Module for Managing Oil & Gas Revenue: Indonesia Sub-National Experience

Managing Oil & Gas Revenue :
Indonesia Sub National Experience

IKAT-US: Civil Societies Innovating Together
-A Southeast Asian Partnership for Better Governance in Extractive Industries-



Writer
Muh. Rasyid Ridla Ansori

Editor
Joko Purwanto
Hamdun Maulana
Chitra Retna S.
Ambarsari DC

Cover Design and Lay Out
Kanti

All rights reserved
1st Publication, July 2012

This modul is published by
Support from USAID and Revenue Watch Institute
Contribution from Bojonegoro Institute and LPAW Blora

Article 33 Indonesia
Jalan Tebet Timur Dalam 1M No.10
Jakarta Selatan 12820, Indonesia
Tel/Fax +6221-83787963 • http://www.article33.or.id

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FOREWORD from RWI

“In the Revenue Watch, our mission begins with the knowledge that abundant natural resources offer no guarantee of
prosperity for the countries that possess such wealth. We work from this starting point to promote and provide the tools
of good governance, effective oversight and full accountability that help leaders and citizens secure lasting benefits from
their valuable resources.

We believe that the transformation of oil, gas and minerals in the ground into well-being for the people requires coopera-
tion among all stakeholders in producing countries. Revenue Watch and partners know that good resources governance
cannot depend solely on active civil society, well-meaning politicians or enlightened companies.”

Karin Lissakers, Director 1

1 The Revenue Watch Institute Annual Report 2012, page 1

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Revenue Watch believes that the good work of all stakeholders, including governments, is what makes the extractive
industries good governance works, especially in the era of decentralization where local authorities now have a much
more important role in the management of the region’s wealth.

In Indonesia decentralization context, together with partners (Pattiro, Bojonegoro Institute and LPAW), Revenue Watch
Institute and LGI (Local Government Initiative) started transparency model pilots in Blora and Bojonegoro districts in
2008. They have been an enlightening experience –not to say a success story. The multi-stakeholders approach has
proven to be concretely efficient in promoting better participatory planning and transparency.

These models then inspired our Philippines’s partner, Bantay Kita, who initiated their own pilot project in Compostella
Valley in 2010-2011. This pilot involves a transparency team and a unique approach towards extractive industries good
governance, exploring different dimensions of the promotion of good governance of extractives at the sub-national level,
especially regarding the rights and role of Indigenous People.

This module, which reflects on the experience in Cepu oil block in Indonesia, features the important lesson learnt from
the role of the transparency team and from the participatory planning in Blora/Bojonegoro districts. It will then also echo
and reflect the experience in the Philippines.

The RWI Asia Pacific team thanks Article 33 Indonesia for developing this module and for arranging with Bantay Kita the
study and exchange excursion in Cepu block for Compostella Valley key stakeholders. This cooperation is the best possible
start for the IKAT project, A South East Asian Partnership for Better Governance in Extractive Industries, led by Revenue
Watch and Indonesian partners in collaboration with civil society partners in Cambodia, Malaysia, the Philippines, Timor
Leste and Vietnam. This will make concretely possible for IKAT partners, Article 33 Indonesia and Bantay Kita, to exchange
their valuable experience, learn from each other’s and bring knowledge and experience back into their own works.

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Hopefully this module and the exchange of experience will lead towards a better EI governance mechanism for both Blora/
Bojonegoro and Compostella Valley, paving the way for more initiatives to promote transparency and accountability in
the extractive industries at the sub-national level, in decentralized contexts in South East Asia.

RWI Asia Pacific team

IKAT project: A South East Asian Partnership

for Better Governance in Extractive Industries

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FOREWORD from Article 33 Indonesia

This Module has been prepared to guide the Field Visit and Study Excursion on Extractive Industry Revenue Transparency.
Developed from the model implemented during the Cepu Project in Blora and Bojonegoro by PATTIRO, Bojonegoro Institute,
LPAW, supported by Revenue Watch Institute, this module represent a handful of knowledge and lesson learned on how
resource rich district succeeded on improving its extractive industry governance in according to reap the maximum benefits
for its people and avoid the so called resource curse. The model established was one of the first in its kind to be implemented
in local level, in Indonesia as well as in global level, therefore the lesson learn would be very important as a source to be
replicated in other resource rich regencies and even in other countries at the same level facing the same challenge.

Article 33 Indonesia thank and appreciate all those involved in compiling this module. We realize that this module still has
weakness. Therefore, we need critics and suggestions for improvements for the next publications.

It is hoped that a broad spectrum of relevant actors will find this module useful for increasing their capacity on understanding
Extractive Industry Governance at local level, and become a champion in this field. In line with A33’s mission, we hope that
those champion then will be able to endorse the making of progressive and sustainable policies toward people prosperity
as inspired by Article 33 of Indonesia’s Constitution (UUD 45): “Earth’s water and natural resources contained therein is to be
used for the greatest prosperity of the people”.

