facing extractive industries at the sub-national level- bojonegoro

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Joko Purwanto BOJONEGORO INSTITUTE www.bi.or.id FACING EXTRACTIVE INDUSTRIES IN SUB NATIONAL LEVEL : BOJONEGORO EXPERIENCES

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Joko  Purwanto  BOJONEGORO  INSTITUTE  

www.bi.or.id  

 FACING  EXTRACTIVE  INDUSTRIES  

IN  SUB  NATIONAL  LEVEL  :    BOJONEGORO  EXPERIENCES  

   

BOJONEGORO  IN  POTRAIT  

   

Exploita/on  Sukowa/  block,  40.000  bpd  Exploita/on    

Cepu  block,  80.000  bpd  (205.000  bpd  on  2016)  

Explora/on  Nona  block  

Explora/on  Blora  block  

OIL  AND  GAS,  WHERE?  

Exploita/on  Tradi/onal  well  (2000  bpd)  

   

The  amount  of  revenue  sharing  which  increased  sharply  from  year  to  year.  Base  on  plan  of  development  (POD),  this  revenue  will  con/nue   to   rise  un/l  2019   (peak  produc/on).   In   that  /me,   revenue   is  projected   to   reach  bojonegoro  under  4  Trillion  Rupiah,  with  50%  contribu/on  from  revenue  sharing.    

BOJONEGORO  REVENUE  SHARING  &  INCOME  STRUCTURE  

0  

100  

200  

300  

400  

500  

600  

700  

800  

900  

1,000  

2010   2011   2012   2013   2014  

Billion

s  

PAD  (own  source)  

DBH  (revenue  sharing)  

DAU  (general  alloca/on)  

DAK  (special  alloca/on)  

OTHERS  

Source  :  Bojonegoro  Finance  Agency  

   

Focus  on  3  area  :  extrac/ng  process,  transparency  mechanism,  and  revenue  management-­‐development  plans  

Decision  to  extract/not  to  extract  

Awarding  of  contracts/  licenses  

Fiscal  Terms  

Extrac/on  prosess  

Trading  of  commodi/es  

Tax  and  revenue  collec/on    

Development  project/policies  

Revenue  Management    and  alloca/on  

SUB  NATIONAL  FOCUSED  (BOJONEGORO)  

Local  content   Transparency  mechanism,  par/cipatory  planing,  sustainable  development    

   

INNOVATIONS,  HAS  BEEN  ESTABLISHED  

1.  Transparency  in  oil  and  gas  extrac/ve  governance  2.  Op/miza/on  of  the  local  economic  poten/al  /  Local  

content  3.  Distribu/on  of  revenue-­‐sharing  funds  to  the  village  4.  Petroleum  Fund  (2015,  ongoing)  

   

The  main  purpose  of  revenue  transparency  (and  related  informa/on)  oil  and  gas  :  

•  Maximize  the  revenue  comes  from  oil  and  gas  

•  Facilitate  planning  (usage  revenues,  designing  policies)  

•  Preven/ng  corrup/on  •  Minimize  conflicts  

Tax  and  revenue  collec/on      

Development  project/policies  

Revenue  (sharing)  Management    and  alloca/on  

1.  TRANSPARENCY  MECHANISM  

Main  Problems    •  The   lack   of   public   access   to   basic   informa/on   related   to   revenue   sharing,   such   as:   produc/on   rate,   the  

amount  of  investment  credit,  cost  recovery,  DMO,  and  the  Gas  Tax  and  Document  PSC  /  PSC  contracts.  •  Low  capacity  of   local  governments  to  understand  the  mechanism  of  the  calcula/on  flow  and  the  oil  and  

gas  revenues  sharing.  This,  resulted  in  a  lack  of  local  governments  awareness  to  make  projec/ons  for  their  own  share.  

