Indonesia

EITI Status Yet to be assessed against the 2016 Standard
Joined EITI in 2010
Latest Data From 2014
Website EITI Indonesia
Last updated 8 April 2019

Overview

Indonesia is a resource-rich country both in hydrocarbons and mining. However, oil production has substantially declined in the last two decades from its peak of 1,624 thousand barrels a day in 1995 down to 804 thousand barrels of oil per day in 2017, according to regulator SKK Migas.

Due to this decline in production and a rapid increase in domestic consumption, Indonesia is now a net importer of oil. Bank of Indonesia reports that as of December 2018, oil and gas exports value amounted to USD 1.3 billion while imports amounted to USD 3 billion.

The mining sector, however, has been expanding rapidly in the last decade. According to the World Bank, total mineral export value more than tripled from USD 3 billion to USD11.2 billion between 2001 and 2013, driven by historically high commodity prices and increasing production (World Bank, March 2014). As of 2016, the contribution of the mining sector (including coal) stands at USD 18 billion, according to the latest EITI Report (2016) with coal and copper as the largest contributors.

Public debates about the extractive sector have centered on environmental impacts of mining, cost recovery in oil and gas production-sharing contracts (PSCs), crude oil trading, subnational transfers and social expenditures.

The need to improve governance of the extractive sector is highlighted by issues around overlapping licenses, gaps in tax administration and in systems for corporate registration which have led to losses of potential revenues.

The EITI is improving inter-ministerial policy coordination, serving as a platform for discussions between industry and government as well as building trust with civil society. 

Extractive industries contribution

  • 7 %
    to GDP
  • 21 %
    to export
  • 10 %
    To government revenue
  • 1.2 %
    to employment

Beneficial ownership

Indonesia has committed to implement the G20 high-level principles on beneficial ownership transparency, with the objective of improving national regulations to establish a comprehensive legislation on beneficial ownership (BO), enhance compliance with BO disclosure and integrate databases. In 2018, the government strengthened its commitment to full disclosure of company ownership through the issuance of Presidential Regulation 13/2018 and Ministry of Energy and Mineral Resources Decree 1796 K / 30 / MEM / 2018. Under these regulations, companies are required to report their beneficial owners through company registers and in connection with their license application procedures. 

In accordance with the 2016 EITI Standard, the EITI Indonesia Multi-Stakeholder Group (MSG) also published an EITI BO roadmap in 2016, which sets out steps to beneficial ownership disclosures by 1 January 2020. The roadmap aims to develop a framework for beneficial ownership reporting in Indonesia, harmonize laws, and mainstream beneficial ownership data by creating a BO public registry. Though not perfect, the 2016 Indonesia EITI Report, for the first time, contains information on the beneficial (real) owners of 71 oil and gas operators and 61 mineral and coal companies. Currently, the Ministry of Justice maintains a portal where company information including their legal ownership, can be accessed. 

The Government of the Republic of Indonesia is fully committed in implementing the principles of good governance. Indonesia’s heavy involvement in the Extractive Industries Transparency Initiative is part of its good governance programs and is a show of commitment in creating a transparent and accountable system of governance. The naming of Indonesia as EITI compliant is a privilege and a proof that with hard work and resolute will, bureaucratic and governance reform has transformed Indonesia into a country with a stable, transparent and accountable system of governance.
Dr Montty Girianna, Deputy Coordinating Minister for Energy and Mineral Resources of Indonesia and Chair of the EITI Indonesia MSG.

Production

Indonesia continues to maintain a key position in the global extractive industry. It is a leading producer of coal (the world’s 5th largest producer in 2016), tin (2nd), oil (23rd) and natural gas (12th). It also ranked as the world’s 5th largest LNG producer. In 2016, around 30% (92 million barrels) of oil production and lifting in the country came from the Rokan Block, managed by Chevron Pacific Indonesia. On the other hand, the largest contributor to gas production and lifting is the Mahakam block managed by Indonesia Petroleum Ltd. and Total E&P Indonesia. Of Indonesia’s 60 sedimentary basins with potential oil and gas reserves, 15 are producing oil and gas.

