EITI – Going in different directions [Coal Asia Vol. 35]
EITI – Going in different directions
By Ian Wollff
The author is an expatriate principal geologist of about 28 years experience in the Indonesian exploration & mining industry, and is employed by an international consultant company.
Going Downtown
The first Indonesian Extractive Industries Transparency Initiative (EITI) Reconciler’s Report published on 22 April 2013 was undertaken between the Indonesian Government, the major miners & oil producers plus elements of civil society for a limited number of mining and oil companies for the 2009 reporting period. The Final Indonesian EITI Validator’s Report was published recently on EITI Indonesia’s website (http://eiti.ekon.go.id/). This is an independent report prepared by Deloitte for the International EITI body, and examines Indonesia’s compliance with EITI requirements. For a full understanding of the Validators report, the reader is recommended to view the full document.
The Validator’s report reviews and gives its opinion on 18 questions that reflect Indonesia’s general compliance.
Table 1
| No | Criteria | Yes/No | Comment |
| 1 | Did the government issue an unequivocal public statement of its intention to implement EITI | Yes | |
| 2 | Did the government commit to work with civil society and companies on implementation of the EITI | Yes | |
| 3 | Did the government appoint a senior individual to lead on the implementation of the EITI | Yes | |
| 4 | Did the government establish a multi-stakeholder group to oversee the implementation of the EITI. | Yes | |
| 5 | Did the Multi-Stakeholder Group, in consultation with key EITI stakeholders, agreed and published a fully costed work plan, containing measurable targets and a timetable forimplementation and incorporating an assessment of capacity constraints | Yes | Except the report was delayed. |
| 6 | Did the government ensure civil society is fully, independently, actively and effectively engaged in the process | Yes | |
| 7 | Did the government engage companies in the implementation of the EITI | Yes | |
| 8 | Did the government remove obstacles to the implementation of EITI | Yes | |
| 9 | Did the multi-stakeholder group agree on a definition of materiality and the reporting template. | Yes | |
| 10 | Was the organization appointed to produce the reconciliation report perceived by the multi-stakeholder group as credible, trustworthy and technically competent. | Yes | |
| 11 | Did the government ensure that all relevant companies and government entities report. | Mostly | Some 20 PSC partners did not report |
| 12 | Did the government ensure that company reports were based on accounts audited to international standards. |
No |
Validator overlooked EITI Indonesia’s satisfaction with audit standards |
| 13 | Did the government ensure that government reports were based on accounts audited to international standards. |
No |
|
| 14 | Did companies comprehensively disclose all material payment in accordance with the agreed reporting templates. | Yes | |
| 15 | Did government agencies comprehensively disclose all material revenues in accordance with the agreed reporting templates. | Yes | |
| 16 | Was the multi-stakeholder group content that the organization contacted to reconcile the company and government figures did so satisfactorily. | Yes | |
| 17 | Did the reconciler ensure that the EITI Report is comprehensive, identifies all discrepancies, where possible explains those discrepancies, and where necessary makes recommendations for remedial actions to be taken. | Yes | |
| 18 | Did the government and multi-stakeholder group ensure that the EITI Report is comprehensible and publicly accessible in such a way as to encourage that its findings contribute to public debate. | Yes |
The Validator’s overall assessment was that; “Indonesia has made meaningful progress towards compliance. Due to the size of the extractive industries and complexity of issues in Indonesia, considerable progress has been achieved since commencing the Initiative. There have been numerous issues and recommendations identified in the EITI Report that the Implementing Team are in the process of addressing.”
The report goes on to make a number of recommendations:-
• That EITI will continue to need high level sponsorship within the Government.
• That EITI will require ongoing funding from Government and the Donor community.
• To strengthen the process
• To set up a permanent institutional and regulatory structure for EITI Indonesia.