Article 33 Indonesia, July 2012

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TABLE OF CONTENTS

Foreword from RWI vi
Foreword from Article 33 Indonesia ix
Table of Contents x
Reap the Benefit, Avoid Resource Curse:
Learning from Blora and Bojonegoro Extractive Governance 1
Sharing Experience I:
Oil and Gas Revenue Transparency in Blora and Bojonegoro 11
Sharing Experience II:
Sustainable Development Planning in Blora and Bojonegoro 19
Sharing Experience III:
Oil and Gas Revenue Management in Bojonegoro 28
Session I: Oil and Gas Investment for Sustainable Development 29
Session II: Oil and Gas Revenue Distribution to Village Level 34
Session III: Sub-Regency Indicative Development Funding Proportion 39
Sharing Experience IV:
Local Content Optimization Policy 46
Reference 51

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Reap the Benefit, Avoid Resource Curse:
Learning from Blora and Bojonegoro Extractive Governance
The decentralization in the past decade has been changing the course of extractive governance in Indonesia. As certain
powers have shifted from the central government to sub-national administration, provinces and regencies have acquired
greater independence to manage their respective economies, natural resources and political institutions. Unfortunately
in many cases, the powers and responsibilities for governing extractive industries were transferred to the regions without
the adequate capacities in place, including skilled human resources in government positions. In addition, regulations
do not adequately provide the resolution of conflict between citizens, regional governments and the private sector, or
among regional governments themselves, or between the central and regional governments.
Indonesia’s ‘big bang’ decentralization in 2001 marked the beginning of sweeping changes that have transformed the
country’s political, administrative and public finance systems. The decentralization devolved the authority to manage
local development in key areas to the sub-national level. This made regencies the second most important level of
government in Indonesia after the national level. Local governments now receive more than 40 percent of total public
funds to manage development locally. Local governments also have unprecedented control over their own revenue
and spending, and also have primary responsibility for providing services to their citizens. About 10 percent of regional
governments receive income from natural resources (according to Indonesia’s Revenue Sharing Law No. 33/2004, six
percent of the oil funds will go to the local regencies where the revenue is produced, six percent to surrounding regencies
within the same province, and three percent goes to the province).

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However, common problems faced by local governments include limited technical capacity, rent-seeking, large allocations
for routine expenditures, poor reflection of policy priorities in the distribution of oil revenues, and weak legislative
oversight. This is compounded by the fact that oil wealth is inherently challenging for governments even at their best.
Revenue Sharing Fund from Oil and Gas (DBH Migas)1
As the implementation of decentralization ’big bang’ since 2001 in Indonesia, the fiscal decentralization policy has
changed the posture of revenue and government spending. With the issuance of law 32/2004 on Local Governance and
law 33/2004 on Financial Balance between Central and Local Government, local authorities has been greater in managing
the financial administration. The money seem as ’poured’ into sub-national government through three pipelines namely
the Revenue Sharing Fund (DBH), the General Allocation Fund (DAU), and Special Allocation Fund (DAK).
Revenue Sharing Fund (DBH) is a shared fund that consists of two types based on its sources, tax and non tax.2 The non-
tax one is derived from natural resource and other types of non-tax such as profit from state-owned companies and other
state-assets. In terms of DBH from natural resource (SDA)3, it could be in the form of shared revenue from oil and gas,
mining, fishery, and forestry.
In Indonesia, the shared fund from oil and gas is commonly called as DBH Migas. DBH Migas is derived from government
entitlement of oil and gas from producing regencies or provinces after deduction of taxes and other levies. The wells

1 Migas is abbreviation of “minyak dan gas” or oil and gas.
2 See Government Regulation 55/2005
3 It used to called as DBH SDA

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could be operating onshore and offshore. In terms of offshore, regencies entitle on the oil-gas shared fund if the wells at
the distance of 0-4 miles of coastline, while provinces entitle on the oil-gas shared fund if the well at the distance of 4-12
miles from coastline.
DBH Migas consist of revenue sharing fund from oil and gas. Oil and gas is calculated using different formula.4 In general,
revenue sharing fund from oil (DBH Minyak) is 15,5% of government oil equity shared after taxes to local government (See
Table 1). Meanwhile, the revenue sharing fund from gas (DBH Gas) is 30,5% of government entitlement after taxes to local
government (See Table 2). In addition to that formula (table 1 and 2), different proportion calculation applied to Provinces
of Nangroe Aceh Darussalam (NAD) and West Papua in terms of status of special autonomy.5

4 See UU 33/2004 article 14 and Government Regulation 55/2005 article 22
5 Each receive 70% in which for NAD, the 55% come to province, while the 15% is divided into 3% for province, 6% for producing regency/municipal, and 6% for other
regencies/municipals in the province. Meanwhile in Papua, of 70%, the 40% come to province, while the 30% is divided into 6% for province, 12% for producing regency/
municipal, and 12% for other regencies/municipals in the province.

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Table 1. Formula of Revenue Sharing Fund for Oil (DBH Minyak)

15,5% = 15% + 0,5%
15% 0,5% for basic education
Producing Province Producing Regency/s Producing Province Producing Regency/s
5% for provincial 6% for the producing 0.17% for provincial 0.2% for the producing
government regency/municipal government regencies goverment
goverment
10% for all regencies/ 3% for the related 0.33% for all regencies/ 0.1% for the related
municipals in the provincial government municipals in the provincial government
province province
6% for other regencies/ 0.2% for other regencies/
municipals under the municipals under the related
related province province

Source: Subdit DBH SDA, Directorate of Balancing Fund, Ministry of Finance

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Table 2. Formula of Revenue Sharing Fund for Gas (DBH Gas)

