Workshop Summary Natural Resources for Development spatial licensing; and (v) performance of (NR4D) is a trust fund initiated to strength- mine inspection. en governance and stakeholder partici- pation in the natural resources sector by This record of the workshop proceeding working together with the Indonesian summarizes the points of discussion from Government. The program provides advi- the workshop and recommends a further sory services and research development action plan to achieve concrete objectives design to provide the government with the to resolve the issues. necessary analytics for good policy and decision-making. NR4D aims to optimize the utilization of natural resources, its max- imize the benefits and shared prosperity with all Indonesians citizens. The program is based on a stakeholder dialogue plat- form that encourages coordination be- tween national and subnational govern- ments and a better understanding with investors to develop the sector. One of the activities conducted under the NR4D framework is workshop on Mining Sector Policy and Management (MSPM). The workshop was held at Pullman Jakarta Indonesia Hotel on May 2, 2019. The work- shop follows the sequence of a previous study that reviewed mining sector perfor- mance in Indonesia using an analyttical tool called the Mining Sector Diagnostic (MSD). The results of the study portrayed the de jure and de facto performance of various aspects in mining governance along the operations value chain from li- cense obtainment to benefit sharing with the state and community as well as impacts on the environment. Five issue findings that were identified through the analytics were scrutinized in more detail in separate thematic discus- sion sessions at the workshop. The five issues are: (i) boosting exploration and investment; (ii) community mining; (iii) so- cial and environmental transparency; (iv) Mining Sector Policy and Management 2 Executive Summary: MSD Report With a long history of mining and a lead- with the detailed information necessary to ing role as an exporter of coal, nickel and make informed policy choices. some other minerals, Indonesia remains a key player in the global mining industry. The MSD was requested by the Ministry of The sector continues to be viewed as of Energy and Mineral Resources (MEMR), strategic national importance and plays specifically by the Directorate General a dominant role in national development. (DG) of Minerals and Coal (Minerba). The Planning and oversight of the sector pres- World Bank commissioned the Indonesian ents numerous challenges, especially to Mining Institute (IMI) to carry out this as- achieve sustainability and mitigate against sessment. The work, consisting of desk environmental and social risks. research as well as extensive interviews, was carried out during July 2017-Septem- In this context, the Indonesian government ber 2018. IMI interviewed 98 stakeholders has sought assistance to draw lessons from government, industry, and civil so- from around the world. It agreed in 2016 ciety in Jakarta and in three provinces— to receive support from the World Bank to South Sumatera, South East Sulawesi and undertake policy analysis and design re- West Kalimantan. Some of the key findings forms through the NR4D program. are as follows: A key component in the World Bank’s sup- • The performance of mining sector man- port to the Indonesian Government is the agement in Indonesia is uneven, with MSD. The MSD is a data-driven tool that most weaknesses attributable to poor the World Bank has developed to compre- implementation of otherwise reason- hensively assess a country’s mining sector. able policies and regulations; Specifically, the tool clearly identifies the • In many respects Indonesia’s mining mining sector’s strengths and weaknesses laws and regulations reflect modern along the Extractive Industries (EI) Value approaches to mining sector manage- Chain. It also explores stakeholders’ views ment and are well defined: for exam- on the key areas for sector reforms. The ple, the rules for licensing provide MSD takes a detailed look at both the le- the foundation for a largely open and gal and regulatory framework of the sector transparent process and principles re- (the “rules”) as well as the implementation specting sound financial management, of these rules, including the capacity of the revenue sharing, health and safety, hu- ministries and agencies involved. In doing man rights and gender so, the MSD considers the views of three different stakeholders—government, in- • Along the EI value chain there are nota- dustry, and civil society. Due to its compre- ble examples of de facto performance hensive and objective assessment meth- (that is implementation) falling short odology, the MSD is different from other of de jure performance (that is, laws assessment tools. Importantly, it is not a and rules), which highlights the need ranking tool or perception-based survey, for stronger institutional performance, but rather aims to provide policymakers coordination and administrative capac- Mining Sector Policy and Management 3 ity. Somewhat counter-intuitively, the ronmental and social impacts and miti- findings also demonstrate that in some gation measures, and grievance mech- areas in which the laws and rules are anisms generally. weak or poorly defined, administration • In terms of factors affecting the invest- is nonetheless perceived to be effec- ment climate (“Context and Enabling tive – a notable case being administra- Environment”), the MSD provides