The issuance of the Validators Report is another forward step for Indonesia to meet its ASEAN commitments as a leader in developing government transparency in the mining sector throughout Asia. The Philippine Star reported recently on 11 August 2013 that “Erry Riyana Hardjapamekas, former chief executive officer of Indonesia’s PT. Tambang Timah, the world’s largest tin producer, estimates that in ASEAN countries, at least 10 percent of government revenues from extractive industries are likely lost to corruption.”One measure to prevent corruption is the EITI, because one of the basic factors in combating corruption is transparency”, Hardjapamekas told Southeast Asian journalists. “It’s difficult to measure how much corruption there is in each country but we can feel it could be reflected on the quality of public services. Governments could show they are serious in combating corruption through the EITI.”
Going to the Provinces
In March 2013 the Coordinating Ministry for Economic Affairs issued a scoping note of EITI for the second report, which will cover government revenues for calendar years of 2010 & 2011. This was followed up in August with a letter requesting 7 COW’s & 46 IUP of minerals plus 35 CCOW’s & 105 IUP of coal, to obtain and submit a formula for the years 2010 and 2011 to the EITI secretariat.
The scoping note follows many of the principles of the first EITI program, wherein the Mineral and Coal Directorate General’s records of coal and mineral mining companies having paid more than US $500,000 (or Rp4.5 billion) in royalties (for either 2010 or 2011) as being considered material for this program, and represents more than 95% of total royalties paid for 2011 (see attached tables 2&3). The scoping study shall include the National government revenue collection, and proposes to further include some Provincial and District governments being selected which include the Province of East Kalimantan as well as the following Regencies (Kabupaten): Bengkalis (Riau), Muara Enim (South Sumatera), Kutai Kartanegara (East Kalimantan), Banjar (South Kalimantan) and Tabalong (South Kalimantan). Local governments may report on revenue flow as follows: A) from the central government in the form of revenue sharing of natural resources, and B) revenue received directly from the mining companies, including donation and third party assurance reclamation.
Mr Bill Sullivan’s article in the recent Coal & Minerals Asia (Vol 34) refers to the Ministry of Energy & Mineral Resources (MoEMR) circulars (4/2013 & 5/2013) issued in July which seek to “ensure the timely payment of taxes by mining companies through imposing new deadlines and procedures” and their enforcement. Such regulations may be seen as a step towards supporting transparency compliance to the Governors, Regents and Mayors in mining areas.
Socialization of EITI is ongoing, with the EITI topic included in the seminar “Improving the governance of the extractive industry” to be held in Yogyakarta from 2- 13 September.
The New mining law No.4 of 2009 begins bases to law on the consideration that minerals and coal business are to add “value to the national economic growth and development in the regions”. Furthermore the general elucidation of the new mining law states “Article 33 section (3) of the 1945 Constitution asserts that the land, the waters, and the natural riches contained therein shall be controlled by the state and exploited in the greatest prosperity of the people. Given minerals and coal as natural riches contained in the land are nonrenewable natural resources, the management thereof needs to be optimally conducted in efficient, transparent, sustainable, environmentally-sound, and just manners in order to reap the continuous benefits in the greatest prosperity of the people”. Thus we may see the expanded scope of the EITI to include Regional government as a step towards the transparency in compliance with the fundamental objectives of the new mining law.
Going the long way around
The EITI International board will respond to the Validator’s report, wherein Indonesia has met most of the 18 requirements, and is expected to receive up to one year extension to implement remedial actions, that include undertaking the 2010 & 2011 EITI Report by the end of December 2013.If Indonesia is found to be Compliant, then Indonesia provides a clear signal that the Government is committed to greater transparency and thereby promotes the investment climate, and possible longer term improved local community acceptance of mineral exploration in remote communities.
From the first Reconciler’s Report there are a number of technical recommendations for the ongoing and future application of EITI to the wider mining industry. Neraca Indonesia (www.neraca.co.id) previously reported that Director General for Minerals and Coal, Thamrin Sihite, admitted that his Directorate General is still bound by a manual system of recording state revenues, but that they are now looking to upgrade their systems, having started with the IT system for recording exploration and mining concessions (5 June 2013). Other issues, such as such as encouraging companies and government agencies to conduct audits in accordance to international standards seem to have gathered less traction. We have observed that the DG of Minerals and Coal issue regulations on other complex issues such as the banning of raw ore exports, and so we might hope the DG could promptly issue draft regulations or guidance related to the EITI program which shall be commented upon by the industry. However, no such action has been made public, suggesting that DG Minerals and Coal is giving the ongoing development of the EITI program a low priority, or rather that the complexities of coordination amongst various government agencies makes any progress go the long way around!