30.5% = 30% + 0.5%
30% 0.5% for basic education
Producing Province Producing Regency/s Producing Province Producing Regency/s
10% for provincial 12% for the producing 0.17% for provincial 0.2% for the producing
government regency goverment government regency goverment
20% for all regencies/ 6% for the related 0.33% for all regencies/ 0.1% for the related
municipals in the provincial government municipals in the provincial government
province province
12% for other regencies/ 0.2% for other regencies/
municipals under the municipals under the related
related province province

Source: Subdit DBH SDA, Directorate of Balancing Fund, Ministry of Finance

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Related Problems of Oil and Gas Revenue at Sub-National Level
In general, there are at least 5 (five) specific problems of oil and gas revenue management at sub-national as follows:
1. Fluctuations in income
Combination of exchange rate, oil prices, and the lifting caused the amount to be paid by the central government
to local governments has always fluctuated. Fluctuations in revenue are a problem because the region still lacks the
capacity to manage finances well.
2. Ineffectiveness of expenditure
The “lighthouse” development is a curse that often follows the high oil and gas revenue received by regencies/
municipals/provinces.
3. Rampant corruption
With the implementation of the policy of central-local fiscal balance through Law 33/2004, the natural resource-
producing regencies start to get funding. Unfortunately, it has prompted local governments to corrupt. Most former
heads of oil and gas regencies/municipals/provinces have been suspect, such as corruption Kutai Regent (2008), cases
of corruption in Musi Banyu Asin (2009), and cases of corruption in the oil and gas special autonomy funds in Papua
(2010).
4. Neglect of non-oil sector
GDP is contributed by a very large oil and gas sector. Unfortunately, local government has not had a good plan to
develop economic sectors, especially non-oil and gas sectors. Non-oil GDP is very small compared to oil and gas
sector. Conceivably if the gas potencies is up, then the area may become bankrupt and getting poorer.

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5. Social and environmental issues are more massive
Environmental impacts of oil and gas exploration is also not a little. The bigest case occurred in Sidoarjo in wells
owned by PT. Lapindo Brantas. When land acquisition for Cepu block is executed in Bojonegoro, horizontal conflicts
involving elite officials. Many cases -such as pipes are leaking, land damage, and a dry rivers- cannot be satisfactorily
resolved, even causing problems among the people.
Blora and Bojonegoro: Oil and Gas Resource-Rich Regencies
Bojonegoro and Blora are regencies in Province of East Java and Central Java, respectively. Bojonegoro has area of
population about 1.3 million in 2010, while Blora about 0.9 million. Bojonegoro and Blora are endowed with big reserves
of oil and gas, in particular after discovery of oil-gas reserve in Cepu, a small sub-regency in Blora. Production Sharing
Contract (PSC) of Cepu Block was signed in June 2005 by BPMIGAS and Contractors, which consist of Pertamina EP Cepu
(Indonesia state-own company) and subsidiary companies under Exxon Mobile. The shares are divided to 50 percent that
belongs to Pertamina EP Cepu and the subsidiary of Exxon Mobile (50%). Beside the Cepu Block, there are two other oil-
gas blocks, namely Tuban Block and Blora Block.
Oil and gas endowment is a well known history in Blora and Bojonegoro. However, the existence of big reserve of oil and
gas is contrast with the high figure of poverty in both areas. According to statistical data in 2010, the poverty in Blora
reached 16.3% or 134.000 people, while almost the same happened in Bojonegoro. Literacy in both regencies is about
83% while the average length of school is 6 years for each student. It indicates that most elementary students don’t
continue to higher level.

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Blora, the owner of Cepu but low revenue from oil
Blora is a long-time and well known area which has big reserve of oil and gas. The production of oil and gas has been since
the occupation of Dutch. In 1980s, Government of Indonesia built oil and gas training center for Pertamina’s employees
as well as center of research and development of oil and gas in Blora. Despite of the long history of its oil-gas production,
its shared revenue from oil and gas is very small, in which ironically, place Blora as the third of the poorest regency in the
Province of Central Java in 2007.
Currently, Blora local revenue is majorly contributed from General Allocation Fund (DAU) (77 percent of total budget in
2010), compared to DBH Migas (0.2% averagely of total budget in 2010 and 2011). DBH Migas only contributes 2.4 billion
rupiahs in 2011, increased from 1.6 billion rupiahs in 2010.

Tabel 3. DBH Migas and Local Revenue (in billion Rupiahs)
Item 2009 2010 2011
DBH Migas 0.6 1.6 2.4
Total local revenue 712.9 770.23 940.0

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The oil-gas shared revenue comes from wells owned by Pertamina in which mostly are old fields with decreasing volume
of production. The discovery of new reserve in Cepu block doesn’t automatically contribute increasing revenue sharing
to Blora. It is due to regulation stipulates that shared revenue from oil and gas is based on the wellheads, in which almost
all of Cepu Block’s wellheads reside at its neighbor, Bojonegoro.
Bojonegoro, blessed by the wellheads of Cepu Blocks
Of Cepu Block which is operated by Mobil Cepu Limited (subsidiary of Exxon Mobil), Bojonegoro has some oil potential
fields: Banyu Urip with 507 million barrels of oil equivalent, Jambaran with 227 million, Cendana 61 million and
Sukowati42.5 million. Compared to its neighbor, Blora only has oil and gas reserve of 7.9 million barrels in Kemuning
and Alas Dara. Of this amount, Bojonegoro has 95.89% of reserve based on wellheads, while Blora only has 4.11% of total
potential. In terms of shared revenue, it creates gaps of revenue between two regencies.
Currently, with the coming production of oil, the government of Bojonegoro is benefitting the windfall profit through
DBH Migas. In 2010, DBH Migas contributes 169 billion rupiahs of total local revenue.

