Transparency – Two Years on and Three Years Back [Coal Asia Vol. 26]

Transparency – Two Years on and Three Years Back

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.

 

On 1st October 2012 the Jakarta Post reported the EITI progress with 88% of companies and 86% of government institutions having provided compliant reports.

What is EITI?

The Extractive Industries Transparency Initiative (EITI) for Indonesia was promoted in 2007, and accepted as a candidate in October 2010, with funding arriving (World Bank & Indonesia Government) in January 2011. Natural resource companies disclose what they have paid in taxes and other payments, and governments discloses what they have received. These figures are compared and reconciled. The first EITI report covering 2009 is expected to be published late 2012 and Indonesia must complete stage 1 validation by 18 April 2013. The program covers oil & gas, minerals and coal.

Stage 1 (coal sector) is to reconcile the coal mining companies that paid more than $0.5 mill in taxes for 2009, with the respective income registered by the directories within the Ministry of Energy & Mineral Resources and Ministry of Finance. This reconciliation & audit process will be undertaken by a contracted independent firm with data supplied by the Indonesian EITI management team. The newspaper article above refers to the progress of such data preparation, and mentions the NGO “Publish What You Pay” as one of the important inputs from civil society to this process. Latter stages will expand the reconciliation process to more recent years, regional governments, broader cross section of the industry, forestry & fisheries, and confirming such revenues are spent by the Government strictly on “peoples welfare”.

The EITI management team is set up under Presidential Regulation 26 / 2010 with coordinating minister for economic affairs as head of the team, and supporting regulations from Dir Gen of mineral & coal etc.

Participating coal companies

The 54 coal companies referred to on the EITI web site are shown in the table, with 5 not responding (90%). Other web site tables refer to participating mineral mining and oil & gas companies.

GROUP	Name	Tenure	2009  royalty $	Prov.	CompliedWith EITI28 Sep 2012
Bakri	Arutmin	PKP2B	82.4	S.Kal	YES
	Kaltim Prima Coal	PKP2B	235.9	E.Kal	YES
	Fajar Bumi Sakti	IUP	1.7	E.Kal	NO
Banpu	Indominco Mandiri	PKP2B	115.7	E.Kal	YES
	Jorong Barutama Greston	PKP2B	13.4	S.Kal	YES
	Trubaindo Coal Mining	PKP2B	60.7	E.Kal	YES
	Multi Tambang Utama	PKP2B	0.2	C.Kal	YES
Astra	Adaro Indonesia	PKP2B	139.2	S.Kal	YES
	Interex Sacra Raya	PKP2B	0.3	E.Kal	NO
Indika	Kideko Jaya Agung	PKP2B	119.3	E.Kal	YES
Recapital/Risyadi/Napan	Berau Coal	PKP2B	61.7	E.Kal	YES
	Multi Harapan Utama	PKP2B	21.7	E.Kal	YES
Bukit Asam	Bukit Asam	KP	51.0	S.Sum	YES
	Bukit Kendi	IUP	0.8	S.Sum	YES
G.Bayan	Gunung Bayan Pratama	PKP2B	37.4	E.Kal	YES
	Perkasa Inakakerta	PKP2B	7.7	E.Kal	YES
	Teguh Sinar Abadi	PKP2B	4.8	E.Kal	YES
	Wahana Baratama Mining	PKP2B	20.5	S.Kal	YES
	Firman Ketaun Perkasa	PKP2B	0.7	E.Kal	YES
Tanito	Mahakam Sumber Jaya	PKP2B	37.5	E.Kal	YES
	Tanito Harum	PKP2B	20.8	E.Kal	YES
	Santan Batubara	PKP2B	5.1	E.Kal	YES
	Riau Baraharum	PKP2B	4.3	Riau	YES
Banjar Government	PD.Baramarta	PKP2B	30.4	S.Kal	YES
Glencore/Straits Asia	Bahari Cakrawala	PKP2B	23.4	S.Kal	YES
Kasih	Mandiri Inti Perkasa	PKP2B	21.4	E.Kal	YES
Artha Graha	Marunda Graha Mineral	PKP2B	15.3	C.Kal	YES
Timah	Tanjung Alam Jaya	PKP2B	14.4	S.Kal	YES
Baramulti	Sumber Kurnia Buana	PKP2B	5.8	S.Kal	YES
	Antang Gunung Meratus	PKP2B	2.2	S.Kal	YES
	Baradinamika Muda Sukses	IUP	1.6	E.Kal	YES
Lanna	Lanna Harita Indonesia	PKP2B	8.9	E.Kal	YES
Sinar Mas	Borneo Indobara	PKP2B	7.8	S.Kal	YES
?	Multi Sarana Avindo	IUP	7.5	E.Kal	YES
Gaja Tunggal	Bukit Baiduri Energi	IUP	6.6	E.Kal	YES
Resource Alam Ind.	Insani Bara Perkasa	PKP2B	4.8	E.Kal	YES
?	Kayan Putra Utama Coal	IUP	3.6	E.Kal	YES
Salim	Singlurus Pratama	PKP2B	2.8	E.Kal	YES
?	Gema Rahmi Persada	IUP	2.8	E.Kal	YES
?	Barajaya Utama	IUP	1.8	E.Kal	NO
Bungo Raya Nusantara	Nusantara Thermal Coal	PKP2B	1.5	Jambi	NO
?	Bina Mitra Sumberata	IUP	1.4	E.Kal	YES
Soerjadi family	Adi Mitra Baratama Nusantara	IUP	1.3	E.Kal	YES
?	Kadya Caraka Mulia	PKP2B	0.9	S.Kal	YES
?	Kaltim Batu Manunggal	IUP	0.9	E.Kal	YES
?	Transisi Energi Satunama	IUP	0.9	E.Kal	NO
?	Batubara Lahat	IUP	0.9	S.Sum	YES
Probosutedjo family	Lamindo Intermultikon	IUP	0.9	E.Kal	YES
?	Bangun Benua Persada Kal	PKP2B	0.7	S.Kal	YES
?	Harfa Taruna Mandiri	IUP	0.7	C.Kal	YES
Aspac (Tjahjadi family)	Kartika Selabumi Mining	PKP2B	0.6	E.Kal	YES
?	Kalimantan Energi Lestari	PKP2B	0.2	S.Kal	YES
Dharma Puspita	Dharma Puspita Mining	PKP2B	0.1	E.Kal	YES
?	Senarmas Energindo Mulia	PKP2B		S.Kal	YES
		TOTAL	1,215.3

