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RI’s resource management lacks transparency
A recently published index shows that despite Indonesia’s decent score in the governance of natural resources, a lack of transparency continues to hinder both its mining and oil and gas sectors
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A recently published index shows that despite Indonesia’s decent score in the governance of natural resources, a lack of transparency continues to hinder both its mining and oil and gas sectors.
The 2017 Resource Governance Index, published by the New York-based Natural Resource Governance Institute (NRGI), shows that Indonesia, a resource-rich country, ranked 11th and 12th among 81 countries in terms of governance in the mining and oil and gas sectors, respectively, throughout 2015 and 2016. This allowed the country to achieve satisfactory ratings in the governance of its extractive industries.
The annual index measures operational and financial transparency of each government as well as companies operating in that particular country. Launched in 2013, it seeks to assist commodity-rich countries to avoid the trap of the “resource curse,” in which the economies cannot expand rapidly because of mismanagement of their natural resources.
While on the surface Indonesia scored pretty well out of 100 for the governance of its extractive industries, it was let down by its poor score of 37 in licensing and tender processes caused by a lack of disclosure of financial interests, beneficial owners and contracts.
NRGI Asia Pacific legal analyst Rani Febrianti said the transparency problem applied to both the mining and oil and gas sectors and was also connected to Indonesia’s low score on contract disclosures. “The prevailing regulations are already sufficient, but in practice, there may be misses in the licensing drafts, or no disclosure of the companies that join the first round. This silence lowered the scores,” Rani said in a press conference on Monday. “Moreover, even though laws on information disclosure already exist, it is still difficult for the public to access the final contracts.”
The NRGI’s assessment, for instance, cited Energy and Mineral Resources Ministerial Decree No. 28/2013, which stipulates that the government should award licenses through an open-tender process with pre-qualification of bidders. However, the regulation does not require the government to disclose pre-qualified bidders. Consequently, so far, no open tender has taken place.
Indonesia scored well in terms of the discrepancy between existing laws and their implementation in the oil and gas sector, but poorly in mining.
The index showed that Indonesia’s oil and gas laws achieving a satisfactory rating of 72, with implementation scoring 66. In the mining sector, however, the gap between existing regulations and implementation was measured at 19.
In comparison, most countries surveyed in the index had only a 9 point discrepancy between law and practice in their extractive industries.
Indonesia’s mining discrepancy is the second-highest in the Asia Pacific region after Laos.
Southeast Asia’s largest economy also scored badly in the enforcement of mining regulations as a lot of environmental impact assessments, mitigation plans or compliance with rehabilitation procedures are not publicly available.
NRGI Indonesia country manager Emanuel Bria said the organization had also found a strong correlation between poor law implementation and corruption.
“In general, a lack of law enforcement by countries is because of a lack of control of corruption in that country. Most frequently countries do not implement their own laws when there is a high rate of corruption,” he said.
Despite several low sub-components, Indonesia scored highly in revenue management as the government is wholly transparent about its state budget and also manages to adhere to its fiscal deficit limit of 3 percent of gross domestic product (GDP).
The NRGI also deems Indonesia’s taxation in the mining and oil and gas sectors to be more than satisfactory, with the latter scoring higher because of on-time reporting of key production and export data.
“In general, Indonesia is not the worst country in resource governance, but it also has not scored as high as some other countries, such as Norway and Chile. However, if you break down the components, there are also some components that can be deemed good, such as revenue management,” Emanuel said.