evi- tion of mining taxation. dence of concern about the impact of • Those areas identified as in need of the political environment on invest- improvement at the first stage of the EI ment. All four indicators of the political value chain (“Contracts, Licenses, and environment: (i) expropriation risk; (ii) Exploration”) include strengthening political stability; (iii) predictability of the operation of the mineral rights ca- mining; and tax policy; (iv) and control dastre, (especially at provincial level), of corruption –still need to be improved enriching available geological data, as they are rated low. and better assurance of the techni- • Finally, a significant finding is that cal and financial capability of mineral stakeholders have very different views rights holders. on their priorities for sector reform. • In the second stage of the EI value Government and industry stakeholders chain (“Operations”), areas of weak- agree on “Clarity and Harmonization of nesses include poor performance in Sector Rules” and “Sector Management managing artisanal and small-scale and Intra-Governmental Coordination” mining, poor administration of reset- as key priorities. Government and civ- tlement and compensation obligations il society stakeholder both prioritized and, more generally poor coordination “Environmental and Social Impact and among government agencies. Mine Closure Management” as a pri- ority. There are no overlapping areas • Performance with respect to the third that all three groups of stakeholders stage of the EI value chain (“Taxation identified as key priorities. and State Participation”) is viewed quite favorably overall. The areas of The findings of the MSD are seen as critical improvement should include clearer inputs into a process of mining policy eval- definitions of tax rules, including more uation and reform, notably in assessing the stakeholder consultation, and the in- outcome of reforms introduced through troduction of simplified tax procedures the Mining Law of 2009. That legislation for artisanal miners. has been under review for some time and availability of the MSD findings can help • Revenue management and its allocation to identify shortcomings in the design of are generally assessed as performing the law and in the ability of institutions to relatively strongly apart from quality of implement the law. The next step in the public investment management, which World Bank’s assistance through NR4D falls, however, outside the purview of will, therefore, build on the MSD findings the mining sector. to assist the government to design a re- • The area in which the room for im- form program for the Indonesian mining provement seems to be greatest is in sector. managing the local impacts of mining. Performance needs to be strengthened especially on consultation with local communities, public disclosure and dissemination, the monitoring of envi- Mining Sector Policy and Management 4 Background Context and Objective The Mining Sector Policy and Management Workshop is the second of two workshops and follow the first workshop on the socialization of the MSD Report the at was held in late Oc- tober 2018. During the discussion session of the second workshop, a number of thematic areas drawn from the results of the mining diagnostic were identified as needing further indepth analysis. These areas cover: 1. Mine Inspection performance (including monitoring and evaluation of operation); 2. Transparent and accountable environmental and social performance disclosure; 3. How to boost mineral exploration and mining investment; 4. Cadastral licensing; and 5. Proper management of artisanal and small-scale mining, including their fiscal contribu- tion. Workshop Components The first part of the workshop is a plenary session in the main hall to present the find- ings of the MSD. The second part of the workshop separated the participants into breakout sessions. Each breakout group focused on one of the five thematic areas identified through the MSD. The discussion in each separate meeting rooms was led by a moderator whose expertise correlateds with the topic at hand. The participants in each group had been informed earlier through their invitations to prepare discussion materials for the breakout session and they were grouped accord- ing to their expertise to contribute effectively to the discussion of each topic. The third part of the workshop brought the participants back together in the plenary hall. Before the closing remarks to the plenary session, the points of discussion and recommendations from each group were briefly presented and a final action plan for each topic will be agreed on. Participants - Directorate General of Minerba; - Civil Society Organizations; - Representatives of subnational min - Academia; and ing agencies; - Media representatives. - Other related government agencies; - Global Affairs Canada; - Private sector representatives; - State-owned enterprises (SOEs); Mining Sector Policy and Management 5 Welcome Address “Policy is part of innovation. You only have two choices: disrupt yourself by creating new policies or get disrupted by other policies” -Arcandra Tahar In his address, Pak Arcandra Tahar, posed a question on getting tangible benefits from the activity. The kind of benefits which de- pends on the outcome of today’s workshop and the participant’s skills and experience to produce outputs that are beneficial for all stakeholders. Arcandra Tahar The Vice Minister has the conviction that Vice Minister of MEMR every man-made product is