Chaos in resource management?

By Ryad Areshman Chairil

MELBOURNE (JP): In his book Environmental and Natural Resources Economics, Tom Tietenberg explained that a tragedy (read: chaos) may happen to a country which in managing its natural resources creates an "open access".

In such a situation, everybody feels he has the most rights over natural resources. In the absence of a clear mechanism, an economist has said this may result in economic instability and state deficit.

The central government's policy to hand over mine, oil and natural gas management to provincial governments next year has posed a similar question of whether such results could occur.

Decentralization is certainly required to support the development of the provincial administrations. However, it will only haunt the economy if not passed in systematic stages. Problems will arise in the transfer of administration to rural areas from the central government and in resources management.

A number of potential chaotic situations in this area are already apparent. One is the possible failure to meet public demands for fair profit sharing from resources development.

Law No. 25/1999 on fiscal balance has clearly formulated the scheme for income distribution amongst the central and provincial governments, which is believed to be more fair than previous regulations.

If demands for fair distribution, expressed by many local societies, can be met fairly and transparently, the government will not only overcome the threat of disintegration, but will also help increase local economic growth within a relatively short time.

Hence, the government should ask resource developers to directly transfer their financial obligations to operators, instead of letting the central government do the distribution.

This would be more transparent and fair.

A second potential source of difficulty is the bias in resources ownership. A sound concept on resource ownership is the foundation to create good natural resource development. Article 33 of the 1945 Constitution provides that natural resources are controlled by the state.

Yet being "controlled" may also be understood as "placing into (the state's) possession," and even further, that the state is the sole proprietor of natural resources.

However, "to control" may have a non-possessive meaning in resource industries. Hence locals may consider that based on their customary rights, the resources belongs to them. They believe that the government only has authority to manage their resources. Therefore, when company managements are considered to have failed, locals demand revocation of this authority to be able to manage "their" resources themselves.

This is the basic tenet behind the numerous disputes in the mining sector, including locals' occupations of mining sites and continued illegal mining.

Meanwhile laws in developed countries clearly state that the state owns the natural resources. The state may delegate, authorize, and even mortgage the management of natural resources to other parties. This authorization could be revoked in the case of mismanagement. So despite decentralization the state would have the power to control natural resources development.

A third potential source of trouble is the provincial regulations regarding mines, oil and natural gas resources in several provinces. The legislature has been slow to discuss the drafts of the government regulations based on the laws on autonomy.

What is worrisome here is the possible contradiction between final products of government regulations versus provincial regulations. This is not without reason. The fact is that not all provisions of universal resources law are in line with local needs.

If this conflict occurs in the future, which party should retreat? In the dispute between the Minahasa provincial administration versus private mining firm PT Newmont Minahasa Raya, the provincial government required "overburden" -- debris such as stones and soil -- to be taxed because they did not want to lose significant income. But in the mining sector, such overburden is just an uneconomic land surface that should be opened to mining of the mineral deposits underneath. It has never been taxed anywhere.

Meanwhile fully accommodating all local needs does not always attract the interests of natural resources developers.

In Papua New Guinea (PNG) the mining sector contributes heavily to national income. But problems posed by rebels and alleged exploitation of locals and the environment has led to perceived failure of the government's ability to guarantee security to investors.

In 1989 rebels declaring the independence of the Bougainville island forced Bougainville Copper Ltd. to close down. The government's army failed to crush the rebellion, and conflicts continued several years later.

In the Philippines, the introduction of the Indigenous People Act aiming to fully recognize, protect and promote the rights of local people, has moved investments away from the country.

A fourth problematic issue is that the above law states that existing agreements between the government and third parties will prevail until the expiry date.

However, the mechanism in the transitional period regarding management in the mining, oil and natural gas sector is not mentioned.

Will natural resources developers, which were administratively in liaison with the central government under previous agreements, be directly administered by the provincial government under the new law? Or will they remain under the central government until the expiry date?

A problem of dualism is raised here, with contracts under local administrations and those administered by the central government. In the case of a dispute, what would the resolution mechanism look like? Would the provinces appreciate a resolution based on international standards?. These questions are practical matters with the potential to create chaos in management administration if not immediately anticipated.

Basically, Indonesia's decentralization problems are similar to Canada decades ago. However, what the Canadian government did at that time was the initiation of local potentialities or resources identifications. Programs were made in line with local needs based on their community, not sector-based, interests, and provinces practiced self-governance. Necessary authorities were then delegated to provinces in view of their capability.

Though this model is rather conservative it represents a good reference for Indonesia, which could lead to more optimism regarding the hand-over of matters under the authority of central to provincial governments.

Learning from such cases might help us avoid some potential problems of decentralization.

The writer is a PhD candidate at The Center for Energy and Resources Law, University of Melbourne, Australia.