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