2 CONTEXTUAL REPORT EITI INDONESIA REPORT 2015 COORDINATING MINISTRY FOR ECONOMIC AFFAIRS REPUBLIC OF INDONESIA COORDINATING MINISTRY FOR ECONOMIC AFFAIRS REPUBLIC OF INDONESIA EITI INDONESIA REPORT 2015 CONTEXTUAL REPORT VOLUME TWO KAP HELIANTONO & REKAN iv Table of Contents 18 Introduction 22 63 The Governance License and Extractive Industry Contract 76 92 Contribution of Extractive State-Owned Industry in Indonesia Enterprises 112 106 Management of State Revenue Environmental and Generated from Extractive Social Responsibilities Industry Contextual Report 2015 1 2.5.1 Development of Indonesia’s 52 TABLE OF Integrated One Stop Service (PTSP) 2.5.2 Re-Organizing IUP through 53 CONTENTS Clean and Clear Certificate 2.6 Challenges and Issues Relating to 55 LIST OF TABLE 4 Governance in Extractive Industries LIST OF CHART 6 2.6.1 The Declining of Exploration 55 Activities in Indonesia LIST OF FIGURES 7 2.6.2 Regulation regarding Gross 56 LIST OF ABBREVIATIONS 8 Split Scheme 2.6.3 Current Status of Revision of 57 EXECUTIVE SUMMARY 13 Oil and Gas Law and Mining Law 1 INTRODUctioN 18 2.6.4 The Debate and Progress 58 of Regulation on Increasing 1.1 Definition of the Extractive Industry 19 Mineral Value Added 1.2 What is Extractive Industries 19 2.6.5 Implementation of Share 59 Transparency Initiative (EITI)? Divestment Regulations 1.3 Benefits for Indonesia as an EITI 19 2.6.6 Contract Shifting to IUP 61 Compliant Country 2.6.7 Accuracy of Reporting and 61 1.4 EITI in Indonesia 20 Payment of Mineral and Coal PNBP 2 THE GOVERNANCE OF 22 EXTRACTIVE INDUSTRY 3 LICENSE AND CONtract 63 2.1 The Overview of Upstream and 23 3.1 Oil and Gas Mining Sector 63 Downstream Activities 3.1.1 Applicable Contract Type 63 2.1.1 Oil and Gas Sector 23 3.1.2 Establishing Working Area 64 2.1.2 Mineral and Coal Sector 23 (WA) 2.2 The Mandate of the 1945 Constitution 24 3.1.3 Tendering Process of 65 of the Republic of Indonesia Working Area 2.2.1 Legal Framework of Oil and 25 3.1.4 WA Tendered in 2015 67 Gas Mining 3.1.5 The Rule of One Working 67 2.2.2 Legal Framework of Mineral 31 Area for One Company and Coal Mining 3.1.6 Transfer of Participating 67 2.3 Fiscal Policy on Oil & Gas and Mineral 36 Interest (PI) & Coal 3.2 Mineral and Coal Mining Sector 70 2.3.1 Fiscal Policy on Oil and Gas 36 3.2.1 Applicable Licenses in 70 Sector Mineral and Coal Mining 2.3.2 Fiscal Policy on Mineral and 39 Sector Coal Sector 3.2.2 Allocating Mining Business 71 Area 2.4 Duties and Functions of Relevant 41 Government Agencies in the 3.2.3 The Establishment of Mining 72 Extractive Industry Area and IUP in 2015 2.4.1 Ministry of Energy and Mineral 41 3.2.4 The Establishment of Mining 72 Resources Business License Area (WIUP) 2.4.2 Ministry of Finance 43 3.2.5 Tender Process of Mining 72 2.4.3 Ministry of Environment and 44 Business License Area Forestry 3.2.6 WIUP Tender and the 74 2.4.4 Local Government 44 Issuance of IUP in 2015 2.4.5 Laws and Other Regulations 46 3.2.7 The Rule of One IUP One 74 related to Extractive Industry Company 2.5 Improving Governance Related to 52 3.3 Challenge and Current Issue 74 Extractive Industries Regarding Licensing Process in the Extractive Industry 3.3.1 Transition Period of Oil and 74 Gas Blocks 2 Table of Contents 4 CONTRIBUTION OF Extractive 76 6 ENVIRONMENtal AND SOCIAL 106 INDUstry IN INDONesia resPONSIBilities 4.1 Position of Production and Reserves in 77 6.1 Corporate Social Responsibility (CSR) 107 a Global Context 4.2 Trend of Changes in World 77 6.2 Oil and Gas Mining: Abandonment 108 Commodity Prices and Site Restoration Fund (ASR Fund) 4.3 Distribution and Potency of Extractive 79 6.3 Mineral and Coal Mining: Reclamation Industry in Indonesia 109 and Post-Mining Guarantees 4.3.1 Oil and Gas Sector 79 4.3.2 Coal Mining Sector 80 6.4 People’s Mining 110 4.3.3 Mineral Mining Sector 80 6.4.1 Illegal Mining (PETI)) 111 4.4 Contribution of Oil and Gas GDP and 80 Mining GDP to Indonesia’s Total GDP 4.5 State Revenue from Oil and Gas Sector 81 7 MANAGEMENT OF STATE 112 and Mineral and Coal Sector REVENUE GENERATED FROM EXTRACTIVE INDUSTRY 4.6 Production and Lifting in Oil and Gas 81 Sector and Production in Mineral and 7.1 State Financial Planning, Budgeting 113 Coal Sector and Audit 4.6.1 Oil and Gas Sector 81 7.1.1 Budget Planning 4.6.2 Gas Sector 82 113 4.6.3 Coal Sector 85 7.1.2 National Budgeting Approach 114 4.6.4 Main Minerals