Going No Where
The first EITI Reconciler’s Report for calendar year 2009, dated 22 April 2013, reports that; “The most significant difference for an individual mining entity involves PT Timah (Persero) Tbk’s subsidiary, PT Tambang Timah which reported corporate income tax payments of the equivalent of US$39,907(‘000). However, no tax receipts amount was reported by the Director General (DG) of Tax for this mining entity”. If we imagine a worst-case scenario wherein the tax was paid to an erroneous tax number, and indeed the tax has not been received by the Government, then Timah may be subject to repay the 2009 tax plus a large fine. Furthermore – If the previous and subsequent years were also not actually paid to the Indonesian Tax office, then the scale of such consequences could be huge. This should be considered “Material” and deserves the IDX write formally to Timah to request an explanation. The author has not seen in the broad public media an explanation by PT. Timah or the IDX on this issue.
The first EITI Reconcilers Report for the year 2009, dated 22 April 2013 further reports that; “Corporate income tax payments for coal mining entities providing tax authorization letters acceptable to DG Tax were the equivalent of US$272,941(‘000) lower that the receipts reported by DG Tax for those mining entities. The US Dollar amounts for those mining entities reporting lower tax payments than the receipts reported by DG Tax in excess of the equivalent of US$10,000(‘000), totaling the equivalent ofUS$263,015(‘000) are as follows:- PT Arutmin Indonesia US$133,840(‘000); – PT Kaltim Prima Coal US$ 86,339(‘000); – PT Bahari Cakrawala Sebuku US$ 31,541(‘000); – PT Adaro Indonesia US$ 11,321(‘000)”. Again, if we imagine a worst-case scenario, the companies may be misleading the shareholders as to the viability of their companies. This may be considered material and requires the stock exchange issue a “please explain” notice to the appropriate companies.
The EITI expects a more mundane explanation to emerge on the above highlighted discrepancies, which may lie with the reporting systems of the companies or the government. However, without an explanation to the shareholders and general public we may be left to our imagination. A well-publicized media explanation by such companies would provide clear message from directors in upholding their company reputation and image, plus provide ongoing support by the mining industry for the EITI process. Indeed the first EITI Reconcilers Report provides a positive news media opportunity for all participating companies, and their modest ongoing use of this opportunity is perhaps a reflection on the company director’s relaxed attitude to EITI.
The state could be missing out on significant revenue, companies may not be acting in good faith or corruption may lie just beneath the surface. However it is beyond the EITI’s role to ensure such discrepancies are followed through by the regulatory bodies, and thus the good efforts of the EITI may end up going now where.
Just Plain Lost