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Dynamic of Civil Society and Lesson Learnt from Blora and Bojonegoro

Since 2007, some local civil society organization has carried out research and technical assistance to help the local
government and oversight bodies prepare for revenue from oil and gas before it arrives. Over the first two years of the
project, civil society groups have conducted in-depth research about the potential implications of the revenues and
trained the local government officials on how to account for the incoming revenues. A multi-stakeholder group lead by
government officials, businessmen, religious leaders, and civil society activists, has facilitated a community dialogue to
create a community plan for using these revenues. New multi-stakeholder transparency platforms and local regulations
encompassing revenues have been developed.

This module present the lesson learnt from experiences of both regencies. Bojonegoro’s experiences are on oil and gas
revenue management consist of revenue distribution mechanism, revenue investment scheme for local government
saving, and accelerating local economic development by local content optimization policy; and sustainable development
funding focus on fiscal year concentration and equity of development budget proportion. Blora’s experiences are on oil
and gas revenue transparency focus on transparency team and mechanism; and Local Social-Economic Development
(LSED) focus on sustainable development planning process.

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Sharing Experience I
Oil and Gas Revenue Transparency in Blora and Bojonegoro

All participants would share about oil and gas revenue transparency in Blora. Blora has Transparency Team who actively
involves themselves in advocacy and publication oil and gas revenue, both in local level and national level. Currently, the
team are working on equity of oil and gas revenue sharing fund. Two important substances are effort in transparency and
current achievement of the Transparency Team.

Objective • Understanding oil and gas revenue transparency in Blora
• Understanding oil and gas revenue transparency in Bojonegoro
• Discussing similar policy (if any) or opportunity to implement similar policy in the
Compostela Valley
Methods • Presentation from resource person
• Q&A session
• Sharing Philippine’s experiences
• Discussion

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Facilitation steps
1. Introduction
The facilitator/moderator introduces discussion objective, flow, and duration. Then, all participants would be
allowed to raise question and/or give advice.
2. Resource person presentation simultaneous with Q&A
The resource person present about the experience on policy/mechanism. This step is simultaneous with Q&A in
informal flow of discussion.
3. Sharing Philippine’s experience on similar policy or mechanism
Participants from the Philippine share their similar experience followed by simultaneous Q&A in informal flow of
discussion.
4. Fill knowledge structure form
The facilitator/moderator guides all participants to fill knowledge structure form. This form would help all participants
for structuring knowledge and experience that could be useful for better policy/mechanism implementation in
each own region. The filled form should be given back to the facilitator/moderator.

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Knowledge Brief I
Basic Problems Addressed
Basically, Blora and Bojonegoro have been facing many problems in revenue transparency as follows:
a. No access to important data such as oil and gas potency, oil and gas production,
PoD, WP&B, and also socialization of exploration operation;
b. Lack of coordination in CSR-CD implementation
c. No access for local government participation in Revenue Sharing Fund (DBH)
counting mechanism. Local government has no access to necessary data such as
production data, cost recovery data, etc.
d. Local community around oil and gas area has not yet benefit from oil and gas
exploitation

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Transparency Process
In order to implement transparency mechanism, there were some steps:
1. Research on transparency mechanism that could be implemented.
This step had been completely done by LPAW Blora and Bojonegoro Institute as
local NGOs who pay more attention to transparency. The researches were on:
a. Local problem regarding revenue, CSR, and environment
b. All related policies/regulations
c. Oil and gas revenue flow and transparency model

2. Building transparency model. There were three activities in this step:
a. Learning from other regencies and countries experiences on oil and gas sector especially on revenue
transparency mechanism
b. Multi-stakeholders discussion for building model. In this activity, resource person from other countries were
involved.
Local actors participated in this activity were:
• Local parliament (DPRD)

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• Related local government agencies (local office of: Natural Resources and Energy/ESDM, Development
Planning/BAPPEDA, Environment/LH, Revenue and Finance/DPPKAD)
• NGOs (LPAW, BCC, Yayasan Perak, Mahameru, Pasang Surut, Bojonegoro Institute)
• Journalist association
• Community around oil and gas area
c. Expert meeting for sharpening the model
d. Building consensus about the model
e. Local regulation formulation on the model

3. Advocacy and Campaign had been done by LPAW Blora and Bojonegoro
Institute with key stakeholder participation. Cooperative approach had
been the way ensure that local government intend to accept and will
implement the transparency. Sharpening knowledge and understanding
had also been done by expert meeting and workshop. After that, campaign
using local mass media had been being done to spread the transparency
to public. This campaign also aimed to reach public awareness for
supporting the transparency implementation.

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4. mplementation and institutionalization
I
The activities were:
a. Forming Transparency Team (legalized by regent decree/executive order)
b. Budget advocacy for the team
c. Team’s meeting on working agenda
d. Socialization and publication
e. Facilitation problem in the regency (PPHJ, Old Well, CSR)
f. Advocacy to national government

5. Stakeholder Capacity Building on oil and gas sector
This activity aimed to upgrade stakeholder capacity and
also increase their confidence for publishing and sharing
about oil and gas sector which has complexity to company
and national government.

