Financial Memorandum and the 2016 State Budget Plan (R-APBN) Draft submitted by the Government in the DPR Plenary session on August 14, 2015, seemed too optimistic. The Government in the 2016 Financial Note and RAPBN have stipulated; the target of lifting oil is 800 – 830 thousand barrels per day, lifting natural gas is 1,100 – 1,300 barrels per day equivalent to oil and ICP of USD. 60 – 70 per barrel. This target must be able to be achieved by the government even though the reality will be difficult if we see the realization of oil and gas lifting which continues to decline and has not reached the target in the last five years.

Reflecting on the achievements of the 2015 APBN-P only, until the first semester of 2015, the new economy grew 4.7% (from the target of 5.6% – 5.8%) and the realization of revenue only reached 41% of the target. The Government’s optimism in 2016 is legitimate, but it is feared that setting targets that are too high will actually be a ‘blunder’ for achieving development targets, because the macro indicators will automatically affect government calculations in the APBN, such as energy subsidies and other expenditures relating to the public interest.

It is undeniable that Indonesia is currently facing a difficult situation as a result of the weakening of the global economy. The plan to reduce interest rates from the Fed Fund Rate, reduce oil prices to their lowest points, and weaken the rupiah, making the Government’s fiscal burden even heavier. This situation is supported economically by the weakening investment performance in the oil and gas and mining sectors, as well as the performance of oil and gas production which is also quite heavy to be achieved by oil wells in the country at this time. “For that, the Government must be really attentive and calculating in determining oil and gas lifting (production) indicators and also setting crude oil price (ICP) estimates as a macroeconomic reference in preparing the 2016 State Budget this time,” said Wiko Saputra, Economic Researcher Publish What You Pay Indonesia. “The Indonesian economy currently needs conducive fiscal policies, which can contribute to economic growth, amidst a declining public purchasing power and a sluggish investment climate,” he added.

On the other hand, the dependence of economic growth based on Natural Resources (SDA), especially mining commodities, really exacerbates the challenges of global economic turmoil. This is very evident in the current situation, where when the Rupiah depreciates, exports should be boosted so that the country’s income and economic balance are stable. However, what can I say, because our exports are still dependent on natural resource commodities such as mining, which incidentally also dropped in price, then we cannot take advantage of this opportunity. The dependency causes export performance also cannot be boosted in the aggregate.

If you look back at our current fiscal situation, the dependence of state revenues on the oil and gas and mining sectors is also still high. Around 59.78% of PNBP (Non-Tax State Revenue) still relies on oil and gas and mining (APBN-P, 2014). While tax revenue, oil and gas PPh contribution reached 7.82% and mining sector PPh contribution reached 10.57% (APBN-P, 2014).

Thus, the less conducive performance and global economic situation of these two sectors will affect the realization of state revenue. The situation was already felt in 2015. The realization of income from oil and gas PPh in the first semester of 2015 was only Rp. 31.3 trillion, down by 39.5% compared to the same semester in 2014. The government also lowered the 2015 PNBP target for oil and gas and general mining from Rp. 238.25 trillion to Rp. 113.03 trillion. This situation certainly has an impact on our fiscal security, which is indicated by the increasingly narrow fiscal space of the Government.

When viewed in the 2016 Draft State Budget, the government set a target of PPh oil and gas at Rp.48.46 trillion and PNBP oil and gas, coal and mineral at Rp. 125.63 trillion. The government must be able to ensure that this revenue target can be achieved in 2016. Meanwhile, on the other hand, the governance of the oil and gas and mineral and coal sectors is still not well affecting the development performance and state revenue. There are still around 6 million hectares of mining land in conservation and protected forest areas – which incidentally will disrupt environmental stability. And about 4,276 non-CnC IUPs both in terms of administration, land use (which causes overlapping), royalty payments and fixed fees. From the KPK Coordination and Supervision data with the Ministry of Energy and Mineral Resources and related agencies, of the 7,834 companies that were recorded by the DGT, 24% did not have a NPWP, and there were around 35% who did not report the SPT.

The data above shows that there are still problems in spatial planning and land/forest destruction in the mining permit system, and there are still problems with company non-compliance in paying state revenues/taxes. From the expenditure side, it appears that the focus of the government at this time is to increase infrastructure spending with a total expenditure of Rp. 313 trillion. If we look at the situation of our current domestic energy needs (table in presentation material), the Government must also prioritize the development of energy infrastructure, especially to achieve the target of building a 35,000-megawatt capacity power plant and an energy mix to build renewable energy that is environmentally friendly, this is important to create national energy security and reduce domestic energy dependence on fossil fuels.

PWYP provides a number of notes so that the oil and gas and mineral and gas sector development achievements can be achieved to realize national fiscal and energy security. The main things that need to be done include: (1) Taking strategic steps to mitigate the impact of falling international oil prices and the depreciation of the Rupiah against the US Dollar on the development of the Oil and Gas and Mineral and Coal sectors; This is important to map the issues so that the target to be achieved by the government can be realized and fiscal stability can be maintained (2) Development of an economic diversification strategy that does not depend on natural resource sector commodities; the rotation program in both the mining and oil and gas sectors must be carried out consistently, strictly and integrated by providing supporting factors such as electricity and other needs; (3) Strengthening transparency and accountability in governance in the oil and gas and mining sectors, including to encourage company compliance in paying state revenues and taxes to avoid leakage, and avoid information asymmetry with the public while taking into account environmental protection, so as not to cause social conflicts in environmental disasters; relies mainly on investment, production and downstream programs; (4) Immediately make institutional arrangements and regulations that provide legal certainty, not only for industry players but also the law protecting the rights of the community.

Maryati Abdullah, PWYP Indonesia Coordinator added “economic dependence on the natural resource sector is like a resource curse because natural resource commodities are affected by fluctuating global markets, at certain times, if dependency levels cannot be maintained, then the Dutch Disease phenomenon should be aware. Therefore, the government can also think of an adequate method of economic stabilization, I think the natural resource fund (NRFs) model of discourse can be considered by the Government to dispel economic fluctuations due to dependence on the natural resources. Only, in Indonesia, it needs to be examined, whether the level will be carried out at the central level or at the sub-national (regional) level which really has a high level of dependence on natural resources “.

Contact: Wiko Saputra (Head of Economic Policy Research, PWYP)
Hp 082124666788
Email: wiko @ pwyp-indonesia,

Fabby Tumiwa (Executive Director, IESR)
Hp 0811949759