for revenue inflows (and their sources) which came to comprise the category of “Separated Wealth Management.” Note the error in the total figure for 2010 column, which is then passed through to Table 8 (above). Table 9: Breakdown of all revenue inflows for the category of “Separated Wealth Management” to the District government of West Sumbawa: 2010 – 2012 Description of inflow 2010 2011 2012 PD. BPR LKP 2,000,000,010 94,279,000 133,500,000 PT. Bank NTB 2,000,000,011 3,100,000,000 3,500,000,000 Balai Benih Utama 2,000,000,012 0,00 0,00 Profit from Participating Interest of PT.NNT 2,000,000,013 92,480,000,000 32,400,000,000 Rent Fee of Local Asset 2,000,000,014 0,00 0,00 Total Separated Wealth Management 2,000,000,008 95,674,279,000 36,033,500,000
  9. 9. Social Economic Indicators The research looks at the number of poor, the poverty rate, and the Human Development Index for the districts of West Sumbawa and West Lombok. Chart 2 below shows the absolute number of persons living below the poverty line in each district in NTB. West Sumbawa (the location of the Newmont mine) has among the fewest poor people in the province, whilst the number of poor in West Lombok has fallen more sharply than any other district in the province. Chart 2: Number of poor people in NTB (Thousands) Chart 3 below shows the percentage of persons living below the poverty line in each district in NTB. The poverty rates in West Sumbawa and West Lombok, like those in many districts, hover around twenty percent. Chart 3: Percentage of poor people (poverty rate) in NTB Chart 4 (next page) shows the Human Development Index scores for each district in NTB, with the HDI score for West Sumbawa scoring close to the top for the province, and the HDI for the West Lombok scoring close to the bottom.
  10. 10. Chart 4: Human Development Index, NTB: 2009 - 2012 Conclusions and Recommendations Conclusions - The number of revenue sharing (DBH) from extractive industries is in line with the non-tax revenues paid by producers (from which DBH is derived). - The number of revenue sharing to the local government was in line with the amounts of local government allocated for public services delivery and poverty alleviation - Transparency of information on CSR programs is important for the communities who live in the vicinity of mining areas, in order to help make sure they are the actual beneficiaries of such programs. Recommendations - There is a need for monitoring the performance of production, revenue payments and revenue allocations to ensure the correct redistribution of revenue to the people. - There is a need for multi-stakeholder dialogs, to decrease the asymmetry of information and discuss suitable ways to improve extractive industries’ governance. - There is a need for progress in local revenue management, in order to maximize the benefit to increase the quality of human resources for sustainable development.

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