The Validator’s report notes that a number of parties that produced the EITI report have not been paid. Additional funding is required to complete the ongoing commitments for 2013 and onwards, but budget approval has apparently not been realized at this point, while the clock is ticking on the next reporting deadline for December 2013. The multi donor trust fund (from various countries) provides funds to the World Bank that in turn directs the funds through the Indonesian Coordinating Ministry for Economic Affairs to the Indonesian EITI secretariat. The budget is in the order of US $ 1 million, with the most complex disbursement process being at the Ministry. The Ministry has a possible alternative “cash call” option to simplify the disbursement process or can fund the program directly. Whatever the issues with the budget process, the outcome may be seen as a lack of commitment and priority by the Ministry. Given the recent negative news about corruption at the Ministry of Energy and Mineral Resources, it would seem that EITI could be promoted more assertively as a means of demonstrating to the public the Ministries earnest intentions towards transparency and clean Government
Table 2
| Copper & Gold with royalty | Nickel with royalty | Tin with royalty |
| KK: Freeport Indonesia (USD 182,72million) | IUP : Aneka Tambang | KK: Koba Tin (USD4,43million) |
| KK: Newmont Nusa Tenggara (USD 21,20million) | KK: INCO/ Vale Indonesia (USD 9,73million) | IUP: Timah (USD18,17million) |
| KK: Nusa Halmahera Minerals (USD 2,30million) | IUP : Trimegah Bangun Persada (USD 3,13million) | IUP: Tambang Timah (USD 5,29million) |
| IUP: Aneka Tambang (total commodities = USD19,83million) | IUP : Bintang Delapan Mineral (USD 2,96million) | IUP: Bukit Timah (USD 4,23million) |
| KK: Natarang Mining (USD 1,32million) | IUP: Billy Indonesia (USD 2,58million) | IUP: Tinindo Internusa (USD 4million) |
| KK: Meares Soputan Mining (USD 0,74million) | IUP : Gane Permai Sentosa (USD 2,25million) | IUP: Venus Inti Perkasa (USD 3,20million) |
| IUP: Cibaliung Sumberdaya (USD 1,4million) | IUP: Arga Morini Indah (USD 2,07million) | IUP : Refined Bangka (USD 2,86million) |
| Bauxite with royalty | IUP : Kemakmuran Pertiwi tambang (USD 1,57million) | IUP : Bangka Timah Utama Sejahtera (USD 2,52million) |
| IUP: Harita Prima Abadi Mineral (USD 5,86million) | IUP: Makmur Jaya Lestari (USD 1,16million) | IUP : United Smelting (USD 2,96million) |
| IUP : Bukit Merah Indah (USD 1,64million) | IUP: Anugerah Surya Pratama (USD 1,08million) | IUP : Billitin Makmur Lestari (Smelter) (USD 2,24million) |
| IUP: Gunung Sion (USD 1,40million) | IUP: PD. Aneka Usaha (USD 0,84million) | IUP : Bangka Putra Karya (USD2,22million) |
| IUP : Karya Utama Persada Tambang/Karya Utama Tambang Jaya (USD0,93million) | IUP: Bumi Konawe Abadi (USD 0,69million) | IUP : Bangka Kudai Tin (USD 2,19million) |
| IUP : Bintang Cahaya Terang (USD0,87million) | IUP: Pan China Indonesia (USD0,64million) | IUP: CV. Nurjanah (USD 2,18million) |
| IUP: Tunggul Ulung Makmur (USD0,68million) | IUP: Hoffmen International (USD0,62million) | IUP : Prima Timah Utama (USD 1,96million) |
| IUP: Bina Dompak Indah (USD0,61million) | IUP: Anugrah Harisma Barakah (USD0,58million) | IUP : Alam Lestari Kencana (USD1,75million) |
| Iron ore with royalty | IUP: Pulaurusa Tamita (USD0,53million) | |
| IUP : Sebuku Iron Lateritic Ore (USD1,63million) | IUP: Putra Mekongga Sejahtera (USD0,50million) | IUP : Babel Inti Perkasa (USD 0,95million) |
| IUP: Yiwan Mining (USD1,62million) | IUP : Stanindo Inti Perkasa (USD0,89million) | |
