According to a study by the Corruption Eradication Commission in 2010, there was a tax underpayment from coal companies mining this black gold in forest areas Rp 15.9 trillion. Coal mining was only in three major islands: Sumatra, Kalimantan, and Papua. KPK also estimated Rp 28.5 trillion in potential state revenue lost from coal company taxes due to administrative issues, poor licensing systems, and weak government control in overseeing state revenues.

In 2017, KPK also calculated arrears of non-tax state revenue (PNBP) from coal companies reached Rp 25.5 trillion. Through the National Movement to Save Natural Resources (GNP-SDA), KPK encouraged the arrangement of mining business licenses (IUP) throughout Indonesia. The agreement cut the number of IUPs from 4,877 in 2014 to 2,631 in 2018.

To encourage cleaner coal governance, KPK continued updating mineral and coal mining data through IUP reconciliation between central and regional governments and the development of Minerba One Data Indonesia (MODI) and also building one mining map through Minerba One Map Indonesia (MOMI), which is integrated with the geoportal at the Ministry of Energy and Mineral Resources.

In 2019, Transparency International Indonesia (TII) recorded 35 corruption risks in mining licensing. Of that number, TII focused on five opportunities for mining corruption.

First, the licensing process’s transparency and the licensee’s identity. Second, the incomplete geological information system results in uncertainty about the economic value of mining sites and the status of existing land and rights that still have the potential for conflict. Third, there is a need for verification mechanisms on license applicants’ administrative, technical, environmental management, and financial capabilities. Fourth, the uncertainty of the regulatory regime that needs to provide clear implementing regulations and procedures. Fifth, weak law enforcement on corrupt practices and non-compliance in granting exploration IUPs.

So far, the mining sector has played an essential role in the economy, contributing around 9% to gross domestic product (GDP) and employing more than 95 thousand people (BPS, 2022). PNBP from the mineral and coal sector reached IDR 34 trillion (PWYP, 2021). The sizeable economic potential of mining has encouraged the entry of foreign investors, which the government has welcomed by streamlining the licensing process and offering tax incentives to mining companies.

In its development, state revenue from this sector is IDR 124.4 trillion in 2021. This value includes taxes, export duties, and non-tax revenues. By September 2022, revenues increased to around IDR 130 trillion.

However, the amendment of Law No. 4/2009 to Law No. 3/2020 on mineral and coal mining has weakened government and community oversight. The Indonesian Center for Environmental Law (ICEL) in 2020 provided constructive notes regarding this weakening:

First, the centralization of supervision needs to be synchronized with the delegation of permit issuance arrangements in the amendment to Law Number 4/2009. Second, the changes eliminate control of the public interest and the resolution of land issues and mining disputes. Third, the amendment removes the authority of mining inspectors to temporarily suspend mining business activities and the right for the public to submit requests for temporary suspension of mining business activities.

TII has just published the latest study on “Risk Assessment of Licensing and Supervision of Mining Business in Indonesia” using the Mining Award Corruption Risk Assessment (MACRA) approach in Aceh, East Kalimantan, and Southeast Sulawesi. This study concluded several things, as follows.

First, the consolidation of interests between state officials, politicians, and mining business people who become a web of patronage and clientelism is the highest risk of corruption. As a result, mining governance not only loses its capacity to be tested accountably but also encourages bias in separating public and corporate interests because mineral and coal natural resources are public property.

In such a situation, administrative reforms that lead to ease of doing business and certainty of mining licenses, according to TII’s study, will not reduce the risk of corruption. Therefore, a political policy breakthrough is needed that can break the relationship between patronage nets and corruption oligarchy that factually holds state authority hostage.

Second, there is still a need for regulatory clarity, service standards, information disclosure, and strengthening the harmonization of cadastral information. The government can take more significant steps in building governance with integrity. One is by separating public and private interests and making regulations on conflict of interest to prevent illegal mining rents.

Third, TII recommends the revision of Law No. 3/2020 by removing the criminalization article against the community, guaranteeing space for objections by the community so as not to create criminalization, and providing a reliable complaint mechanism to prevent environmental, social, and economic problems due to mining business activities. Therefore, an effective tool for transparency and public participation is needed by providing sufficient information for each application for new business activities.

Fourth, the Ministry of Energy and Mineral Resources must strengthen the legal framework by incorporating integrity values in good mining rules, for example, by adopting a rejection system for corruption convicts and realizing institutional capacity to supervise thousands of mining businesses whose licenses have been issued. Related to this license, it is also necessary to verify the beneficial owner.

Fifth, the Supreme Audit Agency and the Extractive Industries Transparency Initiative Indonesia need to audit state revenues from the mineral and coal sector by examining all production and state revenue reports included in the company’s work plan and budget. KPK also needs to encourage the strengthening of conflict of interest prevention systems in mining governance by strengthening the legal framework.

The problem is that investments facilitated by various facilities do not necessarily benefit the public. Not to mention many illegal mining business activities. For example, the East Kalimantan Mining Advocacy Network records at least 168 points of illicit mining activity in the province from 2018-2022.

Previously, Publish What You Pay Indonesia had noted that illicit financial flows from the mining sector reached Rp 23.9 trillion. The latest data shows that the difference in nickel trade balance between Indonesia and China shows a significant gap of up to 5 million tons (Kompas, 2023). In 2023, the Ministry of Energy and Mineral Resources found that more than 2,000 mines were illegal.

Considering the logic of the benefit and cost ratio, as long as all transaction costs that must be paid can be covered by profits, any transaction costs will not be considered a problem by mining business actors. Thus, in the business of natural resources such as mining and natural forests-whose existence is immediately available without human effort while paying transaction costs is what causes the stagnation of sustainability.

The calculation of benefits and costs leads mining businesses to overexploit and manipulate the amount of minerals and coal they produce. This manipulation is reflected in the findings of the KPK to PNBP arrears. Moreover, mining business actors usually do not carry out reclamation after completing the concession.

The problem of coal governance is the same as that of natural production forest governance. Currently, around 40 million hectares of crude production forests are no longer managed by companies holding concessions. Production forest management has become unsustainable due to entrepreneurs cutting down trees that exceed the timber volume growth in their area.

The unsustainability of natural resource management due to high transaction costs has led to the destruction of nature, the prices of which are now shared by all inhabitants of the earth. Natural damage creates pollution and various disasters. Therefore, natural resource management cannot only be based on profit and loss calculations. It is because natural resources are public goods.

In public goods, there are general interests. Leaning its management only on how profitable its business will give birth to damage and disaster. Ultimately, unsustainable natural resource management will create inequality and social injustice.

Source: Forest