Overview of Extractive Industries in Asia Pacific, Maryati Abdullah, PWYP Indonesia

Overview of Extractive Industries in Asia Pacific

Maryati Abdullah National Coordinator, Publish What You Pay Indonesia Steering Committee Member of Open Government Partnership (OGP) Presented at the Workshop on ‘Reversing the Resources Curse’, held by Ford Foundation. Ghana, Accra August 25th – 30th, 2013

Photo by maryati at Newmont Nusa Tenggara, West Sumbawa, Indonesia

Primary Energy World Consumption in1992, 2002 and 2012 Percentage

Source : Statistical Review of World Energy, BP 2013

Distribution of Proved Oil Reserves in1992, 2002 and 2012 Percentage


Oil Production/Consumption by region Million barrels daily

Production by region Consumption by region


Total Oil Supply in Asia & Oceania 2008 – 2012 thousand Barrels per Day

AustraliaBangladesh

BruneiBurma (Myanmar)

ChinaIndia

IndonesiaJapan

Korea, NorthKorea, South

MalaysiaMongolia

New ZealandPakistan

Papua New GuineaPhilippinesSingaporeSri Lanka

TaiwanThailand

Timor-Leste (East Timor)Vietnam

-7500 0 7500 15000 22500 30000

Source : Processed from US Energy Information & Administration, www.eia.go , accessed in August 23th, 2013

Major Oil Trade Movement 2012 Trade flows worldwide (million tones)


Crude Oil Price 1861 – 2012 US Dollars per barrel, world events


Distribution of Proved Gas Reserves in1992, 2002 and 2012 Percentage

Sources : Statistical Review of World Energy, BP 2013

Gas Production/Consumption by region Billion cubic metre



Production of Marketed Natural Gas in Asia & Oceania, 2008 - 2011 Billion Cubic Feet

0

1000

2000

3000

4000

Afghanistan

Australia

Bangladesh

Brunei

Burm

a6(M

yanmar)

China

India

Indonesia

Japan

Korea,6South

Malaysia

New

6Zealand

Pakistan

Papua6New

6Guinea

Philippines

Taiwan

Thailand

Vietnam

Sources : Processed from US Energy Information & Administration, www.eia.gov , accessed in August 25th, 2013

Major Gas Trade Movement 2012 Trade flows worldwide (million tonnes)


Oil&Gas Comsumption per capita 2012

Gas in Tonnes oil equivalent Oil in Tonnes


Distribution of Proved Coal Reserves in1992, 2002 and 2012 Percentage


Coal Production/Comsumption by Region Million tones oil equivalent



Asia Leads Growth in Global Coal Production Since 1980

¡  Link for ½ minutes video http://www.eia.gov/todayinenergy/detail.cfm?id=4210

Source : Processed from US Energy Information & Administration, www.eia.gov , accessed in August 25th, 2013

Total Primary Coal Production in Asia & Oceania 2008 – 2012 thousand short tons

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

2008

2009

2010

2011

Source : Processed from US Energy Information & Administration, www.eia.gov , accessed in August 25th, 2013

Timber Trade Flow Tropical Timber Top Production and Export

Sources : http://www.idhsustainabletrade.com/hout-tropical-timber-trade-flow, accessed in August 25th, 2013

Major Trade Flow of Palm Oil

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economic impacts of Palm oil

)LJXUH��GHPRQVWUDWHV�WKH�WUDGH�ÀRZV�RI�SDOP�RLO�EHWZHHQ�WKH�SULPDU\�production regions for palm oil (Malaysia and Indonesia), and their UHVSHFWLYH�ÀRZV�LQWR�WKH�ZRUOG¶V�SULPDU\�SDOP�RLO�FRQVXPHU�PDUNHWV��,QGLD��Indonesia, China, EU, and the U.S.). Palm oil production is economically vital for Malaysia and Indonesia and their rural communities. Oil palm UHSUHVHQWV��RI�WKH�0DOD\VLDQ�*'3�DQG��WR��RI�WKH�,QGRQHVLDQ�GDP (RSPO, 2011a). The industry is inherently labor-intensive, requiring a JOREDO�DYHUDJH�RI�¿YH�ZRUNHUV�SHU�KHFWDUH��&RPSHWLQJ�RLO�FURSV�RIWHQ�UHTXLUH�approximately one worker for every 200 hectares. In Malaysia, the palm oil sector employs 590,000 direct workers (including many laborers imported from Indonesia), and 35% of production derives from smallholders (NEAC, 2009). In Indonesia, 3.7 million people are engaged in the palm oil industry and downstream industries, with 45% of production from smallholders (RSPO, 2011a). Booming commodity prices in recent years have trickled up through this labor-intensive system, helping to lift millions out of poverty in Indonesia and Malaysia and contributing to a more than doubling of the Indonesian middle class in the decade leading up to 2009 (Bellman, 2011).