| IUP: Putra Alam Lestari (USD0,75million) | IUP: DS Jaya Abadi (USD0,62million) | |
| IUP: Serumpun Sebalai (USD0,59million) |
Table 3
| PKP2B: Kaltim Prima Coal (USD180,47million) | IUP: Gema Rahmi Persada (USD 6,91million) | IUP : Cahaya Energi Mandiri | IUP: Bara Harmonis Batang Asam (USD 1,35million) | IUP: Anugerah Borneo Coal (USD 0,80million) |
| PKP2B: Adaro Indonesia (USD 120,24million) | IUP : Kitadin (USD 6,62million) | IUP : Pipit Mutiara Jaya | IUP: Unit Desa Gajah Mada (USD 1,29million) | IUP: Panca Prima Mining (USD 0,76 million) |
| PKP2B: Arutmin (USD 84,64million) | PKP2B: Singlurus Pratama (USD 6,54million) | PKP2B : Tanjung Alam Jaya (USD 2,38million) | IUP: Lianganggang Cemerlang (USD 1,26million) | IUP : Kuansing Inti Makmur (USD 0,73million) |
| PKP2B: IndomincoMandiri(USD78,30million) | PKP2B: Multi Harapan Utama (USD 6,50million) | IUP: CV. Karyati (USD 2,37million) | IUP : Karya Gemilang Limpah Rezeki (USD 1,25million) | IUP: Nan Riang (USD 0,72million) |
| IUP: Bukit Asam (USD 71,56million) | IUP : Telen Orbit Prima (USD 5,76million) | IUP: Harapan BinuangMuda (USD 2,26million) | IUP: Alamjaya Barapratama/Asta Minindo (USD 1,24million) | IUP: Tanjung Batang Asam (USD 0,71million) |
| PKP2B: Kideco Jaya Agung (USD 65,59million) | IUP : Kemilau RindangAbadi (USD 5,67million) | IUP : Batu Gunung Mulia | IUP: Padang Anugrah (USD 1,22million) | IUP: Gerbang Mitra (USD 0,69million) |
| PKP2B: Berau Coal (USD 42,12million) | PKP2B: Lanna Harita Indonesia (USD 5,66million) | IUP: Indoasia Cemerlang (USD 2,13million) | IUP: Energi Batu Bara Lestari (USD 1,21million) | IUP: LamindoI ntermultikon (USD 0,68million) |
| PKP2B: Trubaindo (USD 37,92million) | IUP: Baradinamika Muda Sukses (USD 5,65million) | IUP: Manambang Muara Enim (USD 2,01million) | IUP: Unit Desa Makmur (USD 1,17million) | IUP: Bara Prima Pratama (0,67million) |
| PKP2B: Mahakam Sumber Jaya (USD 34,41million) | IUP : Bhumi Rantau Energy (USD 5,59million) | PKP2B: Antang Gunung Meratus (USD 2million) | IUP : Surya Sakti Darma Kencana (USD 1,17million) | IUP: Aman Toebillah Putra (USD 0,67million) |
| IUP : JembayanMuara Bara (USD 32,58million) | IUP : Sanga Coal Indonesia (USD 5,22million) | IUP: Bara Jaya Utama (USD 1,92million) | IUP: Energi Bumi Kartanegara (USD 1,16million) | IUP: Sinamarinda Lintas Nusantara (USD 0,66million) |
| PKP2B: WahanaBaratama Mining (USD 31million) | PKP2B: Teguh Sinarabadi (USD 5,15million) | IUP: Bara Alamutama (USD 1,90million) | IUP: Nusantara Berau Coal (USD 1,12million) | IUP: Belengkong Mineral Resources (USD 0,65million) |
| PKP2B: Baramarta (USD 29,08million) | PKP2B: Borneo Indobara (USD 5,01million) | IUP : Duta Alam Sumatra (USD 1,88million) | IUP: Harfa Taruna Mandiri (USD 1,11million) | IUP: Gunung Persada Mulia (USD 0,64million) |
| PKP2B: Gunung Bayan Pratama Coal (USD 23,06million) | IUP: Kaltim Batu Manunggal (USD 4,93million) | IUP : Gerbang Daya Mandiri (USD 1,84million) | IUP : Gunung Harang Sejahtera (USD 1,1million) | IUP: Makmur Bersama (USD 0,63million) |
| IUP: Kayan Putra Utama Coal (USD 22,76million) | IUP: Transisi Energi Satunama (USD 4,90million) | IUP : Tunas Muda Jaya (USD 1,79million) | IUP: Mitrabara Adiperdana (USD 1,09million) | IUP: Usaha Baratama Jesindo (USD 0,61million) |