The 2016 EITI Indonesia Report shows an increase in oil production by 6% in 2016 after experiencing a decline in production during the period of 2013-2015. Meanwhile, gas production and lifting declined in the same year due to a decrease in natural production and the end of export contracts.

Natural resources

Indonesia has rich deposits of oil, natural gas, gold, coal, tin, silver, copper, bauxite, zinc, nickel and iron. The easternmost province of Papua holds close to 80% of national gold, copper and silver reserves. Nearly all tin reserves are located in Bangka and Belitung, while West Kalimantan holds significant reserves of iron and bauxite. The island of Sumatra and Java are endowed with significant oil reserves. On the other hand, the largest gas reserves are in Natuna and the rest are spread out in eastern Indonesia.

CommodityReservesUnitSignificance
Oil7390million stock tank barrelsIndonesia ranks as the world's 27th largest in terms of crude oil reserves
Gas150trillion standard cubic feetIndonesia ranks at the world's 14th largest in terms of natural gas reserves
Gold4248metric tonsIndonesia ranks as the world's 5th largest in terms of gold reserves
Lead1.6metric tonsIndonesia ranks as the world's 2nd in terms of lead reserves
Zinc7metric tons
Nickel577million metric tons
Bauxite180million metric tons
Silver4104metric tons
Copper4161million metric tons
Coal 31.4 billion metric tonsIndonesia ranks as the world's 10th largest in terms of coal reserves.
Tin0.7metric tons

Revenue collection

The latest EITI disclosures (2016 EITI Report) show that Indonesia received USD 11.3 billion from extractive industry, a 31% decrease from the previous year (USD 16.5 billion in 2015). This represents approximately 10% (15% in 2015) of the total state revenue in Indonesia. Revenue from the extractive industry in 2016 decreased by 61% from 2012. This decline in recent years has largely been influenced by declining commodity prices. In 2016, roughly 70% of these revenues came from the oil and gas sector, with the rest from mineral and coal. Revenues were mainly collected through corporate income tax, the state’s share of oil and gas production and royalties. 

Commodity trading

In Indonesia, commodity trading occurs through Pertamina, the sole SOE in Indonesia’s oil and gas sector. Other contractors are likewise authorised under their Production Sharing Contracts (PSCs) with SKK Migas, the oil and gas regulator, to sell commodities on behalf of the government. On 1 January 2015, Pertamina started conducting its import and sales (export) activity of crude oil and refined products through the Integrated Supply Chain (ISC). The procurement and sales are done either through direct negotiation or closed tender to business partners that are registered with Pertamina.  ISC is also in charge of selling crude oil from Pertamina’s upstream entitlements.

EITI Reports published by the EITI in Indonesia regularly contain information on the volumes sold by government and the revenues it received from the sale of its petroleum. However, these reports do not fully disclose other relevant details of these transactions. In view of the relevance of commodity trading in Indonesia’s oil and gas sector, Indonesia has agreed to publish a report on commodity trading and to participate in the EITI’s targeted effort on commodity trading transparency.

The commodity trading report published in January 2018 covers 1,909 oil sale transactions reported by SKK Migas. The report found that the trade transactions in Indonesia where there is higher corruption risk pertain to crude oil imports including Gas, LNG and petroleum exports as well as domestic sales and imports, which are dynamically priced. Unfortunately, data regarding these transactions is not currently publicly available. The report thus recommended its inclusion in the scope of future reports, especially import figures, given that what was covered in the current report is less than 20% of the extent of commodity trading of Indonesian SOEs. Discussions on the findings of the report can also be found in the EITI website.

Following the completion of the pilot, members of the MSG have expressed considerable interest in producing a follow-up report based on the findings of the commodity trading pilot. Currently, Indonesia EITI MSG is finalizing the Terms of Reference for the second commodity trading report.

