Row over oil revenues

We cringe on learning of the threat by 48 regents to block and halt oil and natural gas production throughout the country unless the finance minister revokes his recent decision on the oil- revenue split between the central government and local administrations. This decision regents claim gives them a much smaller revenue than what is mandated by law.

The outburst points to an increasing tendency among local administrations to resort to intimidation and even destructive actions to get their opinions accepted or their aspirations fulfilled before more sensible, constructive alternatives of consultations have been exhausted. The intimidation by the Association of 48 Oil and Natural Gas Producing Regencies very much reflects the behavior of a radical trade union.

However, the central government is not entirely blameless for the unnecessarily radical attitude on the part of local administrations. It seems insensitive to, and sometimes even ignorant, of such an important element of regional autonomy as revenue sharing.

But as both parties to the dispute -- the energy and mining and the finance ministers representing the central government on one side and the association on the other elaborated on their respective arguments and positions, one cannot help but conclude that frank and open discussions could have prevented the row.

Intensive consultations become even more imperative because right from the launch of regional autonomy early last year, local administrations have suspected, with legitimate reasons, that the central government has been halfhearted in devolving power and resources to local administrations. Suspicion certainly breeds prejudice.

True, the formula for oil and gas revenue split between the central government and local administrations has been clearly stipulated in the 1999 law on intergovernmental fiscal relations and its implementation regulations: Local administrations get 15 percent of the central government's take of oil production and 30 percent of natural gas output.

However, the formula is not as simple as it appears when translated into revenue calculation. The association's claim that the revenues allocated for the 48 producing regencies represent only between one to two percent of the government take seems to be based on a misunderstanding or lack of comprehension of the technical details of the formula.

The 48 regency administrations seem not fully informed as to how oil and gas production in the numerous fields in each of the 48 producing regions is estimated. They also appear uninformed as to how such variables as production costs in each field, the price of particular crude streams and the rupiah exchange rate would influence the net government take from each production sharing area.

The regency administrations also seemed unaware that the revenue-split formula is based on net government take, meaning that the tax should first be deducted from the government's share from each concession area. Then, the total sum resulting from this multi-step calculation is not allocated only to the producing regions but also to the province and other non-oil- producing regions in the same province.

So complex and technical are the calculations involved in deciding on the revenue split that representatives of the producing regions should have been involved in the whole process, right from the discussions between energy and mining officials and Pertamina and contractor executives to estimate the average lifting from each area up to the process of calculating government take from each concession area.

Such direct participation by regency representatives would make the process totally transparent, thereby preventing suspicion. That could also serve as a learning process because local administrations previously did not know how the central government estimated its revenue from the hydrocarbon sector. In this context, the association would be the right partner for the government in the annual process of calculating the revenue split.

However, what the regencies seemed to have received was only absolute figures in rupiah, resulting from the calculations made by the finance minister on the basis of production levels and other variables such as production costs and the price of each particular crude stream submitted by the energy and mining ministry.

Hopefully, common sense will prevail among both the central government and the regencies in resolving the row and both parties will draw a valuable lesson from the misunderstanding.

Most important, though, is that local administrations should refrain from emotional outbursts, let alone intimidation, in striving for their interests, because such a rebellious stance could easily be emulated by the common people in their day-to-day dealing with the authorities, including with the regents themselves.

The regents grouped in the association would also be wise to realize that resorting to intimidation would not serve the interests of the people in their regencies, but on the contrary be detrimental to their interests. Such arrogance would only damage their credibility, especially since they were not elected directly by the people.

Even more damaging is that such radical behavior would scare away investors from their areas, depriving them of the ability to create jobs for locals and to create assets for generating revenue.