Indonesia scored better than average in managing its extractive resources, reflecting good governance and adequate transparency, according to an index released by the New York-based Natural Resource Governance Institute (NRGI) on Wednesday (28/06).
Indonesia scored 68 out of 100 for its mining and oil and gas sectors, ranking 11th and 12th respectively, among 89 assessments in the 2017 Resource Governance Index (RGI).
The report assessed 81 countries’ mining and oil and gas sectors between 2015 and 2016 and ranked them based on levels of transparency and accountability. Most countries were only assessed based on one sector – either mining or oil and gas.
Southeast Asia’s largest economy scored high in revenue management in both sectors, reflecting government efforts to disclose payments from extractive companies since 2012.
“Indonesia […] ranks among the best performers globally in sub-national resource revenue sharing, and is the best in the Asia-Pacific region,” NRGI wrote in its report.
In term of taxation, the country’s oil and gas sector is one of the best performers in the index. A 2010 government regulation on cost recovery and income tax provides clear fiscal key terms for agreement in the oil and gas sector, NRGI said.
The government, however, is considering revising that regulation in the hopes of attracting further investment, against the advice of NRGI, which says lawmakers should be careful to “avoid jeopardizing the benefits of the current system.”
Aneka Tambang, a state-controlled mining giant, scored a satisfactory score in governance and ranked third among 22 mining SOEs assessed in the report. Information regarding the company’s main customers and details about its sales are public due to its listing on Australian and Indonesian bourses.
Pertamina, one of Aneka’s main competitors, is less exposed to restrictive disclosure requirements, as the company is wholly owned by the government.
“Pertamina engages in significant non-commercial activities by bearing the cost of subsidizing fuel for Indonesian consumers, but its financial report only discloses the total cost of all non commercial activities,” NRGI said. A lack of oversight from the House of Representatives also undermines Pertamina’s transparency, the institute said.
Gaps in Performance
Indonesia’s mining sector scored only 37 out of 100 in terms of licensing, due to a lack of disclosure of financial interest, beneficial owners and contracts, NRGI said.
The lack of contract disclosure is also present in the county’s oil and gas sector, “which makes it difficult for citizens to hold the government and companies accountable for compliance with contract terms,” the institute said.
The report also pointed to a wide gap between Indonesia’s legal mining framework and actual practices, particularly evident in terms of the environmental impact of mining in the Southeast Asian country.
“Despite rules requiring disclosure, no information of environmental impact assessments, mitigation plans or compliance with rehabilitation is publicly available,” NRGI said.
Political instability and corruption are also among Indonesia’s weakest areas, though government reforms could play a big part in reversing those trends, the institute wrote.
Government efforts to revise the country’s mining law may resolve licensing issues, according to NRGI. The country has made a move in the right direction by implementing the Extractive Industries Transparency Initiative (EITI) — a global standard that promotes open and accountable resource management — to establish beneficial ownership disclosures.
More than 80 percent of the world’s major mining, oil and gas-producing countries fail to adequately govern the way they extract and manage natural resources.
Eritrea was the worst performer in the annual index released by NRGI, while Norway ranked top, closely followed by Chile, Britain and Canada.
Sixty-six countries were found to be “weak, poor or failing” in their governance of extractive industries, with less than 20 per cent achieving “good” or “satisfactory” overall ratings.
Launched in 2013, the index aims to help commodity-rich nations avoid the pitfalls of the “resource curse,” in which their economies grow slowly due to poor institutional management and oversight of their natural resources.
“Good governance of extractive industries is a fundamental step out of poverty for the 1.8 billion poor citizens living in the 81 countries we assessed […],” said Daniel Kaufmann, president and chief executive of NRGI.
“It is encouraging that dozens of countries are adopting extractives laws and regulations, but often these are not matched by meaningful action in practice.”