Ekuatorial

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Oligarchs enjoy boom from natural resources

Illustration: a business man rejects an envolope containing money

August 26, 2020

By May Rahmadi

Deputy Chairman of the Corruption Eradication Commission (KPK) Lili Pintauli Siregar appeared in a hurry. In an online discussion entitled “Natural Resources are Destroyed, Corruption Flourish” on July 14, 2020, Siregar could not participate for the entire three hours as she had to leave for another meeting.

But the former commissioner of the Witness and Victim Protection Institute did talk a bit about corruption in the natural resources sector. She said that KPK data showed a real imbalance. She cited the example of oil palm plantation ownership where 10 large corporations controlled more than 2.5 million hectares while 2.1 million smallholders only had 4.7 million hectares.

The imbalance was also staggeringly clear in the management of forests, with more than 40 million hectares in the hands of companies , “while 1.7 million (hectares) are owned by communities,” Siregar said.

The natural resources sector is an important one that touches issues such as agrarian, environmental, spatial planning, forestry, mining, agriculture and plantation, and energy as well as in maritime affairs and fishery.

Siregar explained that the natural resources sector contributed Rp 1,408 trillion, or around 10.89 percent, of the country’s Gross Domestic Product (GDP) in 2017. The sector also provided employment to more than 37 million people and contributed Rp 99.91 trillion in tax an non-tax state revenues that same year.

But this same sector, an important contributor to the country’s economy, is also a fertile ground for corruption. Egi Primayogha, a researcher with Indonesia Corruption Watch (ICW), said that there were four corruption-prone points in the natural resources sector; permit processing, spatial planning, manipulation of or negligence in meeting the obligations of companies, including manipulation in taxes, royalties, and transfer pricing and last, supervision.

An ICW research showed that in 2019, there were 271 cases of corruption involving 580 suspects that caused the state losses of up to Rp 8.4 trillion. The research also found that there were bribery that reached a total value of Rp 200 billion. Those involved in corruption cases included 26 executives of state-owned enterprises (president directors and staff), 45 village chiefs, 213 civil servants and 149 individuals from the private sector.

Graphic above shows the number of officials and individuals from the private sector named as suspects in corruption cases in 2019. Source: Indonesia Corruption Watch (ICW)

A number of cases were state capture corruption, systematic political corruption through a role of the state. Primayogha explained that this type of corruption involved a collusion between players from the private sector and the government, to influence public policy. An example cited was the case of the Riau-1 power plant that involved an executive of the state utility company Perusahaan Listrik Negara (PLN), members of the People’s Representative Assembly (DPR) and entrepreneurs.

It was a case of entrepreneurs bribing members of the legislative council in order to win the Riau-1 power plant project. In the process, the KPK suspected PLN executives to have participated in the case by assisting the legislator in receiving bribes from entrepreneurs.

This type of corruption is likely to continue to take place as there are many coal entrepreneurs who hold public position. “There are many rich elites in the coal industry that have good connections or hold public position, so this gives way to conflicts of interest and state capture corruption,” Primayogha said.

Siregar claimed that the KPK had accorded special attention to the issue of natural resources. The KPK has the “National Movement to Save Natural Resources” program (GNP-SDA) that conducts compliance monitoring on business players, using compliance audit that includes spatial, social and environmental aspects, improvement of the system and regulations, and coordination and supervision of across ministry/institution problems.

GNP-SDA can also detect special cases, produce breakthrough policies, and de-bottleneck problems.  “We have come up with a number of recommendations for ministries/institutions so that they engage in improvements. This becomes relevant in light of the national strategy to prevent corruption in relations to three things: regulation on the processing of trade permits, law enforcement and bureaucratic reforms, and the management of state finance,” she said.

The natural resources sector is prone to corruption and this lead to a significant impact on state losses. 2018 ICW data showed that from the four cases of corruption in the mining sector that year, the state lost up to Rp 5.9 trillion.

And by May 2020, the KPK had handled 27 cases of corruption in the natural resources sector.