flawed and has a loophole, including policies. This means that there is always room for improvement. He hopes to receive good recommendations for policy improvement, that can form the basis on which the government can reform the mining sector. The ministry always welcomes feedback from stakeholders and investors and is also eager to see the results of the workshop dis- cussions. Nevertheless, the government will certainly have to work over a period of time to properly implement those recommenda- tions in order of priority. Mining Sector Policy and Management 6 Opening Remarks Mr. Land opened his remark with a statement of the World Bank’s mission in Indonesia to share global knowledge and work together with local partners to identify tailor-made solutions to strengthen Indonesia’s economic and social development. The workshop brings together stakeholders who want Indonesia to take advantage of its rich mineral endowment to bring benefits to the people. As requested by DG Minerba, the World Bank hired the IMI to conduct the MSD an analyt- ical tool - to find out if the current legal and regulatory regime are well defined and im- Bryan C. Land plemented within the sector. Lead Energy & Extractives Specialist, The World Bank The idea of having the workshop followed an earlier workshop with the government officials in late October 2018, during the so- cialization of the MSD results. It was decided by DG Minerba, to invite a wider set of stake- holders to discuess the mining policy and management framework using the MSD re- sults to provoke discussion. The World Bank recognizes that MSD is just one of the few things - there have been many studies in the past and stakeholders all have From left to right: Abdoellah Mojaddedi (GAC their own experiences to share. The Banks is Canada), Messers Bryan Land and Frederico Gil not here to lecture Indonesians on what to do, Sander (World Bank), Pak Arcandra Tahar, Prof. but rather to provied fuel for discussion. Irwandy Arif (IMI), Pak Muhamamad Wafid (Min- erba) and Pak Rizal Kasli (PERHAPI) Mr. Land hopes that the workshop discussions will be useful to DG Minerba and stakehold- ers as Indonesia continues to review and re- forms mining policies, law and regulations to strengthen the sector. Mining Sector Policy and Management 7 Plenary Presentation All of the central IUPs have registered on and familiarized themselves with online platform; the remaining IUPs at subnation- al level are currently being socialized in its use. The ministry now expects to become the backbone of revenue newly introduced system now requires a 100 percent payment compared to the previous manual method that enabled payment in installments. On the subject of mining governance, Pak Muhammad Wafid highlighted the DG’s achievement in reducing non-CnC IUPs from around 10,000 IUPs to a residual 542 IUPs, also highlighting the strong coordi- Muhammad Wafid nation with related parties to achieve the Program Director, success in managing permits Directorate General Mineral and Coal In his presentation, Overiew of the Indone- Reconciliation of IUPs sian Mining Sector, the Director stressed the importance of the sector pursuant to the rich variety of the country’s mineral resources and abundance of coal resources which are IUP & IPR National spread across the archipelago. 4,345 IUP The production plan for coal in 2019 is 489 million tons as coal is still one of Indonesia’s primary expert commodities that is relied on to reduce the balance of trade deficit. Metal & Non-met- The Domestic Market Obligation for coal has al & Coal 2,486 Rocks IPR 107 reached 115 million tons in 2018 from 76 mil- lions tons in 2017 and the next target is 128 IUP 1,752 IUP million tons in 2019. Domestic utilization of coal is dominated by coal-fired steam power plants (70 percent). Metal 1,378 Coal 1,108 IUP Moving on to the achievement of non-tax rev- IUP enue collection, the ministry is quite proud of the DG Mineral and Coal’s performance in exceeding the target of Rp 32 trillion and col- lecting Rp 50 trillion in 2018. As of April 2019, the subsector has collected Rp 12.7 trillion Explora- Explora- Op Prod Op Prod out of the targeted Rp 43 trillion in 2019. In tion 55 tion 11 1,097 IUP 1,323 IUP this regard, the implementation of the ePNBP IUP IUP application has been quite effective in accel- erating revenue collection. Mining Sector Policy and Management 8 Another aspect of improvement in mining The industry Development Master Plan governance is the management of regula- 2025-2035 states that Indonesia will be- tions. The aim of creating regulations is to come a strong industrial country. The min- guarantee the optimization of minerals and ing sector, has worked hard to contribute coal while increasing the role of the sector to achieving this goal through industrial- in national development. As such, the min- ization of minerals and coal. One example istry has undertaken a breakthrough by de- being accomplished is the pioneer effort regulating, simplifying regulations, revoking from Pertamina and PTBA to transform low permits, reducing requirements for obtain- rank coal to DME or other petrochemicals ing licenses, combining regulations and re- to increase added value. ducing the application time for permits. All of the government’s efforts in reforming the regulatory landscape ultimately leads to a strengethening of the downstream indus- try side. Downstream development triggers a multipliers effect to create jobs, boost re- gional and national development, improve the investment