2018 is the fourth year out of 5 (five) years of the cabinet period for the Jokowi-JK government and the Indonesian House of Representatives (DPR RI) as a result of the 2014 Election. Throughout 2018, the energy, oil and gas, and mining sectors were characterized by various events that can be viewed from various sides, starting from ( 1) corporate actions and strategies, (2) governance and regulation, (3) downstream, fiscal and economic, (4) social and environmental aspects, too (5) law enforcement aspects. This sector, which is considered to have a significant influence on macroeconomic conditions, has more or less affected the political temperature and business arena in the country, which of course has a profound impact on the social conditions of society and environmental resilience.

In the aspect of (1) corporate action and strategy, 2018 was marked by an event of structuring large state-owned corporations in the form of the establishment of a national oil and gas holding BUMN, played by Pertamina; completion of the Freeport divestment process through the state-owned mining holding company Inalum; completion of the renegotiation process and amendments to the Mining Contract of Work or change the Contract to Mining Business License; until the process of termination, extension, and offering of the Oil and Gas Production Sharing Contract using the new Gross Splits scheme; This includes the replacement of Pertamina’s managing director, which seems to have become an annual routine event.

In aspect (2) of governance and regulation, this year an evaluation of the KPK’s GNPSDA (National Movement to Save Natural Resources) in the mining and energy sector was carried out, the issuance of a licensing integration system and mining business supervision including the one map policy, the issuance of a presidential regulation on the principles recognizing and opening corporate ownership or beneficial ownership to prevent acts of corruption and illegal flow of funds; the issuance of several ministerial regulations regulating the energy-oil and gas-mining sector, until again the revision of the Oil and Gas and Mineral and Coal Law has not been completed for the umpteenth time in the Indonesian Parliament, including regulations in the renewable energy sector which do not seem progressive yet. This year, Indonesia’s membership in the EITI (Extractive Industries Transparency Initiative) initiative is re-validated, in order to assess and strengthen critical areas that need reform. Action plans for open government initiatives (Open Government Partnership, OGP) and the National Strategy for Prevention of Corruption (Stranas PK) 2018-2019 are efforts to reform permits, increase state revenues, taxation, and legal reform – including in the mining and natural resources sectors. Towards the end of the year, the plan to revise the Government Regulation in the mining business sector also covers the momentum of the expiration of the Mining Contract of Work.

In aspects (3) of the downstream, fiscal and economic industries, this year there is not much progress in the downstream sector and the increase in added value in the mineral and mining sectors, as well as the downstream sector which is characterized by the mandatory use of biodiesel containing 20% ​​(B20) from CPO. Meanwhile, the fiscal condition continues to experience a trade balance deficit due to the continued swelling of imports of oil (crude and fuel), as well as the weakening of the rupiah which is exacerbated by the reluctance of exporters (including exporters of mining raw materials) to exchange DHE (Export Proceeds) into rupiah or deposit it in domestic banks. Likewise, in terms of tax and state revenue policies, the process of collecting PNBP receivables and changes in taxation schemes and rates and PNBP have also colored this sector amidst fluctuations in commodity prices on the global market and fluctuations in the addition of production quotas and the pull-out of DMO (Domestic Market Obligation) policies. ) Coal.

(4) On the social, community, and environmental aspects, again the irony is happening again: the former coal mining hole in the concession area of ​​the largest concession in East Kalimantan has claimed victims, which up to now has reached 32 children due to weak planning, supervision, and placement of funds for reclamation obligations. and post-mining, criminalization, and acts of violence in the vicinity of the Coal Power Plant, until the landslide of the hill mined by coal and engulfing residents’ houses. Meanwhile, the communities around the Kendeng mountains continue to wait for certainty on the implementation of KLHS (Strategic Environmental Assessment) through the policy of Spatial and Regional Planning and Medium-Term Development Planning which accommodates the fate of thousands of farmers around the Watu Putih water basin (CAT) of the Kendeng Mountains. Meanwhile, dozens of non-governmental civil society organizations and non-governmental organizations this year declared the #b Cleaningindonesia movement as a peaceful movement to invite the public to support clean energy and free Indonesia from corruption and environmental pollution.