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Current Achievement
1. Blora Regent Regulation 65/2010 on Transparency Team
and Mechanism
2. Working agenda completed are:
a. Publication on: Revenue Sharing Fund (DBH) data, old
well, team’s working result, budget. Publications are in
leaflet and mass media;
b. Mediation between community and company,
discussing community’s complain about PERTAMINA
PPGJ Project in Sumber, Kradenan
c. Consensus on problem solving as mentioned in Activity Acknowledgement
(Berita Acara as the guidline for problem solving)
d. Revenue Sharing (DBH) advocacy to National Government. The result is Minister
Common Understanding Decree (SKB 3 Menteri) on Revenue Sharing Fund (DBH)
for Blora. The ministers are Minister of Energy and Natural Resources (MenESDM),
Minister of Finance, and Minister of Domestic Affairs).
e. Involve as an expert witness in Judicial Review on Law 33/2004 on Financial
Balance Between National and Local Government.

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Lesson Learnt from Blora and Bojonegoro Experiences
1. Revenue transparency mechanism has to be forced to both company and
local government. This is not voluntary;
2. Trust between stakeholders is the key for encouraging local innovations.
This is a way to make community, local government, and company have
willingness to discuss together;
3. Transparency can make company work better because there is an
intervention from local government and community with organized team
and agenda.

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Sharing Experience II
Sustainable Development Planning in Blora and Bojonegoro
Blora has been implementing Local Social-Economic Development (LSED) in term of sustainable development. Bojonegoro
has also been implementing Local Sustainable Development Plan (RPDB). The important substances that would be shared
are roadmap to do the LSED and synchronization between CSR agenda of company and local development agenda of
government.

Objective • Understanding LSED in Blora
• Understanding RPDB in Bojonegoro
Compostela Valley
• Q&A session
• Discussion

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Facilitation steps:
1. Introduction
The facilitator/moderator introduces discussion objective, flow, and duration. Then, all participant would be allowed
to raise question and/or give advice.
The resource person present about the experience on policy/mechanism. This step is simultaneous with Q&A in
informal flow of discussion.
discussion.
for structuring knowledge and experience that could be useful for better policy/mechanism implementation in each
own region. The filled form should be given back to the facilitator/moderator.

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Knowledge Brief II

The importance of encouraging the Local Sustainable Development Plan (RPBD) model:
1. Anticipating the emergence of the resource curse in Blora and Bojonegoro
Potential resource curse is possible enough to happen, the exploitation of oil and gas have been done for hundreds of
years but have not contributed significantly to the regency growth in all sides.
2. Build a higher quality participation in development planning process with more substantive stages.
3. Build investive and sustainable development planning through development of economic base sector (agriculture
and SMEs) and improving human resource quality.

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LSED building stages is as follows (see Figure 1 for easier understanding):

Figure 1
Sustainable Development Planning Process in Blora Regency

MoU Core team Sub- 1st Regency Participatory
building regency Workshop Research
Workshop

RPBD 3rd Regency Technocratic 2nd Regency
Advocacy Workshop Planning Workshop

1. MoU between LPAW (initiator) and Local Government of Blora
MoU is a evidence of joint process between the government and NGOs.
MoU also indicates initiator’s assistance to help local governments
improve the mechanism for the planning and management of oil and gas
is well accepted. Once it became one of the strategies to be friendly with
the government.

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2. Formation of the Core Team
Objective: Establishment of a team that will oversee the
process of sustainable regional development planning,
along with th e initiator (LPAW).
Members: The core team consists of 11 people and consists
of related SKPD, parliaments, business groups and the CSO,
was established by decree of the Regent.

3. Sub-area Development Workshop I
Objectives:
 Figure out the priority issues and problems in 5 sub-area of development
 Develop common development vision of sub-area

4. Regency Workshop I
Objectives:
 Figure out the priority issues and problems in 5 sub-
area of development
 Develop common development vision of regency

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5. Participatory Research
Objective: understand development problems deeper through FGD,
workshop, interview, and desk study.

6. Regency Workshop II
Objectives:
 Sharpen regency issues and the formulation of regency strategic issues
 common development vision of regency
Fix

7. Technocratic Planning
Objective: Develop a technocratic development planning by
establishing working groups. The group consists of 10 members
from related local government agencies, academic and experts. This
working group smooths the technocratic workshop materials and the
results of participatory research, strategic goals, strategies, programs,
activities.

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8. Regency Workshop III
Objective: Finalize RPBD document. In this workshop, RPBD document is signed by all stakeholders and will be
presented to the regent.

9. Local Budget Advocacy
This stage guides RPBD document as a part of Blora Regency RPJMD
2010-2014. With the agreement in workshop III, Bappeda makes the
document as a reference preparation of RPJMD. RPBD documents
were also submitted directly to the regent and vice regent, Djoko
Nugroho-Abu Nafi, in 2010.

The Local Sustainable Development Plan document is still pure, and not mixed with political
interests. Of course the content of the document is very important for the preparation of Mid-Term
Local Development Plan for my leadership over the next 5 years.
(Djoko Nugroho, Regent of Blora, welcome speech on the submission of Local sustainable
development plan documents to the regency)

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Priority Issues
1. Improvement of education and health services basis, as
the implementation of human resource development
improvement. Education and Health is a basic public
service sector that will determine the quality of human
resources in the future.

