Row over oil revenues<\/p>\n
We cringe on learning of the threat by 48 regents to block and
\nhalt oil and natural gas production throughout the country unless
\nthe finance minister revokes his recent decision on the oil-
\nrevenue split between the central government and local
\nadministrations. This decision regents claim gives them a much
\nsmaller revenue than what is mandated by law.<\/p>\n
The outburst points to an increasing tendency among local
\nadministrations to resort to intimidation and even destructive
\nactions to get their opinions accepted or their aspirations
\nfulfilled before more sensible, constructive alternatives of
\nconsultations have been exhausted. The intimidation by the
\nAssociation of 48 Oil and Natural Gas Producing Regencies very
\nmuch reflects the behavior of a radical trade union.<\/p>\n
However, the central government is not entirely blameless for
\nthe unnecessarily radical attitude on the part of local
\nadministrations. It seems insensitive to, and sometimes even
\nignorant, of such an important element of regional autonomy as
\nrevenue sharing.<\/p>\n
But as both parties to the dispute -- the energy and mining
\nand the finance ministers representing the central government on
\none side and the association on the other elaborated on their
\nrespective arguments and positions, one cannot help but conclude
\nthat frank and open discussions could have prevented the row.<\/p>\n
Intensive consultations become even more imperative because
\nright from the launch of regional autonomy early last year, local
\nadministrations have suspected, with legitimate reasons, that the
\ncentral government has been halfhearted in devolving power and
\nresources to local administrations. Suspicion certainly breeds
\nprejudice.<\/p>\n
True, the formula for oil and gas revenue split between the
\ncentral government and local administrations has been clearly
\nstipulated in the 1999 law on intergovernmental fiscal relations
\nand its implementation regulations: Local administrations get 15
\npercent of the central government's take of oil production and 30
\npercent of natural gas output.<\/p>\n
However, the formula is not as simple as it appears when
\ntranslated into revenue calculation. The association's claim that
\nthe revenues allocated for the 48 producing regencies represent
\nonly between one to two percent of the government take seems to
\nbe based on a misunderstanding or lack of comprehension of the
\ntechnical details of the formula.<\/p>\n
The 48 regency administrations seem not fully informed as to
\nhow oil and gas production in the numerous fields in each of the
\n48 producing regions is estimated. They also appear uninformed as
\nto how such variables as production costs in each field, the
\nprice of particular crude streams and the rupiah exchange rate
\nwould influence the net government take from each production
\nsharing area.<\/p>\n
The regency administrations also seemed unaware that the
\nrevenue-split formula is based on net government take, meaning
\nthat the tax should first be deducted from the government's share
\nfrom each concession area. Then, the total sum resulting from
\nthis multi-step calculation is not allocated only to the
\nproducing regions but also to the province and other non-oil-
\nproducing regions in the same province.<\/p>\n
So complex and technical are the calculations involved in
\ndeciding on the revenue split that representatives of the
\nproducing regions should have been involved in the whole process,
\nright from the discussions between energy and mining officials
\nand Pertamina and contractor executives to estimate the average
\nlifting from each area up to the process of calculating
\ngovernment take from each concession area.<\/p>\n
Such direct participation by regency representatives would
\nmake the process totally transparent, thereby preventing
\nsuspicion. That could also serve as a learning process because
\nlocal administrations previously did not know how the central
\ngovernment estimated its revenue from the hydrocarbon sector. In
\nthis context, the association would be the right partner for the
\ngovernment in the annual process of calculating the revenue
\nsplit.<\/p>\n
However, what the regencies seemed to have received was only
\nabsolute figures in rupiah, resulting from the calculations made
\nby the finance minister on the basis of production levels and
\nother variables such as production costs and the price of each
\nparticular crude stream submitted by the energy and mining
\nministry.<\/p>\n
Hopefully, common sense will prevail among both the central
\ngovernment and the regencies in resolving the row and both
\nparties will draw a valuable lesson from the misunderstanding.<\/p>\n
Most important, though, is that local administrations should
\nrefrain from emotional outbursts, let alone intimidation, in
\nstriving for their interests, because such a rebellious stance
\ncould easily be emulated by the common people in their day-to-day
\ndealing with the authorities, including with the regents
\nthemselves.<\/p>\n
The regents grouped in the association would also be wise to
\nrealize that resorting to intimidation would not serve the
\ninterests of the people in their regencies, but on the contrary
\nbe detrimental to their interests. Such arrogance would only
\ndamage their credibility, especially since they were not elected
\ndirectly by the people.<\/p>\n
Even more damaging is that such radical behavior would scare
\naway investors from their areas, depriving them of the ability to
\ncreate jobs for locals and to create assets for generating
\nrevenue.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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