Production 85 7.1.3 Outlook of Extractive 115 4.7 Contribution of Oil and Gas Export 86 Industry and Mineral and Coal Export 4.7.1 Oil & Gas and Mineral & Coal 86 7.1.4 Process of Auditing in the 115 Sector Extractive Industries Sector 4.7.2 Export of Oil Sector by Main 87 7.2 Distribution of Revenue and 116 Provinces Payment to Local Government 4.7.3 Export of Gas Sector by Main 88 Provinces 7.2.1 Revenue Sharing Fund 117 4.7.4 Export of Coal Sector by Main 89 (DBH) Scheme for Extractive Provinces Industry 4.8 Significant Exploration Activities 89 7.2.2 DBH Accountability Method 119 4.9 Contribution of Extractive Industry to 90 and Utilization Efficiency National Employment 7.3 Payment from Oil and Gas Company 4.10 Contribution of Extractive Industry 120 90 and Mineral and Coal Company to in the Region (Several Regional Local Government Examples) 7.3.1 Based on Local Regulation 120 5 state-OWNED ENTERPrises 92 (Perda) 5.1 Relationship between SOEs and the 93 7.3.2 Commitment between 121 Government Company and Local 5.1.1 Authority 93 Government (Pemda) 5.1.2 Financial 93 7.4 Current Issue of Extractive Revenue 121 5.2 PT Pertamina (Persero) 95 Management 5.3 PT Aneka Tambang (Persero) Tbk 99 7.4.1 The Role of Local 121 5.4 PT. Bukit Asam (Persero) Tbk 101 Government in the Reconciliation Process of 5.5 PT Timah (Persero) Tbk 103 DBH Calculation 5.6 Plan of Oil and Gas SOEs and Mining 104 SOEs Holding 7.4.2 PNBP Receivables 122 7.4.3 Petroleum Fund 122 Contextual Report 2015 3 8 RecommeNDatioN 124 REFERENCES 126 WORD 129 APPENDIX 131 APPENDIX 1: General Provisions in Existing 131 Extractive Industries’ Contracts APPENDIX 2: Matrix Contextual Report and 133 EITI Standard 2016 4 List of Tables LIST OF TABLES Table 1 Published EITI Report 21 Table 25 Authority to grant IUP - 71 exploration and production The content and explanation of 24 Table 2 based on laws No. 4/2009 and the 1945 Constitution article 33 No. 23/2014 Table 3 Generation of PSC 28 Table 26 Legal status of participants 73 Table 4 Gross split mechanism 30 eligible to bid by scope of WIUP Table 5 Maximum amount of foreign 32 ownership based on the type of Table 27 List of PSCs expired in 2024 74 license Table 28 Total mineral resources and 80 Table 6 List of regulations regarding 32 reserves in Indonesia the divestment in mineral and Volume of main minerals 85 coal mining Table 29 production in 2011-2015 Table 7 List of regulations regarding 33 Significant oil and gas 89 limitation of export and Table 30 development projects enhancement of value added Table 31 The amount of state equity 94 List of regulations regarding 34 Table 8 participation DMO of mineral and coal Table 32 SOE engaged in the extractive 95 List of regulations regarding 34 Table 9 industry benchmark of mineral and coal selling price Table 33 Retained earnings and dividend 95 payout by PT Pertamina List of regulations regarding 35 Table 10 (Persero) Tbk reclamation and post-mining Table 34 Retained earnings and dividend 96 List of regulations regarding 35 Table 11 payout by PT Pertamina authority of local government in (Persero) Tbk mineral and coal sector Table 35 Loan that forwarded to 97 Tax policy on oil and gas sector 36 Table 12 PT Pertamina (Persero) Table 13 Income tax rate of the company 37 The list of subsidiary 97 and government share based on Table 36 companies of PT Pertamina the generation of PSC (Persero) engaged in the Table 14 Taxation policy on mineral and 39 extractive sector coal mining industry Table 37 Changes in ownership of 98 Table 15 Rate of land rent 40 working areas of PT Pertamina (Persero) Tbk Table 16 Royalty of mineral for KK and 40 IUP Table 38 CSR realization of PT 99 Pertamina (Persero) Table 17 Royalty of coal for PKP2B and 40 IUP Table 39 The shareholders of PT Aneka 99 Tambang (Persero) Tbk Table 18 Regulations related to 47 beneficial ownership Table 40 Retained Earnings and 99 Dividends Payout by PT Aneka Permitted mining activities by 50 Table 19 Tambang (Persero) Tbk. type of forest Table 41 The list of subsidiary companies 100 CSR-related regulations 51 Table 20 of PT Aneka Tambang (Persero) Table 21 Strategic issues in the 61 Tbk engaged in the extractive renegotiation of mineral and sector coal industry contracts Table 42 PKBL realization of PT Aneka 101 Table 22 Guarantee of oil and gas 66 Tambang (Persero) Tbk working area tender Table 43 The shareholders of PT.