2. Development of economic base sectors (agriculture and SMEs)
Both of economic base sectors should be improved because of their
strategic value for community welfare in order to anticipate resource
curse and make local government focus on the development of real
sector and not get stuck on oil and gas and its derivatives economic
fields which are temporary.

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Current achievement
1. The local development does not depend on political agenda of existing regent. The development vision and mission
of the regency could be sustain even the regent changing happens;
2. Development priority is clearly stated.

Lesson Learnt
1. Sustainability can be viewed as a continuity of development vision and mission
2. If the development vision and mission is sustain, the development can solve social and economic problem of the
regency

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Sharing Experience III
Oil and Gas Revenue Management in Bojonegoro

This activity consists of three sessions. The first session aims to sharing on Oil and Gas Revenue Investment of Bojonegoro’s
mechanism to save their revenue for development in the future in the condition where oil and gas potencies have
depleted. The second session, all participants will share on Bojonegoro experience of oil and gas revenue distribution at
village level. Bojonegoro has been implementing the mechanism called Proportional Village’s Fund Allocation (Alokasi
Dana Desa Proporsional). The last session is on accelerating local economic development by Local Content Optimization
Policy focusing on utilization of local labor and usage of local material.

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Session I:
Oil and Gas Revenue Investment for Sustainable Development

Objective • Understanding oil and gas investment policy and mechanism in Bojonegoro
Compostela Valley
• Q&A session about the experiences
• Structuring useful knowledge

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Facilitation steps
1. Introduction
The facilitator/moderator introduces discussion objective, flow, and duration. Then, all participants would be allowed
The resource person presents the Bojonegoro’s experience on policy/mechanism. This step is simultaneous with Q&A
in informal flow of discussion.
discussion.
own region. The form also would be useful for workshop on last day of Field Visit and Study Excursion. The filled form
should be given back to the facilitator/moderator.

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Knowledge Brief 3.1
Oil and Gas Revenue Investment for Sustainable Development

Basic Problem Addressed
• Oil is a nonrenewable natural resource that will be exhausted
someday in the future, so we need a strategy to ensure
that regency can get revenue in spite of natural resources
exploitation and exploration. By logic, the revenue from
investment of DBH will replace the revenue from oil and gas
if the oil is gone Bojonegoro in the future.

• No policies or regulations that allow local governments to save
money. Although local government invests money, it has to be low
risk investment.

Legal Text: Local Regulation 11/2011 on Investment in Bojonegoro

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Investment Mechanism
Local government invests monies from oil and gas revenue to 3 (three)
banks and 1 (0ne) company as scheduled in the following:
NO INVESTMENT IN AMOUNT (Rupiahs) YEAR
1 BANK JATIM 19.000.000.000 2011
20.000.000.000 2012
27.000.000.000 2012
2 PD BPR BOJONEGORO 4.000.000.000 2011
2.000.000.000 2012
3 PT. BBS 10.000.000.000 2012
4 BPR JATIM 500.000.000 2012
BOJONEGORO 500.000.000 2013

Calculation of investment is based on calculation of revenue sharing fund
for previous year.

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Current Achievement
• Bojonegoro have investment oil fund 30 Billion IDR in 2011
• Yielding local revenue/PAD by managing separated local fund (devident)
• Added capital for Local-Owned Company
• Endowment fund for development in the future

Lesson Learnt
There are two main activities that should be done carefully in promoting oil and gas revenue investment:
1. Research on return of investment. This can be a basic consideration for calculate how much added-value in balance
with regency need;
2. Substance penetration (integrate result and recommendation of action research to local planning and budgeting
scheme)

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Session II:
Oil and Gas Revenue Distribution to Village Level

Objective • Understanding Proportional Village’s Fund Allocation (Alokasi Dana Desa
Proporsional) in Bojonegoro
Compostela Valley
• Q&A session about the experiences
• Discussion

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Facilitation steps
1. Introduction
2. Resource person presentation followed with Q&A session.
The resource person presents on the Bojonegoro’s experience on policy mechanism. This step is continued with Q&A
in informal flow of discussion.
3. Sharing Philippine’s experience on similar policy or mechanism.
Participants from the Philippine share their similar experience followed by Q&A on informal discussion.
4. Filling out the knowledge structure form
The facilitator/moderator guides all participants to fill out the knowledge structure form. This form aims to help all
participants for structuring knowledge and experience that would be useful for better implementation of policy in
each region. The form is to be returned back to the facilitator.

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Knowledge Brief 3.2
Oil and Gas Revenue Distribution to Village Level

Bojonegoro have no mechanism to share the revenue in accordance with social and environmental impact of oil and gas
exploitation in the villages.

Legal Text: Bojonegoro Regent Regulation 31/2009 on Guidance for Determining Proportional Village’s Fund Allocation
Based on Variable Coefficient of Village in Bojonegoro

36


Revenue Sharing Distribution Mechanism
Proportional allocation of Village Fund is calculated based on the sub-regency variable consisting of the production of
petroleum / gas exploration, production forestry, and mining production. The calculation is as follows:
a. The area of oil/gas
• 12,5% for village producers
• 10% for villages of Ring I (600 m from the location of the head well)
• 7,5% for villages of Ring II (1200 m including impacted area)
• 70% for villages outside producers and Ring I and II
b. Forest Area (PSDH)
• 60%, divided equally to the villages in the forest area
• 40% divided equally to the villages outside forest area

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Current Achievement
Distribution of revenue sharing fund to all villages using the mechanism is well done.

