With EITI, Indonesia incorporates transparency into governance
Erry Riyana Hardjapamekas
As a major oil and gas producer and a heavyweight in mining, Indonesia knows the many challenges that come with managing its wealth of natural resources.
The sector is the backbone of Indonesia’s economy, the world’s most populous resource-rich nation. One-third of the national budget originates from extractive industry revenues and yet, this sector’s lack of transparency and accountability brings negative consequences, including corruption, poverty and conflict.
The government has put transparency at the center of its efforts to prevent corruption. I was personally involved in these initiatives when the Corruption Eradication Commission (KPK) was formed, and I am actively supporting the implementation of the Extractive Industries Transparency Initiative (EITI), a global standard of transparency for revenues flowing from the oil, gas and mining industries.
Under EITI, all companies from this sector report what they have paid to the government, and then the government reports what it has received. The reports from the companies and the government are compared by an independent auditor and make up what is called the country’s “EITI report”.
The whole process is overseen by a national committee that includes representatives from government, the companies and civil society (consisting of non-governmental organizations, especially the ones who promote transparency in the mining sector). This report will then be published for the country’s citizens to see.
There are currently 15 EITI-compliant countries in the world and 21 EITI candidate countries, or those that are working to reach compliant status. Indonesia is one of the candidate countries.
Indonesia, in its drive to improve public sector governance and investment climate, adopted EITI through Presidential Decree No. 26/2010 on Transparency of National and Local Revenues from Extractive Industry. I believe that when Indonesia attains EITI-compliant status, an important step will have been taken to remove the conditions for corruption in the extractive industries to a halt, which is able to proliferate due to a lack of information on who is paying what to whom.
As the first nation of the Association of Southeast Asian Nations (ASEAN) to join the EITI, Indonesia has seen that more and more countries realize that transparency is essential in increasing prosperity and economic development. More than that, it is a cornerstone of democracy.
EITI is a great platform to build trust in the extractive sector, which in turn will enhance the region’s credibility and create a better investment climate. It is also seen as key to the possible establishment of an ASEAN Economic Community (AEC).
We have been actively working to bring this message to ASEAN nations.
As part of Vietnam’s efforts toward improved corporate governance and transparency, I was invited to Hanoi in July 2012 by Vietnamese Civil Society Organizations (CSOs) working with the government, National Assembly, Vietnamese Chamber of Commerce, industry and others to explain EITI to key actors of the government and other stakeholders.
I am happy to report that Vietnam was receptive to the concept and that the Indonesian ministry of industry and trade is currently initiating its own feasibility study about implementing EITI in Vietnam.
This is not the first time Indonesia has taken the idea of transferring extractive industry transparency to its Southeast Asian neighbors.
This started when deliberate efforts were made by Indonesia to bring EITI to ASEAN discussions when it chaired the regional group in 2011, all in the context of a regional strategy toward energy and economic security.
As a part of that effort, I joined the Indonesian delegation to the 29th ASEAN Ministers of Energy Meeting (AMEM) in Brunei in September 2011, in which Indonesia presented the concept of EITI and its implementation. Indonesia argued that transparency of natural resource revenues is beneficial to the investment climate and key to accomplishment of the AEC in 2015.
Two months later, I attended the ASEAN Ministers of Mining (AMMin) meeting in Hanoi. During the discussions, a decision was taken to build capacity of AMMin in the area of EITI. This formal effort is ongoing and outlives Indonesia’s Chairmanship of ASEAN.
In 2012, a government of Indonesia-CSO-industry multistakeholder working group was formed under a decree of the Coordinating Economics Minister to continue to take EITI to ASEAN. This working group is known as the EITI Indonesia Secretariat.
In mid-July 2012, the EITI International Secretariat met with Myanmar government officials. Following that meeting, Myanmar’s Minister of Industry reaffirmed the country’s intention to implement EITI and put the Myanmar Development Research Institute in charge of EITI implementation.
I have been invited to Myanmar in mid-November to continue these discussions. It is clear that Myanmar wants to learn from Indonesia’s experience.
In September, the Philippines promulgated an Executive Order on Mining that includes an unequivocal statement of the government’s intention to implement EITI.
Earlier this month, delegates from the Vietnamese government visited the EITI Indonesia Secretariat to learn about the first step of EITI implementation from the team and also from the Indonesian CSOs.
It is heartening to see so many ASEAN states taking steps to join the EITI process, encouraged and supported by civil society organizations, as well as extractive industry. But, I am also happy to see that Indonesia continues to be out in front of all other ASEAN states acting as a trailblazer.
We plan to publish and widely distribute our first EITI report, aiming for the end of this year or the� beginning of next year.
The Indonesian report will raise the bar for EITI globally since it will be the first to expose each link in the chain along which oil and gas revenues produced by companies are surrendered to the state, and then monetized.
The report will compare the figures reported by the companies and by the Energy and Mineral Resources Ministry in terms of oil and gas volumes, and also the figures reported by BPMigas for earnings from the sale of oil and gas, and by the Finance Ministry in terms of proceeds banked from that sale.
This report will also publicize, for the first time in Indonesia, the precise amount of the central government’s transfer of extractive industry non-tax revenues to provincial and district governments, disaggregated to the level of companies of origin.
This accounts for about 8 percent of government expenditures. Therefore, this report will show the amount of revenue originating from each company that is eventually shared with a province or district. The report could be a tool for citizens to hold their district governments accountable.
In my point of view, EITI is good for Indonesia, other ASEAN member countries, businesses, investors and civil society in those countries. Openness of information on extractive industries resources in ASEAN will assist in regional integration and even possibly a single ASEAN market for 2015.
The writer is a member of the EITI Board and the board’s committee on outreach and candidature. He also serves on the boards of several corporations domiciled in ASEAN. He is the former president director of the Indonesian National Tin Mining Company (PT Timah) and the former vice chairman of the Indonesian Corruption Eradication
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