| IUP: Adi MitraBaratama Nusantara (USD 17,96million) | PKP2B: Multi Tambang Raya Utama (USD 4,41million) | IUP: Muara Alam Sejahtera ( USD 1,79million) | IUP: International Prima Coal (USD 1,08million) | IUP: Tiara Graha Sejati (USD 0,60million) |
| IUP: Multi SaranaAvindo (USD 17,54million) | IUP : Tunas Inti Abadi (USD 4,35million) | IUP : Karya Utama Banua (USD 1,74million) | IUP: Danau Mashitam (USD 1,02million) | IUP: Unit Desa Karya Lestari (USD 0,60million) |
| PKP2B: AsminKoalindoTuhup (USD 16,08million) | PKP2B: Sumber Kurnia Buana (USD4,23million) | IUP : Welarco Subur Jaya (USD 1,7million) | IUP: Mahkota Karya Utama (USD 1,00million) | IUP: Kaltim Global (USD 0,58million) |
| IUP : Indomining (USD 13,85million) | IUP: Bara Kumala akti (USD 4,07million) | IUP: Multi Bara Persada (IUP: 1,70million) | IUP: Baramega Citra Mulia Persada (USD 0,95million) | IUP: Unit Desa Penerus Baru (USD 0,57million) |
| PKP2B: TanitoHarum (USD 12,5million) | IUP: Bina Mitra Sumber Artha (USD 4,06million) | IUP: Mitrajaya Abadi Bersama (USD 1,65million) | PKP2B: Baturona Adimulya (USD 0,94million) | IUP: Pribumi Citra Megah Utama (USD 0,56million) |
| PKP2B: InsaniBaraperkasa (USD 9,81million) | IUP : Bukit Menjangan Lestari (USD 4million) | IUP: Fazar Utama (USD 1,58million) | IUP: Gunung Sambung (USD 0,92million) | IUP : MitraBumi Sejahtera (USD 0,55million) |
| PKP2B: MarundaGrahamineral (USD 9,44million) | PKP2B: Bangun Benua Persada (USD 3,91million) | PKP2B: Pesona Khatulistiwa Nusantara (USD 1,55million) | IUP : Kutai Energi (USD 0,91million) | IUP: Satria Mahkota Gotek (USD 0,55million) |
| PKP2B: Perkasa Inakakerta (USD 8,89million) | PKP2B: Riau Baraharum (USD 3,87million) | PKP2B: Kartika Selabumi Mining (USD 1,54million) | IUP : Anugerah Bara Kaltim (USD 0,88million) | IUP : Bumi Merapi Energy (USD 0,54million) |
| IUP: Bukit BaiduriEnergi (USD 7,83million) | PKP2B: Jorong Barutama Greston (USD 3,80million) | IUP: Rekasindo Guriang Tandang (IUP: 1,54million) | IUP: Kusuma Raya Utama (USD 0,87 million) | IUP : Serongga Sumber Lestari (USD 0,52million) |
| PKP2B: FirmanKetaun Perkasa (USD 7,44million) | IUP: Kimco Armindo (USD 3,33million) | IUP : Ratu Samban Mining (USD 1,53million) | IUP: Unit Desa Nusantara (USD 0,87million) | IUP: Unit DesaIkhlas Membangun (USD 0,52million) |
| PKP2B: BahariCakrawalaSebuku (USD 7,38million) | IUP: Golden Great Borneo (USD 2,97million) | IUP: Andalas Bara Sejahtera (USD1,5million) | IUP: Amanah Anugerah Adi Mulia (USD 0,87million) | IUP: Manunggal Inti Artamas (USD 0,51million) |
| IUP : Mega Prima Persada (USD7,36million) | IUP: Sinar Kumala Naga (USD 2,89million) | IUP : Karya Utama Tambang Jaya (USD 1,5million) | IUP: Kutai Bara Abadi (USD 0,86 million) | IUP : Astri Mining Resources (USD0,63million (2010); USD 0,47million (2011)) |
| IUP : Lembuswana Perkasa (USD7,3million) | IUP: Berau Bara Energi (USD 2,89million) | IUP : Arzara Baraindo Energitama (USD 1,43million) | PKP2B: Kadya Caraka Mulia (USD 0,84million) | IUP : Moriss (USD0,59million (2010); USD0 (2011)) |
| PKP2B: Santan Batubara (USD 7,22million) | IUP: Batubara Lahat | IUP : Fajar Sakti Prima (USD 1,42million) | IUP: Borneo Emas Hitam/ Sanga Coal Indonesia (USD 0,82 million) | IUP : Anugrah Sukses Gemilang (USD0,54million (2010); USD 0,48million (2011)) |