Likewise, in the aspect (5) of law enforcement, the public is shocked by the corruption incident of the Riau-I PLTU project, which shows the increasing reality of political corruption in the fossil energy sector as a picture of the perfect interdependence between politics, policy, and business in the extractive sector. This year, law enforcement efforts are also marked by the criminalization of academics who carry out environmental calculations/valuations and state losses in order to strengthen corruption charges in the case of the issuance of mining permits by the regional head of Southeast Sulawesi.

Publish What You Pay Indonesia – a secretariat of a national coalition of non-governmental organizations and non-governmental organizations concerned with issues of transparency, accountability, and improved governance in the energy-oil and gas resource sector and mining, providing annual records of dynamics, challenges, and improvements’ critical ‘that must be carried out for the progress of development and public interest. The following are our important reviews, analyzes, and recommendations in the 2018 Final Notes – which are also an evaluation of the performance of the 4 Years of Jokowi-JK Nawacita and the Performance of the DPR in the energy, oil and gas, and mining sectors:

1. Establishment of BUMN Holding: Integration of the Oil and Gas Sector and the Long Road to Divest Freeport

In early 2018, the decision to form an oil and gas holding company marked the integration of SOEs to organize state operations in the oil and gas sector. This integration is aimed at strengthening the capital structure, maximizing the use of gas reserves and dividing upstream-downstream roles, increasing the efficiency of BUMN holding subsidiaries, and synergizing capital investment and capital expenditure. Now, the effectiveness of this holding is eagerly awaited by the public to maximize the use of oil and gas for the fulfillment of energy and the domestic downstream industry, as well as to encourage more professionalism in agriculture in the midst of demands for efficiency and the role of meeting one price fuel, as well as demands for increased competitiveness in the oil and gas world.

Meanwhile, the BUMN Mining holding through Inalum is facing a long phase of the Freeport divestment process, especially in the process of acquiring shares of up to 51%. The divestment, which is targeted to be completed by the end of this year, requires the issuance of IUPK (Special Mining Business Permit), tax stability, obligation to build smelters, and resolving the issue of lease-to-use forest areas (IPPKH). Not to mention, the cost of acquiring shares by Inalum, which reached US $ 3.85 billion or Rp. 55.8 trillion (exchange rate of 14,500), has also taken a decision to issue global bonds worth US $ 4 billion (US $ 3.85). billion for stock payments and US $ 150 million for refinancing). CNBC noted, this is not only Inalum’s first foreign currency bond but also the largest ever issued by a state company during Indonesia’s establishment and is the 6th largest acquisition in Southeast Asia in the last 10 years. Meanwhile, the process of involving the Papuan regional government also faces challenges regarding the accommodation of regional interests. The public certainly hopes that the over-claim for the success of the divestment should not be merely a political trade, but must be followed by strategic and tactical steps in the control and control functions, settlement, and supervision of various obligations such as smelter construction, including transparency in the process, as emphasized by the Ministry of Finance. : “Don’t Be Piggybacking on the Divestment of Freeport!”.

2. Amendments / Transfers of Work Contract Permits and Termination / Offer of Oil and Gas Work Areas

After going through a long process, the process of renegotiating the Contract of Work (KK) and Coal Mining Concession Work Agreement (PKP2B) is almost complete this year. From a total of 101 companies with 33 KK and 68 PKP2B details, only one company has not amended the contract, namely the mineral company, PT Kumamba Mining. However, this should have been done by the government since eight years ago, considering Article 169 of Law (UU) Number 4 of 2009 concerning Mineral and Coal Mining (Minerba) mandates an adjustment to the provisions of mining contracts, except for the aspect of state revenue, no later than one the previous year, the regulation took effect, namely January 12, 2010. An important note from the KK and PKP2B renegotiation process is the absence of transparency. Transparency is crucial so that the public and all parties get correct and balanced information about the actual situation of the ongoing process so that there is no asymmetrical information, which can lead to confusion – even unhealthy public polemic – due to ignorance and lack of information. The standard of transparency and public information disclosure according to the law also requires the government to provide policy reasons and arguments that are as clear as possible to the public on the basis for consideration of public decision making.

