Institutional Roles and Accountability of State Owned Enterprises

Institutional Roles and Accountability of State-Owned Enterprises By Patrick Heller

Disampaikan Dalam Diskusi Publik “Mencari Model Kelembagaan Sektor Hulu Migas Dalam Revisi Undang – Undang Migas” yang diselenggarakan oleh PWYP Indonesia bekerjasama dengan Revenue Watch Institute Jakarta, 4 Desember 2013

1. Core Principles: The Chatham House Principles

1 Clarity of goals, roles and responsibilities

2

Sustainable development for the benefit of future generations

3 Enablement to carry out the role assigned

4 Accountability of decision-making and performance

5 Transparency and accuracy of information

Source: Chatham House, 2005

Natural Recourse Charter

Precept 6: “Nationally owned resource companies should be accountable, with well-defined mandates and an objective of

commercial efficiency.”

Archetype 1: Norway

Policy

Monitoring and Regulation

Commercial Operations

Archetype 2: Angola

Policy

Commercial Operations

Monitoring and Regulation

2. Benefits and Risks of National Participation

What are some major benefits that a country can gain from national participation?

• Development of national skills

• Long-term economic control

and financial returns

• More effective state control

over the pace and

development of the industry

• Stimulator of local content and

positive economic spillovers

NOCs

IOCs

Majors

Average $ per employee, 2004

NOCs $962,000

IOCs $1.8 million

Source, Victor 2007

What are some risks that go along with national participation?

A. Inefficient Project Development and Revenue Collection

B. Underinvestment - Pemex

Source: Pemex

C. Unaccountable management of public revenues

$32 Billion

D. Poor relationships with citizens

• Unrealistic expectations

• Weak social outreach

• Low environmental protection standards

• Lack of coordination with decentralized governments

Policy

Monitoring and Regulation

Commercial Operations

Strategy

3. SOE accountability mechanisms

A. Define roles clearly and limit conflict of interest

“Exporting the Norwegian Model” Low Political Competition High Political Competition

High Institutional Capacity Quadrant III -Consolidate functions initially -Consider separating functions as becomes more pluralistic Example: MALAYSIA

Quadrant IV -Separate functions Examples: NORWAY, BRAZIL, MEXICO

Low Institutional Capacity Quadrant I -Consolidate functions Example: ANGOLA

Quadrant II -Develop technical and institutional capacity Example: NIGERIA

B. Develop a workable model for State-SOE fiscal flows

All revenues to consolidated fund/special funds, NOC to

receive allocation from parliament

NOC can retain a predefined part of revenues from the petroleum

sector

NOC retains all revenues from production share/equity and

pays taxes and dividends to the state

Degree of

State control

1

2

3

High

Low

C. Regular reporting of key data

Transparent reporting of:

• Volume and price data for oil sales

• Revenue streams

• Spending and earnings projections

• E&P activities of NOC and private oil companies

• Reserve and production data, and future estimates

4. Indonesia and the Resource Governance Index – Pertamina reporting

• Publishes detailed annual reports, including information on reserves, production, value of exports, investment, costs (http://www.pertamina.com/investor-relations/)

• Publishes information on taxes and dividends paid to the state

• Independent audits

Source: http://www.revenuewatch.org/countries/asia-

pacific/indonesia/overview

BP Migas/SKK Migas Reporting

• Published annual reports (only 2012 seems currently available) (http://www.skkmigas.go.id/publikasi/laporan-tahunan)

• Published information on reserves, production volumes, investment, costs

• Did not publish information on prices of oil sales, value of production, government share in PSCs

• Did not publish contracts