•  Lack  of  capacity  and  bargaining  power  of   local  governments   in  the  libing  reconcilia/on  forum,  organized  by  the  Ministry  of  Energy-­‐SKK  Migas  and  by  the  Ministry  of  Finance.    

•  Late   payment   /   transfer   revenue   from   central   government   to   the   sub   na/onal   level   :  making   delays   in  some  development  programs  at  the  local  level,  which  impacted  to  development  plan  

   

THE  MECHANISM  

REC  

RECONCILE  

DATA  

REG  MEETIG  

DOCUMENT  

ANALYS  CB  

GOVERMENT  

COMPANY  

CIVIL  SOCIETY  

MULTI    STAKEHOLDER  

GROUP  

ANNUAL  REPORT  

Vola/lity  of  oil  and  gas  extrac/on  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.  

   

2.  LOCAL  CONTENT    

Main  Problems  

•  Region  carries  all  the  social  cost  and  burden  

•  Land  acquisi/on   for  oil   and  gas  project   -­‐>   the   loss  of   the  main  income  source  

•  Limited   job   opportunity   and   doing   business   -­‐>   Regional   Gross  Domes/c  Income  (PDRB)  from  oil  and  gas  is  huge  (IDR  36  T)  but  enjoyed  by  outsiders  -­‐>  vulnerable  to  social  problems/conflict  -­‐>project  delay.  

•  Public  is  not  well  informed  on  exis/ng  opportunity.  

•  Regula/ons  from  the  central  government  is  already  on  place  (BP  Migas;   PTK   007)   but   has   no   par/ality   and   neglec/ng   the  resourceS  in  the  producer  area  (Bojonegoro)  

   

deriva/ves  industry  :  mini  refinery,    

fer/lizer  plant,  power  plant  

Gran/ng  "privileges"  power  unskill  :  100  %.  Provide  training  to  the  category  of  "skilled”.  Assis/ng  local  entrepreneurs,  enterprises,  &  village  coopera/ves.  

Bojonegoro Regional Regulation Number 23/2011: accelerating growth implementation of regional economics in oil and gas exploration and exploitation. Policies and actions to minimize the potential conflicts between oil and gas industries and local communities through maximize local involvement.

Business    Opportuni/es  

Employment    Opportuni/es  

Development  Zone  

Mandatory    use    of  regional  produc/on  of  goods.  Give  priority  to  the  par/cipa/on  of  local  enterprises.  Establish   a   representa/ve   office   in   Bojonegoro,   and   register  local  tax  (local  NPWP).      

2.  LOCAL  CONTENT      

   3.  DISTRIBUTION  REVENUE  SHARING  TO  VILLAGES  

Purpose  :    •  Equity  principle,  equality  principle  :  distribute  revenue  to  all  villages  directly  

•  Boos/ng  the  rural  area  and,    •  Instead  of  social  and  environmental  costs  arising  from  mining  

General  requirements  :    •  70%  used  to  empowerment  expenditure  •  30%  used  to  personel  expenditure  

   

   MECHANISM  

12.5  

87.5  

5  6   7.5  

81  

Producer   Ring  I   Ring  II   Others  

•  From  100%  revenue  sharing,  12.5  goes  to  villages  directly  

•  87.5  goes  to  annual  budget    

•  From  40%,  divide  into  4  variable    •  Producer  Villages                                                  •  Ring  I  Villages    (0-­‐600M)                          •  Ring  II  Villages  (600M-­‐1200M)    •  Non  producer    and  Non  ring  

60  

40  

•  60%  goes  to  all  Villages  as  minimal  alloca/on  

•  40%  goes  to  propor/onal  alloca/on    

 

:  5  %  :  6  %  :  7.5  %      :  81  %    

Source  :  Bojonegoro  Planing  agency  

   4.  PETROLEUM  FUND  (2015)  

Annual Oil Production from Cepu, 2012 – 2030 (Source: Bojonegoro Participating Interest)