Meanwhile, in the oil and gas sector, the challenges of implementing the gross split scheme characterize the termination and bid process (extension and new) for oil and gas working areas blocks throughout Indonesia. The need to increase oil and gas reserves from exploration activities demands an increasingly competitive gross split scheme. Likewise, the demand to maintain and even improve the production performance of termination blocks that have shifted to Pertamina, such as the Mahakam Block, the Rokan Block, and so on, is a challenge in this sector. Likewise with the question regarding the status upgrade of the Masela Block which is quite awaited this year. The replacement of the Head of SKK Migas this year noted that homework was not easy, in addition to improving lifting performance – oil and gas reserves – as well as cost recovery efficiency and improving PSC control were public demands in the upstream oil and gas sector. Meanwhile, in Riau, public access to Oil and Gas Contracts still faces obstacles amidst the spirit of implementing transparency and demands for good governance in the government sector and public policies.

3. Evaluation of the KPK’s GNPSDA: Achievements and Challenges of Reform in the Minerba, Oil and Gas and Energy Sector

In 2018, the KPK together with related Ministries / Institutions and the Regional Government conducted an evaluation of the implementation of GNPSDA, including in the mineral and coal mining sector, as well as the oil and gas and energy sectors. GNPSDA, which is the coordination and supervision activity of the KPK, has more or less shown progress in the form of reduced non-clean and clear IUPs, increased state revenue and reduced Minerba PNBP receivables, revocation of permits that do not meet the reclamation and post-mining provisions, as well as supervision of other aspects such as the system. supervision of production and sales, as well as the fulfillment of downstream and value, added (PNT) obligations. This year’s GNPSDA evaluation generally recommends more internal coordination across ministries and institutions, especially in resolving issues of overlapping authority and territory, strengthening institutions and budgets for the supervision of the mining and oil and gas sectors, developing an integrated monitoring system between the licensing process – state revenue – and social and environmental aspects. One of the recommendations for the improvement and integration of the system is the issuance of the online MOMS (Minerba Online Monitoring System) and One Map Geoportal systems, PWYP appreciates these efforts with the note that the integration is expected to run effectively both in terms of state licensing-revenue and aspects of social and environmental compliance. and ensuring transparency and that channels for public complaints are well provided.

4. Opening of ‘beneficial ownership’: System Preparation and Effectiveness of Corruption Prevention and Illegal Fund Flow. Strengthening Commitment in OGP Action and the National Strategy for Prevention of Corruption.

The issuance of Presidential Regulation No.13 of 2018 concerning the principle of recognizing beneficial ownership of companies is appreciated by the public, which marks the Government’s commitment to implementing corruption prevention through money laundering and the flow of illegal funds. This commitment was also noted as the implementation of the EITI Indonesia roadmap in the opening of the BO, and also a commitment to the open government action plan (Open Government Partnership, OGP) and the 2018-2019 Corruption Prevention National Strategy. The opening of this BO is also framed in optimizing and increasing state revenue, which is part of strengthening data on Indonesia’s participation in the commitment to exchange information for tax purposes (Automatic Exchange of Information, AEOI) which began in September 2018. As a note and recommendation, the process of collecting BO data and system integration needs to be well prepared, including public access, which is important to increase supervision and prevent the impact of corruption and the flow of illegal funds to the public. The policy for opening this BO also needs to be followed by other policies such as the prevention of conflicts of interest in public and business policies, as well as integration policies and the declaration of assets and assets of officials, to ensure that the public sector is not used for the benefit of enriching a handful of people and groups given the many suspected businesses. have relationships and are influenced by political persons (politically exposed persons – PEPs).

5. Revision of the Oil and Gas and Mining Law: Road in Place (DPR)! or choked up?

The revision of the Oil and Gas and Mineral and Coal Law as a prolegnas for the DPR RI for the umpteenth time this year, again there has been no significant progress or no way. Except for progress on the status of the Revision of the Oil and Gas Law which is set to be the initiative of the Indonesian Parliament, even after more than 5 years, it has become a prolegnas. The effectiveness of the DPR’s role in this legislative function is indeed a priority demand in reforming the energy and mineral resources sector. Including the effectiveness of the role of the DPR in overseeing various policies and implementation by the Executive, for example, the Freeport divestment issue, Mineral Downstreaming, licensing policies, IUP control, and many other problems, the DPR looks calm and calm – even towards child victims in holes. mining and landslides that swallowed people’s homes. Meanwhile, the efforts to deregulate regulations by the Ministry of Energy and Mineral Resources, which are increasingly changing, have caused confusion here and there, including demanding adjustments in other Ministries / Agencies such as the Ministry of Trade in licensing and export control, fluctuation of Coal DMO policies, to various forms of regulatory changes. The Minister of Energy and Mineral Resources who has not yet been implemented and evaluated has again been replaced. The low level of public assessment and consultation in the drafting of this regulation has become a separate highlight, both from business actors and from the wider community.