climate, strengthen national ownership through divestment and secure state revenue. The current value of investment in mineral and coal sector is US$ 7,234 million com- prising 68 percent in coal and 32 percent in the mineral subsector (2018). This is, an increase from US$ 6,138 million in the pre- vious year. 2019 is targeted to bring in USD$ 6,174 million. Future investment opportunities in the min- ing sector, mainly comes in the form of: -- Capital and technology of bauxite, iron, ore and zinc refinement. -- Capital and technology for coal gasifica- tion in the course of transitioning from a pilot plant to commercial application. -- Technological development of Rare Earth Elements (defense equipment). One of the coordinated strategic nation- al plans is with PINDAD in developing de- fense equipment. Most of their equipment is currently produced from materials sourced from other countries, even though Indonesia is, in fact, rich in the raw materials needed. The only problem is in the midstream pro- cessing value chain, where the mining and industry sectors need to improve coordina- tion. Mining Sector Policy and Management 9 Working Groups Working Group 1: the responsibility and authority for mon- itoring. “Boosting Exploration -- Low level of competency of the mine in- Activities and Investment” spectors, in particular related to mining operations technology advancement. Key findings discovered in the discussion and proposals for solutions are: -- Restricted budget to conduct mine in- spections. In East Kalimantan, for exam- -- The allocation of exploration funds in the ple between 2015 and 2017 no budget state budget is necessary for executing was allocated for inspection activities. first stage exploration activites. This will The projected budget for 2019 is Rp 650 hopefully boost investor confidence in million which is extremely low for the 192 conducting exploration. The allocation IUPs in East Kalimantan. can also improve the resources data in- -- Mine Inspectors are additionally tasked ventory in Indonesia. to monitor illegal mining activities. -- Stakeholders are aware of challenges -- Very low quality and quantity of support- facing the above proposals which is com- ing infrastructure to do the job such as, ing from the legislative front. vehicles, computers, and work stations. -- There is room to strengthen regulations -- The scope of work of mine inspectors is and agencies that regulate exploration too broad and not clearly defined. activities as well as related to other regu- latory instruments. -- These mine inspectors are also not equipped with adequate information and -- Building cooperation between compa- technology capacity related mine in- nies and government in the discussion spection. on prioritization of commodity areas for exploration. The working group proposed several solu- -- The bidding procedure for exploration tions below, each corresponding to the num- areas should be reviewed and improved. bered challenges identified above: To do so, more discussions with mining experts should be initiated to comple- -- Development of technical guidance ment the improvement in the bureaucra- (juknis) on coordination and communi- cy. cation with regard to mine inspection. -- An exploration guarantee fund can be -- Effective traning and secondment pro- considered by the government during grams at mining companies for mine in- the initial phase of exploration. spectors. -- Serious assessment must be undertaken to allocate a budget for mine inspecton Working Group 2: activites. “Performance -- Mine inspectors should not be autho- of Mine Inspection” rized to monitor illegal mining (not stipu- lated in the regulations). A number of challenges were identified by -- The lack of adequate of infrastructure the working group on the topic of how to im- and office support for mine inspectors prove the performance of mine inspection. should be taken into serious account. These challenges are: -- There should be a division in the scope -- Communication barrier between mine of work of mine inspectors, according to inspector, Dinas at subnational level and each of their competencies; e.g. inspec- DG Minerba. There is a lack of clarity on tors specifically for monitoring coal min- Mining Sector Policy and Management 10 ing and inspectors for road hauling su- -- A quota for community mining areas at pervision. each IUP sites can be applied, mimick- -- IT can undeniably ease monitoring work, ing PIR (Perkebunan Inti Rakyat = coom- for example, in water quality monitoring, munity’s core plantation) in the agricul- drones to monitor mine sites, and a track- ture sector. ing system for hauling road supervision. -- A firm definition of community mining There is an imminent need to gear up the and small-scale mining must be devel- mine inspectors capabilities in IT. oped. -- Include gender mainstreaming aspects in community mining. Working Group 3: -- Strengthen coordination horizontal- ly across ministries and vertically with “Community Mining/ ASM Manage- subnational governments to manage ment” community mining. The key issues that were identififed by this -- Abolish technological restriction in the working group are: operation of community mining. -- Inclusion of community mining in the -- Obtaining permit for community mining supply chain of SOEs to add value to the is not easy process. -- No clear definition exits on community mining -- Gender mainstreaming aspects have yet Working Group 4: to be included in the discussion of com- “Spatial Licensing” munity mining. -- The