Where does the money go?

Most of the coal companies on the table are PKP2B companies that are required to pay royalty on coal sales, dead rent, corporate income tax, VAT and a variety of other taxes & fees to the central government, while IUP’s typically pay more directly to the regions, depending on domicile. In general, the royalty of 13.5% of coal sales, listed in the 2009 table [$1,215,300,000] is paid to the state treasury, from which 7.5% [ $675,166,000] goes to the Development Fund and 6% of royalty [$540,133,000] is further divided 20% to the central government [ $108,026,000] and 80% to regional government [$430,106,000]. The regional sum is furhter portioned 16% to province [$86,421,000], 32% to producing regency [$172,842,000] and 32% to other regencies in province [$172,842,000]. The Province and Regions also receive other forms of income from such mining companies.

The Supreme Audit Agency (BPK) recent announcements (JP 13 Oct 2012) of first half 2012 financial reports submitted by regional governments, indicating that they need much improvement in accounting policies plus an emphases on banking & spending procedures.

Stage 1 of the EITI process is to be implemented over 30 months (Oct 2010 – April 2013) at central government level. We do not know how long it will take stage 2 to be implemented at the Provincial & Regional level, and perhaps even more difficult to implement the EITI program to ensure income from resources is spent strictly on peoples welfare.

What does it mean for coal companies?

Companies gain an internationally recognized EITI compliance status, thereby enhancing their reputation.

Dr. I Putu Gede Ary Suta’s book on “Market Performance of Indonesian Public Companies” concludes that CEO reputation and corporate governance have a significant influence on public companies market performance. The 1999 OECD principals of corporate governance are fairness, transparency, accountability & responsibility, and goes on to define transparency as the timely disclosure of accurate, clear, consistent and comparable information on corporate performance. Thus, on these principals, the 49 companies participating as above may be considered to have contributed to good corporate governance and thus added value to their companies.

The successful implementation of EITI process shall lead to cleaner government to business relationship, and thus improve the long term clean business environment for the mining companies.

How does it reflect on the government?

It is understood that the non performing portion of the Government directorates (14%) are:

1. The Dir Gen of Tax, wherein there is a need to get special authorization to allow the release such confidential information to the EITI program. It is understood that after nearly 2 years of EITI operations, such authorization may be soon provided.
2. ESDM, wherein their digital filing system is not consistent with that required of EITI, and sorting out such data takes time.

If we are to consider the Government as analogy to a listed company, then the CEO reputation (Minister for Coordination of Economic Affairs) to resolve these issues promptly would appear to be critical to the programs success, and thus to add value to the Government, wherein the shareholders (voters) may be watching.

The importance of the EITI program to Indonesia is that it is a recognized measure of the governments (KPK) fight against corruption. This EITI program is included in the evaluation by the International Transparency & Corruption Perception Index, that is further considered by a number of rating agencies in determining a countries investment profile. The Jakarta Post (Dec 2011) reported Indonesia’s 2011 score of 3 (where 10 indicates highly “clean” countries) and ranked 110 out of 178 countries. The government’s target is a score of 5 in 2014.

Other payment compliance initiatives

The Mines Departments program to list some 5,000 IUP companies as “Clear & Clean” involves a number of administrative issues, including the demonstration that such companies have paid their dead rent & taxes to local government. This initiative is outside the present EITI program, and definitely helps investor confidence in the mining sector.

Conclusion

Indonesia wants to complete the EITI program properly, and on time, such that Indonesia may be admitted to the EITI country compliant list at the May 2013 global EITI conference in Sydney. This would afford the President of Indonesia an opportunity to receive the country award in April.

One of the likely long term outcomes is that companies & government departments may better coordinate the way they record their finances, such that EITI reconciliation and audit functions can run smoothly across the industry.

The EITI program has a component of setting in place a set of systems. These need to be formalized & broadened to cover all PKP2B & IUP’s.

It has been about 2 years since the EITI program received initial funding, and is being applied to the time frame of 3 years ago (2009). These systems need to be brought forward in time, such that the present Government administrators can be held responsible for implementation during their period of office.