Lesson Learnt
The steps to do in distributing the revenue are:
1. Take oil and gas production of village into account as a variable for determining revenue fund allocation;
2. Develop standard of allocation calculation;
3. Local government release criteria of village:
• village-producer
• Ring I à village is located 0-500 m from well
• Ring II à village is located 500-1000 m from well
• Village surround well

38


Session III:
Sub-Regency Indicative Development Funding Proportion
(Pagu Indikatif Kecamatan)

Objective • Understanding Sub-Regency Indicative Development Funding Proportion (Pagu
Indikatif Kecamatan) in Bojonegoro
Compostela Valley
• Q&A session about Bojonegoro’s experiences
• Discussion

39


Facilitation steps:
1. Introduction
The resource person present about the Bojonegoro’s experience on policy/mechanism. This step is simultaneous with
Q&A in informal flow of discussion.
Participants from the Philippines share about their similar experience followed by simultaneous Q&A in informal flow
of discussion.
own region. The filled form should be given back to the facilitator/moderator.

40


Knowledge Brief 3.3
Sustainable Development Funding in Bojonegoro

There is no clear rule for determining development budget allocation to each development field such as infrastructure,
agriculture, education, and health.

Legal Text :
Bojonegoro Regent Regulation 2A/201o on Sub-regency Indicative Development Funding Proportion (Pagu Indikatif
Kecamatan) in fiscal year 2011
Bojonegoro Regent Regulation 10A/2011 on Sub-regency Indicative Development Funding Proportion (Pagu Indikatif
Kecamatan) in fiscal year 2012

41


Sub-regency Indicative Development Funding Proportion (Pagu Indikatif Kecamatan)
• Sub-regency may propose programs/activities that directly meet the needs of community
• The sub-regency indicative development fund proportion should refer to programs RPJMD Bojonegoro years 2009 –
2013 with an allocation (2011):
a. Road and bridge infrastructure, 50% of sub-regency development fund;
b. Agriculture, 25% of the sub-regency development fund;
c. Education, 15% of the sub-regency development fund;
d. Health, 10% of the sub-regency development fund;
And allocation in 2012:
a. Road and bridge infrastructure, 50% of sub-regency development
fund;
b. Agriculture, 20% of the sub-regency development fund;
c. Education, 15% of the sub-regency development fund;
d. Health, 15% of the sub-regency development fund.

42


Current Achievement
There is an mechanism for budgeting local development based on real local need and priority, so the arranged
development budget does not depend on political intervention

Lesson Learnt
In order to fulfill local need, local government should propose development priorities with calculated proportion of
budget. This have to be legalized by a set of regulation.

43


Sharing Experience IV
Local Content Optimization Policy

This sharing activity focuses on optimization of local resources, such as labor and local economic activities related to
oil and gas industry in Bojonegoro. All participants would share about Local Content Optimization Policy that has been
being implemented by Bojonegoro Government.

Objective • Understanding Local Content Optimization Policy in Bojonegoro
Compostela Valley
• Q&A session about Bojonegoro’s experiences
• Structuring useful knowledge

44


Facilitation steps:
1. Introduction.
2. Resource person presentation simultaneous with Q&A.
The resource person present about the Bojonegoro’s experience on policy/mechanism. This step is simultaneous with
Q&A in informal flow of discussion.
3. Sharing Philippine’s experience on similar policy or mechanism.
discussion.
4. Fill knowledge structure form.
own region. The form also would be useful for workshop on last day of Field Visit and Study Excursion. The filled form
should be given back to the facilitator/moderator.

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Knowledge Brief 4
Local Content Optimization

Oil and gas industries do not generate added-value for local
community

Legal Text: Bojonegoro Local Regulation 23/2011 on Accelerating
Local Economic Growth in accordance with Exploration and
Exploitation of Oil and Gas in Bojonegoro focus on

46


Local Content Optimization Mechanism
Philosophical basis of Bojonegoro local regulation 23/2011 on accelerating local economic growth in accordance with
the implementation of oil and gas industry in Bojonegoro is the emergence of the oil and gas area and the burden of
social costs include a number of land acquisitions for the Oil and Gas projects. This cause lost of employment or daily
economic activity. The people who lose their employment are expected to be absorbed as labor for project. To achieve
the expectation, the regulation is issued to strengthen local government authority to implement community’s aspiration
by forcing company to use local labor and material in their project.
There are crucial articles regulate local potencies optimization, as following points:
• Article 7, the oil and gas management should use items produced locally in Bojonegoro, only when it is not available,
it is permitted to import from outside the town or even abroad.
• Article 8, in doing the activity, the oil and gas industry should involve local companies, BUMD or cooperation in
Bojonegoro. There might be only the flag and name, so the local people should also operate. The local company might
have joint venture with other companies in implementing whatever projects under this article, there are partnership
with the company capable of doing it, but the local company has to be part of 20% of the operation of the contract
value so that they are not played.
• Article 9 the workforce is divided into three part, hard labor should be 100% local Bojonegoro. The skilled workers, if
there is Bojonegoro local use them, if not it is permitted from outsiders.
• Article 10 so that the classification become objective, the production sharing contractors have to report the company’s
need of workforce to the Manpower Office.