Three  main  purpose  1.  Savings  for  future  genera/ons  2.  Fiscal  stability  3.  Infrastructure  and  human  resources  development  

   FLOW  OIL  AND  GAS  REVENUE  :  SET  UP  PETROLEUM  FUND  

Revenue from Cepu Block

DBH to Bojonegoro

Other districts and Centre

Participating Interest

Petroleum Fund

(Managed by BLUD)

Non Cepu Oil and Gas Revenue

Budget  

(40%)*(15.5%) = 6.2%

93.8%

<1%

1.6% 100%

Per deposit Rule

Per withdrawl Rule

   POTENTIAL  DEPOSIT  RULES  

-  Deposit Rule 1 - linked to non oil and gas revenues: -  Oil and gas revenues equal to a specific percentage of non oil and gas revenues

is transferred to the budget, remaining goes to the Fund. -  All Participating Interest (PI) is transferred to the Fund. -  Baseline expenditures is then reduced/increased until fiscal balance is zero

-  Deposit Rule 2 - linked to average oil and gas revenues: -  Oil and gas revenues equal to a specified percentage of past three year

averages is transferred to the budget, remaining goes to the Fund. -  All PI is transferred to the Fund. -  Baseline expenditures is then reduced/increased until fiscal balance is zero

-  Deposit Rule 3 - limiting expenditure growth: -  Expenditure growth is limited to a specified percentage, and oil and gas

revenues are transferred to budget to cover the fiscal deficit resulting from these expenditures so that the fiscal balance is zero. Remaining oil and gas revenues is transferred to the Fund.

-  All PI is transferred to the fund

   MANAGE  THE  REVENUE  

Tax  and  revenue  collec/on    

Development  project/policies    

Revenue  Management    and  alloca/on  

•  Vola/lity  of  oil  and  gas  extrac/on  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.  

•  Spending  resource  revenues  efficiently  and  effec/vely  for  development  priori/es  within  a  sound  macroeconomic  and  fiscal  framework;  

•  Fiscal  stability  to  avoid  boom/bust  cycles  resul/ng  from  commodity  price  vola/lity;  

•  Revenue  sustainability  for  future  genera/ons,  and  ensuring  alterna/ve  (non-­‐resource  based)  sources  of  income  in  the  long-­‐term.  

   USING  THE  REVENUE  

Fiscal  strengthening      Investment  to  local  bank  (Bank  BPR)  :  IDR  100  B  per  Year  Investment  to  regional  bank  (Bank  Ja/m)  :  best  debtor  to  best  creditor  

 Human  resources  expenditure  

Training  12.000  man  power,  per  year  Provide  addi/onal  educa/on  cost  of  high  school  students  @  IDR  2  M/student  per  year  

 Public  service  expenditure  58%  of  annual  budget  (average  3  past  years)  

Educa/on    37,55%  Health      12,51%  Infrastructure    19,85%    

 

   

•  Need  to  build  a  strong  foundaVon  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  mee/ng,  maintain  rela/onship  –  Need  to  maintain  neutral  posi/on,  and  perceived  to  be  neutral  

•  Building  an  effecVve  MulVstakeholder  Group:  –  Need  to  find  the  right  champion  with  the  right  power  to  lead  MSG.  Con/nuous  

actor  mapping  would  be  important  –  Need  to  increase  the  capacity  of  all  member  of  MSG  to  understand  the  nature  and  

business  of  extrac/ve  –  Need  to  strengthen  the  demand  for  transparency  and  planning    

•  Establish  the  innovaVon  is  easy,  but  preserving  it  through  insVtuVonalizaVon  is  the  real  challenge:  –  Mechanism  is  easy  to  set  up,  but  preserving  the  changing  in  behaviour,  prac/ce,  is  

challenging.  Bojonegoro  endorse  ins/tu/onaliza/on  through  regula/on  and  broad  awareness  stakeholders.  

 

LESSON  FROM  BOJONEGORO