Indonesia

EITI Status Yet to be assessed against the 2016 Standard
EITI Member Since 2010
Latest Data From 2014
Website EITI Indonesia

Overview

Indonesia is a resource rich country both in hydrocarbons and mining. However, oil production has substantially declined in the last 15 years from its peak of 1.5 million barrels a day in 1996 down to .79 million barrels a day in 2014, 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 May 2016, oil and gas exports amount to USD 891.8 million while imports amount to USD1.1 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. Mineral exports constituted 6.2 % of total exports in 2013 with copper, nickel, tin, iron and bauxite as the largest contributors (World Bank, March 2014).

Public debates about the extractive sector have centred 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.

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. Inter-ministry coordination led by the Ministry of National Development Planning (Bappenas) is underway with the aim of producing a strategic framework for beneficial ownership (BO) disclosure for companies. The Indonesia EITI is an integral part of this process, and has been working closely with the Corruption Eradication Commission (KPK) and Bappenas by contributing to discussions on developing a national roadmap for beneficial ownership disclosure. An EITI BO roadmap has been finalized by the MSG in December 2016 in accordance with the 2016 EITI Standard and sets out steps to beneficial ownership disclosures by 1 January 2020. The roadmap discusses how disclosure of hidden owners could address issues relating to loss of state revenue, corruption, money laundering and hidden monopolies as it will enable regulators to better identify suspicious activities and implement preventive measures.  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.  

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 is a leading producer of coal (the world’s 5th largest producer in 2014), nickel (1st), tin (2nd), gold (12th), bauxite (4th), oil (23rd) and natural gas (10th), ranking as the world’s 4th largest LNG producer. Of Indonesia’s 60 sedimentary basins with potential oil and gas reserves, 38 have been explored and 18 are producing. In 2013 there were 70 projects of  eight mineral types with estimated reserves of more than 50 million metric tons at an advanced exploration stage.

Natural resources

Indonesia has rich deposits of oil (the world’s 27th largest), natural gas (14th), gold (5th), coal (10th), lead (2nd), silver, copper, bauxite, zinc, nickel and tin. 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. Sumatra, Java and Papua are endowed with significant oil and gas reserves.

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

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Mineral production (tonnes)

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Revenue collection

The latest EITI disclosures (2013) show that Indonesia received USD 33.6 billion from extractive industry taxation. Roughly 72% of these revenues comes from oil and gas, with the rest from mining and quarrying. Revenues were mainly collected through corporate income tax (24% of total government revenues from the extractive industries in 2013), the state’s share of oil and gas production (26%) and royalties (2.3%). The Mining Law was last revised in 2009 and the Oil and Gas Law is under revision.

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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. Pertamina’s downstream activities include oil and gas refining and managing the distribution and marketing of the refined products. PSC holders deliver the government’s share in oil lifting and Domestic Market Obligation (DMO) to Pertamina’s domestic refineries. Pertamina then transfers payments to the treasury.   

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. These activities are regulated by SKK Migas which controls Pertamina’s operations. 

Indonesia’s latest EITI Report describes in general terms how trading is conducted. However, in view of the relevance of commodity trading in Indonesia’s oil and gas sector, Indonesia has agreed on the following objectives for its participation in the targeted effort on commodity trading transparency:

  1. Understand the entire value chain from production to trading and evaluate gaps in policies;
  2. Gain comprehension regarding factors influencing domestic oil pricing, in particular, how the Indonesia Crude Price (ICP)  is determined, and provide recommendations to government policies related to pricing;
  3. Understand Pertamina-ISC’s tendering processes, i.e., how it evaluates applications from traders, and to see how the new system under ISC compares with the system under Petral;
  4. Complement ISC’s efforts in making their operations transparent; and
  5. Address negative allegations against Pertamina and provide an opportunity to rebuild their reputation as an SOE.

The commodity trading report is expected in August 2017.

Revenue allocation

Provincial and district governments are responsible for 40% total budget expenditure and hold significant oversight in governance of extractive industries, for instance in the license allocation phase. Subnational transfers are structured around a Revenue Sharing Fund (DBH) although there are also earmarks for specific revenues, particularly involving the Special Autonomous Regions of Aceh and Papua.

Policy recommendations and reforms

Indonesia’s 2010-2011 EITI Report documented weaknesses in recordkeeping related to payments of royalties and Sales Revenue Share (PHT) by mining companies, affecting revenue sharing with provinces. The Report recommended that the proof of payment by mining companies should include clear and accurate information, especially on detail of calculating Coal Production Contribution into royalty and PHT, to avoid errors in revenue sharing with producing regions. It also recommended that there be more streamlined recordkeeping between Treasury, the General Directorate of Mineral and Coal, and the General Directorate of Accounting and Financial reporting.

Recommendations from the 2012-2013 EITI Report focused on improving the EITI reporting process, including the need to engage new relevant stakeholders to make reporting more comprehensive, as well addressing legal barriers brought about by tax confidentiality provisions.

Innovations

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

  • The latest EITI Report  focuses on three provincial case studies (of the provinces of East Kalimantan, East Java and Riau) to demonstrate the realised subnational transfers in 2012-2013.
  • There has been active regional outreach within Indonesia’s EITI process, with numerous focus group discussions held in resource-rich provinces and districts to popularise EITI Report findings and canvass local communities on their demands for information.
  • Indonesia is participating in the EITI's targeted effort for transparency in commodity trading. A commodity trading report is expected to be published in 2017 which aims 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-Intergated 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.

Implementation

The main objectives of EITI implementation include increased transparency in the management of extractive industries, improved governance of extractive industries and promotion of public welfare in the mining sector, and increased contribution of extractive industries to the national economy.

Governance

The government of Indonesia committed to implement EITI in December 2005 and was admitted as EITI Candidate in October 2010. EITI implementation in Indonesia is governed by Presidential Regulation RI No. 26/2010. An EITI Implementation Team is in charge of implementing EITI activities and counts 15 members (six from national government, and three each from subnational governments, industry and civil society). An EITI Steering Committee coordinates and monitors EITI implementation in Indonesia. 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 will commence on 1 September 2018. The country is compliant under the 2011 Rules.