47


• Article 11, for hard labor, the honorarium should at least meet the minimum requirements of Bojonegoro Regency.
• Article 14 -2 Local companies should be given down payment at least 20% from the contract value.
• Article 15, whether it is local company or cooperation, contractor or partner should give information about the
standard operating procedure (SOP) so that the people know about job opportunity in oil company; health, work
safety, environment standard.
• Article 16 In Cepu there will be a lot of motorized vehicles and heavy machineries; it must be listed to the Samsat
(Bojonegoro regency’s authorized authority) so that it pays the tax in Bojonegoro.
• Article 17A. Usage of non subsidized fuel for all motorized vehicles and heavy and big machineries by KKS Contractor
and/or K-KKS partner and oil and gas processor because this is a capitalist company from America, it is not fair if it is
given subsidized fuel while we are a poor country. The good thing is Bojonegoro own a small refinery producing 7000
barrels per day.
• Distribute the mining subsidized duel
• Article 17B. All motorized vehicle registered from outside the region and has been used for more than 3 (three) months
is obliged to be listed in Bojonegoro area.
• Article 19. All big companies in oil and gas got office based in Jakarta, so they pay the tax to Jakarta. They only do the
work in Bojonegoro. Bojonegoro wants to get the share of the tax. Verse 1 articulates that oil and gas company with
contract above 1 billion should have office, permit, Tax ID etc in Bojonegoro for optimum benefit to Bojonegoro. Article

48


19 also regulated how contactor should anticipate possibility of negative impact such as oil blow up or destruction of
public facility due to exploration. Contractor should also give training to local people to be able to work in oil and gas
industry in Bojonegoro.
• Article 20. oil and gas industry in one location, the status of land value belongs to BP Migas, so tax flows to the central
government. So the local government does not receive anything. In article 20 verse 1, activities outside the oil and
gas core business, supporting facility such as dormitory, community center, recreation center, terminal, fitness center,
should be built outside the industrial zone, so that all the incomes whatever money spent there become benefit to
Bojonegoro.
This regulation requires PSC-Contractors (KKKS) or their partners prioritize the participation of local-owned companies
(BUMD or BUMDes), and cooperatives. In carrying out the procurement of services through a consortium with the National
Companies and/or with the Multi-National Company, local-owned company (BUMD or BUMDes) or Cooperatives should
be able to execute at least 30% of project BUMDes enterprises, or cooperatives, at least be able to work a minimum of 30%
based on the size of the contract value. The mechanism to optimize local content:
1. Improve coordination with company (twice a month)
2. Optimize local labor database in respective local government body
3. Develop technical guideline

49


Current Achievement
1. Local content optimizing team is well established by the Regent Decree. The team consist of local government, PSC-
contractors, and partner of PSC-contractors
2. As result of a big case, the regent issued the IMB and HO for the EPC tender winner agreed to obey the local content
regulation. This show how the regulation is well-implemented

Lesson Learnt
1. Local economy is not in the national government domain, so local government can intervene the local economic
activities;
2. Business group capacity bulding with the joint operation model (partnership between local and non-local business
actors) would create transfer of knowledge, skill, and capital;
3. Local government should localize the flow of money in the regency in order to convert the increase of Local GDP in
service sectors

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Reference

Partowidagdo, Widjajono. 2009. Migas dan Energi di Indonesia: Permasalahan dan Analisis Kebijakan. Bandung: Bandung
Development Studies Foundation.

Khoirunnurofik. 2002. Perhitungan Bagi Hasil Sumber Daya Alam. Center for Institutional Reform and the Informal Sector
(IRIS, University of Maryland.

Abdullah, Maryati & Dwi Cahyani, Ambarsari. 2010. Memahami Aliran Pendapatan untuk Transparansi Migas. Jakarta:
PATTIRO-RWI-Local Government and Public Service Reform Initiative.

Hariyadi, Chitra et al. 2010. Minyak Kami Tanggung Jawab Kami: Transparansi Migas untuk Pembangunan Daerah
Berkelanjutan. Belajar Dari Blora dan Bojonegoro. Jakarta: PATTIRO-RWI-Local Government and Public Service Reform
Initiative.

Local Government of Bojonegoro. 2009. Regent Regulation 31/2009 on Guidance for Determining Proportional Village Fund
Allocation Based on Variable Coeficient of Area in Bojonegoro. Bojonegoro: Local Government of Bojonegoro.

Local Government of Blora. 2010. Regent Regulation 65/2010 on Transparency of Oil and Gas Industry Management. Blora:
Local Government of Blora.

Local Government of Bojonegoro. 2010. Regent Regulation 2A/2010 on Sub-Regency Indicative Development Budget
Allocation in Fiscal Year 2011. Bojonegoro: Local Government of Bojonegoro.

51


Local Government of Bojonegoro. 2011. Local Regulation 11/2011 on Investment in Bojonegoro. Bojonegoro: Local
Government of Bojonegoro.

Local Government of Bojonegoro. 2011. Local Regulation 23/2011 on Accelerating Local Economic Growth in Accordance
with Oil and Gas Exploration and Exploitation in Bojonegoro. Bojonegoro: Local Government of Bojonegoro.

Local Government of Bojonegoro. 2011. Regent Regulation 10A/2011 on Sub-Regency Indicative Development Budget
Allocation in Fiscal Year 2012. Bojonegoro: Local Government of Bojonegoro.

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Indonesia

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