Editorial: Oiling petroleum production

Paper Edition | Page: 6

The local resentment and even violence against a number of natural resource companies in many areas over the past few years has indicated how vital is the support of local communities for business operations and how imperative it is for companies to be socially responsible and environmentally friendly.

This trend seems to have been the main reason why the government and the House of Representatives decided to insert provisions in the 2007 Law on Limited Liability Corporations that make the corporate social responsibility (CSR) concept legally binding for firms engaged in the extraction of natural resources.

However, the government itself seemed hesitant, rather doubtful of its institutional capacity to enforce the compulsory CSR programs on eligible companies, putting the CSR provisions on the shelf for almost five years.

The government finally enacted in April a regulation on the directives to enforce the compulsory CSR concept on companies engaged in the extraction of natural resources, specifically those operating in mining, logging, agribusiness and fisheries.

The caveat, however, is that the law allows the costs or budget of CSR programs to be deducted from taxable income, thereby changing the basic principle of CSR from sharing the profits to using taxpayers’ money.

The problem is that there are as yet no clear-cut provisions, procedures or standards for auditing the implementation of CSR in actual business practices.

The regulation only stipulates that CSR programs should be included in companies’ annual business plans, they must be approved by the shareholders and their implementation reported at annual shareholders’ meetings.

What about oil- and gas-mining companies which, as contractors, have to submit their budget and working plans to the Upstream Oil Regulatory Body (BPMigas) and cannot deduct the costs of CRS programs from their production costs?

BPMigas chairman, R. Priyono, admitted last week that oil companies had been encountering disturbances from local communities and “bureaucratic harassment” from local administrations with regard to local permits.

 BPMigas and the directorate general of oil and gas are therefore now considering allowing oil contractors to include their CSR costs or budget in their production costs so that they can spend more on local community development.

The production development at the Cepu oil block that is operated by Mobil Cepu Ltd. in Central and East Java has suffered long delays due to the “uncooperative” attitude on the part of local people and local administrations.

It is only fair that oil mining contractors are also allowed to treat the costs of CSR programs as production costs, making them deductible from taxable income.

The economic rationale of CSR is that good behavior is good business; having prosperous businesses located alongside slums or impoverished communities fosters resentment and eventually resistance.

Since the law has now made CSR costs deductible from taxable income, thereby changing the basic principle of CSR programs from sharing the profit to using taxpayers’ money, it is imperative that the government tightly supervises the CSR programs.

The basic principle that should be upheld in assessing CSR programs is that CSR is not about philanthropy, which would only create a sense of artificial prosperity. Nor is it about throwing money around or simply writing a check for a foundation that is not sustainable in the long term.

The core of CSR is the process of empowering local communities through programs that gradually transfer knowledge in business, technical and social competence. Building competence is the main objective, not just throwing money around, as most state companies in the country have been doing to small- and micro-enterprises.

 Capacity building requires perseverance and even patience because social and business competence grows like a healthy economy, not by leaps and bounds, but by degrees.