)LJXUH��0DMRU�7UDGH�)ORZV�RI�3DOP�2LO

6 mt

�� of global palm oil

consumption

1 mt


consumption

5.4 mt


consumption

7 mt


consumption

u.s.

e.u.

inDiA

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produce �� of global palm oil

consume �� of global palm oil

inDonesiAand mAlAysiA

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mt = million tonnes

Source: WWF, 2011

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Source : WWF Report 2012, Accessed from www.rspo.org, August 25th, 2013

Key Issues & Good Governance in

Extractive Industries

¡  Social & Human Right Issues ¡  Indigenous people right (and FPIC requirement)

¡  Militarization on EI operation security

¡  Land grabbing & right to livelihood of community

¡  Violation & social conflict

¡  Gender & Child right

¡  Environment, Land & Spatial Issues ¡  Trans-boundary haze, Over-lapping Concession & spatial transparency

¡  Deforestation & Biodiversity loss (such us sumatra tiger habitat, elephant, etc)

¡  palm oil in the peat land (making Indonesia among the top emitter of Green Gas Houses)

¡  Pollution, and emergency contingency plan implementation in EI areas

¡  Corporate Accountability on EI Operations

¡  Economic & Good Governance Issues ¡  Potential loss of revenue, tax illicit, EITI and contract transparency

¡  Revenue sharing, peak production & revenue windfall management

¡  Development plan, poverty alleviation and sustainable spending

¡  Economic sustainability, social corporate responsibility and local content issue

¡  Natural resources/ Sovereight wealth funds

¡  Bribery & money laundering issues on anticorruption

¡  Regulatory framework, and institutionalization of EI governance

¡  Down-streaming the economic scale of mining & natural resources

Key Issues on Extractive Industries

Decision to extract/not to extract

Awarding of contracts/ licenses

Fiscal Terms

Extrac8on prosess

Trading of commodi8es

Tax and revenue collec8on

Development project/policies

Revenue Mngt and alloca8on

I 87%

II 43%

III 18%

IV 56%

V 12%

VI 56%

VII 56%

VIII 56%

Source : Revenue Watch Institute, 2009

Concentration of NGO Work Along the EI Value Chain in 10 Asia Pacific Countries

OECD

Index

scores

(grou

p aver

age)

Latin America & Caribbean

Eurasia & South

Asia

East Asia& Pacific

Sub-Saharan

Africa

Middle East

& North Africa

Composite ScoreInstitutional & Legal SettingReporting Practices

Safeguards & Quality ControlsEnabling Environment

The Revenue Watch Institute promotes the effective, transparent and accountable management of oil, gas and mineral resources for the public good. Through capacity building, technical assistance, research, funding and advocacy, we help countries to realize the development benefits of their natural resource wealth.

1700 Broadway, 17th FloorNew York, NY 10019+1 646 929 [email protected]

Performance on Safeguards and Quality Controls ranges widely, from Indonesia’s satisfactory 75 to Myanmar’s failingscore of 2. China, Indonesia, Malaysia, Myanmar and Vietnam do not require government officials to disclose their financial interests in extractive projects. Only Indonesia requires over-sight of its licensing process; the other countries lack effec-tive monitoring or do not allow appeals of licensing decisions.

Malaysia’s Enabling Environment score of 60 was the region’s highest, reflecting strong government effectiveness but weak democratic accountability. Myanmar scores close to 0 on all measurements of governance. Timor-Leste received its lowest score on this component, the result of poor govern-ment effectiveness, control of corruption and the rule of law.

REGIONAL COMPARISON

The East Asia and Pacific region as a whole performs poorly on the Index. The region’s average score of 44 out of 100 places it below the Index’s global average of 51 and at the same level as sub-Saharan Africa (see Figure 2). However, regional averages mask great variation between countries.

RECOMMENDATIONS

1. Adopt laws requiring disclosure of oil, gas and mining information. Only Indonesia and Mongolia have report-ing requirements that do not exclude major extractive companies or public agencies. The Index findings suggest that such requirements are common features of effective systems of resource governance.

2. Disclose contracts. Timor-Leste’s publication of some oil contracts illustrates how commercially and politically feasible this practice is. Disclosure allows citizens to evaluate the benefits their country receives for natural resources and ensure government and companies live up to their obligations.

3. Instill timely reporting through the Extractive Industries Transparency Initiative. EITI can help establish transpar-ent practices in the oil, gas and mining sector, as seen in Mongolia and Timor-Leste, the region’s only compliant countries. The Philippines and Myanmar should follow through on their promises to implement EITI, and Indonesia should remove the obstacles which delayed its first EITI report. Cambodia, China, Malaysia, Papua New Guinea and Vietnam should join the initiative.

4. Require resource ministries and regulatory agencies to close information gaps. The extractive industries play a major role in the budgets of China, Cambodia, Myanmar, Papua New Guinea and Vietnam, but their governments publish minimal information on revenues. Agencies governing the sector should be responsible for comprehensive reporting on each project.