6. Policy for expanding the use of B20: Effectiveness Between Downstream Mining, Renewable Energy and Deforestation Control

As of September 1, 2018, the government established a policy of mandatory expansion of the use of B20 to other non-PSO sectors, such as mining, electricity, railways, manufacturing and so on. This policy is expected to reduce pressure on the current account deficit (CAD) by reducing diesel imports. It can also be used as an instrument for controlling commodity prices, including agricultural commodities (Agustian et al. 2015). In addition, the expansion of the B-20 is expected to accelerate the energy transition process from fossil to renewable energy.

In its implementation, this policy has experienced various problems in the field. Starting from the policy reason for the short term goal of saving the rupiah; FAME supply stagnation and distribution constraints; as well as institutional problems and governance of oil palm commodity. It turns out that the mandatory expansion policy of the B-20 has not been able to solve the problem of oil palm expansion which is the main cause of deforestation. Moreover, the allocation of funds from the BPDPKS which should have been allocated for research activities, oil palm rejuvenation, procurement of infrastructure, human resource development, is mostly spent on biodiesel incentives. The uncertainty of the B-20 policy is increasingly evident with the Government’s policy to temporarily stop the export levy funds for palm oil and its derivatives managed by BPDPKS as of December 4 2018.

7. Oil and Gas Fiscal Deficit and Dependence on Fossil Energy: Energy Diversification That Cannot Be Negotiated!

Indonesia’s dependence on oil imports continues to haunt the current account deficit (CAD) due to imports of crude oil and fuel, which until November 2018 had reached Rp. 176 Trillion – the deepest deficit in history. Even though volumes are starting to decrease, the volatility of oil prices on the global market cannot release the vulnerability of this sector. Domestic consumption of fossil energy, and fuel subsidies which are difficult to reduce in a political year, is a trap of fossil dependence and economic development. This condition also exacerbated the depreciation of the rupiah exchange rate which was also affected by the US-China policy in the trade war. Despite efforts to control the expansion of the use of B20 for shifting from fossil fuels to biodiesel, a number of challenges and obstacles are still being faced. Including efforts to encourage the exchange of Export Proceeds Funds (DHE) for exporters – including exporters of mining raw materials, is also a challenge in itself that is not easy and requires policy stability and high market confidence. In this condition, it seems that a long-term strategy of energy diversification towards renewables – not only crude oil, is an urgent need that cannot be negotiated in the future – and becomes the demands of the future Presidential candidate’s policy, whoever it may be.

8. Production Quota and Coal DMO: Between Production Control Inconsistencies and Incentives for Entrepreneurs.

The 2015-2019 National Medium Term Development Plan (RPJMN) mandates control of coal production, which is a maximum of 406 million tonnes in 2018. In fact, the government in 2018 set a national coal production target of 485 million tonnes. Not only that, the government has actually issued an incentive policy for additional coal production through the Minister of Energy and Mineral Resources 1395 K / 30 / MEM / 2018 regarding the Selling Price of Coal for the Provision of Electricity for Public Interest which regulates incentives to increase production by 10% for companies that meet the 25% DMO requirements. with a selling price of USD 70 per ton. Although the implementation of incentives cannot be done automatically, this has reflected the government’s low commitment to consistently control coal production. In fact, the government has again increased the allocation of coal production this year by 100 million tons for export needs through the Minister of Energy and Mineral Resources Decree No. 1924 K / 30 / MEM / 2018 on the pretext of increasing the country’s foreign exchange considering that the price of coal in 2018 had touched the highest figure in the last five years. So that the production target reaches 585 million tons. The production target became uncontrollable and continued to pursue the demands of the export market. Meanwhile, the DMO obligation of 25% has not been fully fulfilled. Until July 2018, the fulfillment of the DMO was only 69 million tons, while the national DMO target was 131 million tons. This sector is faced with a complicated choice, between production control and incentives for entrepreneurs.