The National Movement to Save Natural Resources was declared in 2014, but the Corruption Eradication Commission (KPK) has started monitoring the natural resource management processes in 2009. Source: Corruption Eradication Commission (KPK)Sumber:

The domination of oligarchs

At present, coal mines were mostly controlled by just a few people. Primayogha said that four large companies — Bumi Group, Indika Group, Adaro Group and Toba Group — controlled the coal mining sector. All these companies had close ties with people in the government.

And it is this that can illustrate how the mining oligarchs worked. Primayogha said that an oligarchy constituted a political wealth defense scheme for people who had material wealth.

Oligarch are individuals who controls a large concentration of natural resource materials. This material resource is then used to maintain or increase personal wealth and an exclusive social position.

“Oligarchies are usually understood as a governance by a few,” he said, “There very few people there and they are all rich people. The few but wealthy. The Mining Oligarchies is just a few rich people who control mines. It is also the case for the other oligarchies. “

Oligarchies, he added, are capable of controlling the media, governments, political parties and even the law, and all these have led to massive corruption.

“There is the term crony capitalism which means a closeness between entrepreneurs and those in power. Industries then tend to be rent-seeking, entrepreneurs benefited if they were close to those in power,” he said.

The National Coordinator for the Mining Advocacy Network, Merah Johansyah believed that mining oligarchies will continue to exist in Indonesia because it is backed by a supportive political system. He said that based on a research conducted by the KPK,  in order to become the head of a district or municipality in Indonesia, an individual would need between Rp 20 billion to Rp 30 billion while to become a governor, some Rp 100 billion were needed.

“To become a president, means much more would be needed, Meanwhile the wealth reports of state officials only put their wealth at Rp 5 billion to Rp 6 billion only,” he said, “There is therefore a gap and this gap is filled by binding political sponsorship. Entrepreneurs would go see the head of a region, hands out money to sponsor them which would later have to be repaid with mining permits,” he explained.

The impact, would be that the quality of their political campaigns would be uniform as contestants in all regions would talk, or not talk, about the same issues.

“Their vision and mission would be more or less the same. No one would talk about the crisis that is being faced by natural resources and the environment,” Johansyah said.

The collective authority in power

Sajogyo Institute Researcher Eko Cahyono explained that there were four types of oligarchies according to Jeffrey A. Winters, a political scientist specializing in the study of oligarchies. He spelled them as the warring, collective ruling, sultanistic, and civil types. Cahyono said he deemed that Indonesia tended to have the second type of oligarchies, the collective ruling type.

“The reality in Indonesia is that their general characteristics tend towards the collective ruling oligarchies,” he said.

He said there was a strong relation between the executive, the legislative and the judicial in political terms. The elite was filled in majority, by politicians who are also entrepreneurs/businessmen.

“And at the same time, with wealth spread in many fields and across sectors. They have media, oil palm plantation, mines, cigarette factories and others,” Cahyono said.

The wealth of this handful of people is set on a clear imbalance. Cahyono cited data from Transformation for Justice (TUK) Indonesia that showed that 25 oil palm taipans dominated 5.1 million hectares of oil palm plantations. “One oil palm company can control 1.2 million hectares,” he said.

Meanwhile data from the National Team for the Acceleration of Poverty Mitigation (TNP2K) showed that one percent of the population could control 50 percent of Indonesia’s natural wealth, “So, the problem is imbalance,” said Cahyono.

And this imbalance would only be exacerbated if the current draft Omnibus law is passed into law. Oligarchs would then be able to maintain their wealth and power for much longer.

Cahyono cited the example of Point 4 of Article 127 of the Draft Omnibus law, which stipulated that the Right of Exploitation (Hak Guna Usaha or HGU) would be extended to 90 years. “Even during the Dutch time, the maximum was 75 years. So, it would become worst. If the draft Omnibus law is passed, we will only regress to the state of early in independence but we would even be worst off then in the colonial era. And that is only just one article,” he said.

“If the Omnibus Law is passed, that would mean a boom for oligarchies in natural resources. A boom in the sense of welfare and prosperity,” Cahyono said.

Johansyah added, that even at present 44 percent of Indonesia’s land surface was already divided between mining operations in oil and gas, minerals, metals, coal and geothermal energy.

“And we are not even yet talking of oil palm concessions ect.,” he added. Ekuatorial.

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