5. Publish social and environmental impact assessments. Community-level conflicts over resources are common in the region. Government agencies should require social and environmental impact assessments, publish the re-sults, and see that a full consultation process takes place before mineral rights are awarded.

6. Manage governance and transparency deficits in state-owned companies (SOCs). SOCs in China, Malaysia and Papua New Guinea publish reports on production and revenues, but employees are not required to disclose their financial interests in extractive activities. Mongolia’s Erdenes received one of the Index’s lowest scores on SOC governance. SOCs in Mongolia, Vietnam and the Philippines play a central role and should adopt more assertive reporting requirements and anti-corruption policies.

7. Address the broader governance environment by con-trolling corruption and strengthening the rule of law. Nine of the 10 countries received less than satisfactory scores in these areas. A general lack of government and private sector accountability undermines transparency and efficiency in the resource sector.

The complete Index, along with the full methodology and 58 country profiles, can be found at www.revenuewatch.org/rgi.

Note: The OECD region includes five countries; the Latin America & Caribbean nine countries; Eurasia & South Asia six countries; East Asia & Pacific 10 countries; Sub-Saharan Africa 17 countries; and the Middle East and North Africa 11 countries.

Figure 2: Average country score by region and component

100

80

60

40

20

0

Resources Governance Index Average Country Scored by Region and Average

Resource : Resources Governance Index, RWI 2013

continue on back

1. The RGI assessed the oil and gas sector in Cambodia, China, Indonesia, Malaysia and Timor-Leste and the mining sector in Mongolia, Myanmar, Papua New Guinea, the Philippines and Vietnam.

Note: Ranks are out of 58 countries and appear in front of country names; composite scores appear below each column.

Figure 1: East Asia and Pacific Index scores and ranking

0

20

40

60

80

100

13. Timor-Leste

14

. Indonesia

23. Philippines

26. Mongolia

34. Malaysia

36. China

39. Papua New Guinea

4

3. Vietnam

5

2. Cambodia

58. Myanmar

100

80

60

40

20

068 66 54 51 46 43 43 41 29 4SCORE

Satisfactory Partial Weak Failing

East Asia and the Pacific

The Resource Governance Index measures the quality of governance in the oil, gas and mining industries in 58 countries worldwide. These industries are central to many East Asian and Pacific economies.

For the 10 Asia-Pacific nations in the Index (see Figure 1), oil, gas and minerals accounted for an average of 25 percent of total exports and 34 percent of government income in 2006-2011.1 Good governance helps that citizens fully benefit from their natural resources.

To determine how each country performs, the Index looks at four key areas of transparency and accountability:

1. Institutional and Legal Setting: the degree to which laws, regulations and institutional arrangements facilitate transparency, accountability and open, fair competition.

2. Reporting Practices: government disclosure of information.

3. Safeguards and Quality Controls: the presence and quality of checks and oversight mechanisms that encour-age integrity and guard against conflicts of interest.

4. Enabling Environment: the broader governance environment, based on more than 30 external measures of accountability, government effectiveness, rule of law, corruption and democracy.

MAIN FINDINGS

Diversity within the region is striking. While none of the Asia-Pacific countries earned a satisfactory score, Indonesia and Timor-Leste received above average grades, suggesting significant progress toward a well-governed and accountable resource sector. In contrast, Cambodia and Myanmar received failing scores, with Myanmar ranking last out of all 58 nations.

Mongolia, Timor-Leste and Indonesia earned satisfactory scores of 80, 77 and 76 on Institutional and Legal Setting. These countries have comprehensive oil, gas and mining legislation, including an independent licensing process and

clear frameworks for resource revenue collection. China, Malaysia and Myanmar lack laws and institutions that encour-age integrity and openness, leading to poor performance.

Timor-Leste received a strong score of 82 on Reporting Practices, reflecting the government’s commitment to transparency in the oil sector. It is the only country in the region to publish contracts with companies, though these disclosures are not routine. With the exception of Malaysia, regulating authorities do not publish environmental impact assessments or consult with communities prior to awarding extractive rights. While information on exploration and production is generally available, China, Cambodia, Myanmar, Papua New Guinea and Vietnam publish very little information on resource revenues.

The 2013 Resource Governance Index

Resources Governance Index East Asia and Pacific Index Score and Ranking

Resource : Resources Governance Index, RWI 2013

Maryati Abdullah can be reached out at : [email protected]; [email protected]

Publish What You Pay Indonesia, Civil Society Coalition on Transparency and Accountability of Extractive Industries and Natural Resources.� Jl. Intan No.81, Cilandak Barat, South of Jakarta, Indonesia T/F : +62-21 – 7512503, E-mail : [email protected] Web : www.pwyp-indonesia.org

Economy & Finance

Overview of Extractive Industries in Asia Pacific, Maryati Abdullah, PWYP Indonesia