Developing Regional Framework for Extractive Industries in ASEAN

Morentalisa Hutapea and Emanuel Bria

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Most economies in Southeast Asia are driven by extraction of natural resources. Foreign Direct Investment (FDI) in extractive sector for instance is relatively high. In Indonesia for example the mining sector is accounted for 17% of total FDI (BKPM, 2012). While in Malaysia 20% of FDI is in oil and gas sector (MIDA, 2012) and in Laos, almost 93% of the total FDI is in mining sector (IISD, 2008). Revenues from natural resources also contribute significantly to the national budget of some resource-rich countries in the region. Oil and gas revenues account for more than 85% of Brunei national budget and in Timor Leste more than 90%. Malaysia receives more than 40% of oil and gas revenues in their annual budget and Indonesia more than 30%. Despite the fact that economic growth in the region has gained so much from extractive industries, conflict, corruption, human rights violations, and environmental degradation have become everyday experience in these countries. We believe that these problems arise due to mismanagement and bad governance in extractive sector. If governed well, natural resources can turn the region grow and develop sustainably and benefit the poor communities. Building on this spirit and as part of IKAT-US funded project Revenue Watch, Institute for Essential Services Reform (IESR) and other regional partners from several countries in Southeast Asia such as the Philippines, Vietnam, Cambodia, Myanmar, Malaysia, Timor Leste and Indonesia have been working together to develop a regional framework to better govern extractive industries in the region. This will become region wide civil society proposal to Association of Southeast Asia Nations (ASEAN) which hopefully will be adopted at regional level and also by the individual state members. The framework will be further presented during ASEAN Peoples Forum in March 2014 in Myanmar. ASEAN Peoples Forum is a mechanism established for civil society to voice their contribution to development of ASEAN. From December 16-17, 2013 civil society partners from the region descended to Jakarta, Indonesia to work together developing the regional framework on extractive industries. IESR took the leading role to provide the first draft of the framework and obtained inputs from other civil society partners. The discussions on the first day were focused on the principles of better management of extractive industries which took into account the elements of good governance, respect of human rights, environmental protection and better economic policies with regard to management of extractive sector. On the second day, the draft regional framework was presented in a multi-stakeholder panel discussion moderated by Emanuel Bria of Revenue Watch. IESR Director, Fabby Tumiwa, presented the draft framework building upon existing ASEAN Charter and ASEAN ministerial joint statements about good governance of extractive industries to ensure that the language resonates well w ith ASEAN vision and values. Fabby also outlined the basic principles proposed in the framework which include (1) natural resources should benefit the people in the region and contribute toward just and equitable development; (2) extractive industries should ensure meaningful participation of local communities in decision chain; (3) promote fair licensing and fair contract; and (4) transparent spending of revenues coming from extractive industries for greater benefit of the public. Noke Kiroyan, an Indonesian expert on mining and currently vice chairman of Indonesian chamber of commerce and industry, presented good standard and principles of mining operation from decision to extract (prior to operation), during mining operation and after the mining operation or mining closure, which is similar to the value chain advocated by Revenue Watch and other civil society groups. He basically drew his presentation from ISO 26000 which lays down the principles social responsibility in mining sector such as transparency, accountability, ethical behavior, rule of law, respect of human rights, respect for international norms and behavior, and respect for stakeholder interest. He also suggested that before extraction of natural resources commenced a Free Prior Informed Consent (FPIC) process should be in place to secure social license to operate and ensure that local communities are fully consulted and provided their consent. These principles resonate well with civil society proposal stated in the regional framework therefore there is a hope that

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IESR Program Officer RWI Senior Regional Associate Asia Pacific

private sector and civil society groups can continue to join hand promoting better management of extractive industries in the region. Despite the fact that there are good international standards in managing extractive sector, lots of problems continue to happen in practice. Many mining companies in the region still undermine these principles in their operations. In respond to this, the speakers and participants agree that government should take more active role to enforce the mining regulations, adopt good international practices in national laws, and punish companies which do not follow the rules. This will give incentive to the rise of responsible mining in the region. Another speaker at the regional forum was Professor Emil Salim who currently is the chairman of advisory council to the Indonesian president. He basically highlighted the fact that most ASEAN countries economic growth is fueled by extraction of natural resources. He also revealed the unfair market structure of extractive sector. He said this unfair market structure puts poor and developing countries at the bottom of economic value, exporting only raw materials to be processed in developed countries. The poor and developing countries therefore do not get maximum value of their resources. He called upon countries in ASEAN to start developing downstream industries in this sector such as smelter and refinery to gain more value added from their natural resources. Professor Salim stressed that the governments in the region have a very crucial role to take brave decisions to change this market structure. The good news for Indonesia is that starting from January 12 this year as mandated by Law no. 4, 2009 and further detailed in government regulation no. 1, 2014, mining companies operating in Indonesia can no longer export raw materials. The raw materials from minerals and coal have to be processed in the country to better capture their value added, creating more local employment, increase local knowledge, skills and technology transfer. Prof. Emil Salim also advocated for the adoption and effective implementation of Extractive Industries Transparency Initiative (EITI) by the governments in the region to promote transparency in the extractive sector. Transparency is the key concept here to ensure that citizens are well informed about the decisions made by their governments and the industry so that they can actively involve in public debates to ensure sustainability of resource use and intergenerational justice, he concluded.

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