Revenue allocation

Local government in Indonesia has 15% and 30% share of petroleum and natural gas revenues, respectively. In accordance with the Law No. 33/2004, allocation of extractive industry revenues between the central and the local government is structured around the Revenue Sharing Fund (DBH) scheme. The DBH is earmarked for specific uses. A different DBH scheme applies for Special Autonomous Regions such as Aceh, Papua and West Papua Provinces.

The mining sector, in particular, has an important role in the regions’ economy, especially in mine producing areas. Although the mining sector accounts for only about 7.6% of national GDP (at current price), the mining sector can contribute 20-43% of the Gross Regional Domestic Product (GRDP). This role is enhanced by the movements of the followers' sectors (e.g. construction, trade and services) and the emergence of supporting businesses (food and clothing suppliers) in the regional economy. The 2016 EITI Report shows the significance of the contribution of the mining sector to producing regions’ ( such as Kalimantan Timur) workforce absorption and regional export compared to the national average.

Social and economic contribution

According to the latest disclosures, the extractive industry's contribution to total GDP in 2016 was 7% compared to 2015 which was 8% of the total national GDP. Nominally, in 2016 the total revenue from the extractive industry decreased by 31% to 159,4 trillion IDR (USD 11.3 billion) from the previous year which amounted to 232,4 trillion IDR (USD 16 billion). 

The extractive sector employed around 1.48 million workers (or 1.25% of the total workforce) in 2016. The limited employment in the sector has been attributed to the technologically intensive nature of the jobs, which makes it less capable of high intakes compared to labor-intensive industries such as the trade sector (22.5%) and the industrial sector (13%).
Beside these, local government direct revenue from the mining sector, such as DBH and retribution can be used for infrastructure development and community welfare improvement. The contribution of extractive industry should not be seen only from the size of the GRDP contribution or revenue alone, but also its contribution to sustainable economic development through reducing unemployment and reducing poverty.

Policy recommendations and reforms

Indonesia’s 2016 EITI Report documented weaknesses in EITI reporting. Recommendations from the Report focused on improving the reconciliation of the total oil lifting volume and total gas lifting volume, especially relating to the difficulties in tracking differences between Cooperation Contract Contractor or PSC Contractor (KKKS) and Directorate General (DG) of Oil and Gas. The report also suggests more in-depth socialization for oil and gas sector companies in relation to EITI reporting, including on Beneficial Ownership disclosure. 

Innovations

The EITI encourages multi-stakeholder groups to explore innovative approaches to make the EITI more relevant and useful.

  • A commodity trading report has been published in January 2018 to: i)  understand how the Indonesian Crude Price is determined, how prices are regulated, and to provide recommendations to government policies related to domestic oil pricing; ii) understand Pertamina-Integrated Supply Chain’s (ISC) tendering processes and how applications from traders are evaluated; and iii) to understand the entire value chain from production to trading and evaluate policy gaps.
  • The EITI worked towards making beneficial ownership transparency a national commitment under the Open Government Partnership.
  • The EITI is part of Indonesia's broader anti-corruption framework. 

Implementation

The MSG published their 2018 work plan on 5 February 2018. Based on the work plan, the main objectives of EITI implementation in Indonesia is to increase transparency in the management of extractive industries and to improve extractive industry governance in the country.

Governance

The government of Indonesia committed to implementing the EITI in December 2005 and was admitted as an EITI Candidate in October 2010. EITI implementation in Indonesia is governed by Presidential Regulation RI No. 26/2010. An EITI Implementation Team, which is also the MSG, is in charge of implementing EITI activities and is composed of 20 members, with ten representatives from the national government, four from industry three, and three each from local government and civil society. Dr Montty Girianna, Deputy Minister for Energy, Natural Resources and Environment, Coordinating Ministry of Economic Affairs, currently serves as Chair of the Implementing Team. 

The EITI Indonesia National Coordinator is Mr. Bastian Halim, Assistant Deputy Minister, Coordinating Ministry of Economic Affairs.

Timeline

Validation

Indonesia’s Validation against the Standard commenced on 1 September 2018. The country is compliant under the 2011 Rules.