9. PLTU Corruption: A Perfect Portrait of Heartbreaking Political Corruption (Business-Policy-Political Relations)!

The corruption in the electricity sector was revealed in 2018, namely the corruption of the Riau-1 PLTU Project which involved political and business party elites, namely Eni Maulani Saragih as a member of the Golar Faction DPR who also serves as Deputy Chair of Commission VII DPR-RI, Johanes Budi Sutrisno Kotjo as owner Blackgold Natural Insurance Limited, and Idrus Marham, former Secretary General of the Golkar Party. Eni and Idrus are suspected of being involved in smoothing out the signing of the cooperation related to the construction of the Riau-1 PLTU. Eni allegedly received a bribe of Rp. 500 million from Johannes as part of the commitment fee (2.5%) for the PLTU-Riau-2 project which reached Rp. 4.8 billion. Meanwhile, Idrus was promised a commitment fee of IDR 1.5 billion. There are even indications of a flow of funds to political party entities. This case shows how the country’s strategic projects are still used as “cash cows” for certain interests. Not only that, this case has set a bad precedent in the development of the 35,000 MW project. There is a big chance that the same mode will also occur in other PLTU projects. Public demand for the application of the principle of corporate crime liabilities colors the judicial process of corruption cases as a perfect demonstration of the interdependence of business-politics and policy, a grievous view!

10. Mine Hole Victims and Reclamation / Post-Mining Effectiveness: Letting Go of Endless Responsibilities!

The former mining hole claimed another victim. This year, four people drowned in a coal mine pit in East Kalimantan which increased the number of victims to 32 people since 2011. This problem is inseparable from the company’s low compliance in placing reclamation and post-mining guarantees. 60% of IUPs (Domestic Investment) have not placed a reclamation guarantee (Ditjen Minerba, July 2018). Meanwhile, the supervisory function currently in the central government cannot run optimally. Indications of shifting responsibilities and the lack of number of mine inspectors further weaken supervision. As of October 2018, the total number of mine inspectors was only 260 personnel, even though the number of permits supervised was in the thousands. On the other hand, law enforcement regarding this matter is also very weak. So far, the government has only imposed administrative sanctions which companies have ignored. The government should use criminal instruments, both those stipulated in Law 4/2009 concerning Mineral and Coal Mining and Law 32/2009 concerning Protection and Management of the Environment (PPPLH), as well as against all companies proven to be non-compliant with reclamation & post-mining obligations that cause damage environment and lead to loss of life.

11. Ignorance of Community Rights and Criminalization / Violence of Communities around Extractive Industries

There are many cases of neglect of community rights in the implementation of mining activities in various areas, for example, karst mining around the Kendeng mountains, which until now is still waiting for thousands of Sedulur Kendeng farmers to implement KLHS in spatial planning and regional areas. Not to mention the criminalization cases experienced by residents around the Coal Steam Power Plant (PLTU) in various regions; as well as efforts to criminalize academics for their environmental economic calculations / valuations in order to strengthen prosecutors’ demands in the corruption case of the Governor of Southeast Sulawesi this year. Although ultimately PT. Jatim Jaya Perkasa (JJP) temporarily withdrew the lawsuit and the Cibinong District Court (PN) rejected Nur Alam’s lawsuit in the trial on December 12, 2018. Of course this is a bad precedent that it is feared will become a trend to press a number of parties who feel disadvantaged by expert testimony . In fact, the expert’s testimony in the trial should not be “criminalized”.

12. Declaration of the #CleanIndonesia Movement: advancing Indonesia with clean energy, free of corruption and pollution

Public resentment over corruption cases in the energy and mining sectors, as well as the pollution and social-environmental impacts of extractive industry and fossil energy activities, gave birth to the #B CleaningIndonesia movement declaration on September 19 this year. This movement, which consists of various non-governmental organizations and non-governmental organizations, invites the public and young/millennial voter groups to choose clean energy and clean politicians who are not corrupt and support renewable / non-fossil energy to clean Indonesia from pollution, corruption, and environmental destruction. . This movement carried out various sympathetic actions, and conducted studies in order to strengthen public scrutiny of energy policy and the extractive industry for fossil energy sources.