illegal status given to community This particular working group looked into mining invites the involvement of illicit the challenges and barriers found in min- funders (mafia). ing operations related to spatial licensing including land permit overlaps. The discus- -- Ineffective role of subnational govern- sion session identified a few key findings as ment in managing community mining. follows: -- Restriction of technology in the opera- tion of community mining. -- National, provincial and regency or city spatial plans often clashes with each -- Other mining commodities besides gold other. There are also overlapping land do not find a presence in the discourse of right permits between sectors. community mining management. -- IUP areas must be clearly defined and -- Community mining includes neither included in spatial plan (Rencana Tata clear mine closure plans nor reclama- Ruang Wilayah: RTRW). tion. -- Overlapping and land conflicts causes -- Community mining operations should ineffective optimization of mineral and be legitimately requested to complete coal’s potentials and high operating AMDAL (environmental impact assess- costs. ment) and follow good mining practices in accordance with its scope of business. Some recommendations to tackle the above issues are presented: Pursuant to the issue identification and dis- cussion, the group produced the following -- Re-enacting Presidential Decree No. recommendations: 1/1976 which prioritizes the mining sec- tor in land and space utilization. -- Legalization, prioritization and remov- al of discrimination towards community -- In relation to the above, re-enacting the mining are necessary. Joint Ministerial Decree of four ministers Mining Sector Policy and Management 11 (Internal Affairs, Mining, Environment and Forestry, and Agriculture). Working Group 5: “Transparency of Environmental and Social Performance” The main issues discusses with regards to the impact of mining operations on environ- ment and social aspects are: -- Regulations are sectoral in nature and do not apply a sustainable monitoring pro- cedure. There are disparate perceptions on environmental and social criteria to be adhered to as a result of minimal so- cialization efforts by the government. -- Accurate and valid data are often un- available, thus causing erroneous deci- sion-making. -- For the purpose of building integrity and knowledge of stakeholders, a capacity building program on transparent and ac- countable environmental and social im- pact management is advised. -- Community development programs should not be considered based on the amount of funding to create the program but rather on the degree of benefit and sustainability of the programs. The proposed recommendations to tackle the identified challenge include: -- The need to organize continuous regu- lation socialization and synchronizaton across sectors coupled with integreated and coordinated monitoring systems that are simpler. -- A uniformed data base used by the regu- lators needs to be developed. -- Design capacity building programs on knowledge improvement and division of roles and responsibilities. -- Develop formal guidelines on design and implementation of community de- velopment programs. Mining Sector Policy and Management 12 Policy Paper Series The next step in conjunction with the com- pletion of the Mining Sector Policy and Management Workshop is preparing a se- ries of policy papers, based on the themes of the working group discussions. The thematic policy series will be devel- oped through a coordinated effort between DG minerba, the World Bank, PERHAPI and IMI. A peer review process is in order at the finalization stage of each of the thematic pa- per series before the official publication of the policy papers. The MSD is expected to be a good kick-start to trigger many stakeholder dialogue plat- forms and generate a more concrete output on recommendations for policy reform and a detailed plan of actions to strengthen of the implementation of mining governance in Indonesia. Stakeholder Groups 3 24 Total • • Government Private Sector Participants: 44 • Academics • NGO/CSO 11 112 • Others 18 Gender Comparisions 28 Total • Male Participants: 72 • Female 112 Mining Sector Policy and Management 15 Government 2 2 2 4 18 2 2 2 4 2 6 2 Total 2 2 2 2 Participants: 112 2 2 2 6 2 2 2 2 8 2 2 2 8 2 • Minerba • BKPM Sulawesi Tengga- • Geologi • ESDM Kalimantan Timur ra • KLHK Kalimantan Sela- • Biro Klik • BKPM Sulawesi Selatan tan • KLHK Bangka • BKPM Kalimantan Barat • KLHK Sumatra Selatan • PPPA Kalimatan Timur • KLHK • ATR/BPN • ESDM Direktor Teknik • ESDM Bangka • KESDM • Kesehatan • ESDM • DESDM Maluku Utara • PPPA Kalimatan Selatan • KPK • Menko Maritim • Menko • Bappenas • BKF • KLHK-PWAT • BKPM • BKPM Kalimatan Tengah • BKPM Aceh • Kemendagri Mining Sector Policy and Management 16 Workshop Agenda Data & Time Thursday, May 2, 2019 Location Pullman Jakarta Indonesia Hotel Participants DG Minerba, Private Sector, Embassy of Canada (GAC), CSOs, Academia, Media 13:00 - 14:00 1’ Registration & Snacks 14:00 - 14:25 5’ PERHAPI Chair- man 5’ Welcome Address The World Bank 10’ Vice Minister EMR 5’ Group Photo 14:25 - 14:40 15’ Indonesia Mining Sector Review Dir. Program Development, DG Minerba 14:40 - 14:55 15’ Mining Sector Diagnostic Report IMI 14:55 - 16:35 100’ Breakout Session Group Moderator 16:35 - 17:50 75’ Group Presentation PERHAPI 17:50 - 18:00 10’ Closing Remarks Dir. Program Development, DG Minerba 18:00 - 19:00 60’ Dinner Mining Sector Policy and Management 17