US Reforms Affect Transparency in Indonesia

The Dodd-Frank Wall Street Reform and Consumer Protection Act in the US will affect the transparency in business dealings of foreign oil, gas and mining companies operating in Indonesia.


“The law will require oil, gas and mining companies overseen by the US Securities and Exchange Commission *SEC* to publish their income , tax payment and royalties to the host countries and the government of the US,” Ridaya Laodengkowe, the national coordinator of Publish What You Pay Indonesia, said at a press conference in Jakarta.


The companies under the jurisdiction of the SEC will also have to disclose their flow of earnings, such as tax payments, bonuses, royalties and retribution fees to local administrators.


Given the fact that about 60 percent of the national oil production is contributed by companies listed on the US stock exchanges, the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act will undoubtedly affect the business transparency in Indonesia, he said.


“Major oil and gas companies operating in Indonesia such as Chevron Texaco, Total, Conoco Philips, Talisman, ExxonMobil, Royal Dutch Shell and British Petroleum will be affected by the law,” he added.


Apart from oil ad gas firms, mining companies, such as Freeport, Newmont, BHP Billiton and Rio Tinto would also have to abide the law.


“Non-compliance could result in being delisted or suspended by the SEC,” he added.


Transparency Indonesia deputy secretary-general Rezki Sri Wibowo said the Wall Street Reform Act was in line with the principle of the Extractive Industry Transparency Initiative (EITI), a global initiative requiring extractive industries to report their income to the public and the government.


“Indonesia has started to adopt the EITI by issuing in April a Presidential decree on the transparency of national and regional income of extractive industries,” he said.


He added that the implementation of EITI through Presidential Regulation and the passage of the Wall Street Reform Act would serve as tools to push the oil, gas and mining industry operating in Indonesia to be more transparent.


However, the Presidential Decree on the EITI has not been fully implemented and has several weaknesses, he said.


Ridaya said the decree’s implementation was hampered by poor preparation, citing the need to set up a team consisting of government officials, local administrators from oil, gas and mining firms, companies and NGOs.


“So far, we do not have a representative from the local administrations,” he said.


The establishment of the team was needed and required by the EITI secretariat in Norway to oversee EITI execution in Indonesia.


“EITI needs a complete team by September,” he said, adding that he expected full implementation of EITI once the team was ready.


Ridaya highlighted weaknesses in the Presidential decree, including the fact that it did not define the information that companies should disclose, such as tax payments, royalties, bonuses and other payments made to the government.


“The decree also does not regulate sanctions for non-compliance,” he added.


“That is why we are happy with the deliberations of the Wall Street Reform and Consumer Protection Act because it clearly outlines sanctions.”


Agus Suryono, a spokesperson for upstream oil and gas regulator BP Migas told The Jakarta Post that BP Migas would only abide by Indonesian-tailored production sharing contracts (PSC) as a framework for foreign oil, gas and mining companies.


“We will work based on the PSC framework, which mainly regulates the management and operation of companies,” he said.


Regarding cash flow transparency, Agus said BP Migas only handled the cost recovery and listings.


“We do not control the disclosure of the companies’ income, that remains the authority of the Finance Ministry,” he added.


 

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