Final Report Extractive Industry and Local Economy: A Case of PT Newmont Nusa Tenggara in Kabupaten Sumbawa Barat
Copyright @ 2013 Lembaga Penyelidikan Ekonomi dan Masyarakat - FEUI
Lembaga Penyelidikan Ekonomi dan Masyarakat Fakultas Ekonomi Universitas Indonesia Kampus UI Salemba, Jl. Salemba Raya 4, Jakarta 10430
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Acknowledgements The authors listed below gratefully acknowledge the financial grant provided by SEADI-USAID. Constructive feedback and comments from Tim S. Buehrer, Ashok Menon, and Hery Kameswara are gratefully acknowledged. We greatly thank PT NNT for providing us with the access to the company’s information. Last but not least, we also thank Uka Wikarya, Nurkholis, Hamdan Bintara and Bisuk A.S Gultom for their excellent assistance during the project. All remaining errors are our responsibility.
Authors
Institute for Economic and Social Research Faculty of Economics (LPEM FEUI) University of Indonesia
Widyono Soetjipto Agus Salim Cita Wigjoseptina
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TABLE OF CONTENS Page TABLE OF CONTENS ............................................................................................... LIST OF TABLES ...................................................................................................... LIST OF FIGURES ....................................................................................................
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Chapter 1. INTRODUCTION ................................................................................. 1.1. Background.................................................................................. 1.2. Objective of the Research ........................................................... 1.3. Methods of the Research ............................................................
1 1 2 2
Chapter 2. REGIONAL PROFILE ............................................................................ 2.1. WEST NUSA TENGGARA PPROVINCE........................................... 2.1.1. NTB Economic Profile ........................................................ 2.1.2. Demographic Profile.......................................................... 2.1.3. Fiscal Profile ...................................................................... 2.2. WEST SUMBAWA DISTRICT ......................................................... 2.2.1. Economic Profile................................................................ 2.2.2. Demographic Profile.......................................................... 2.2.3. Fiscal Profile ......................................................................
3 3 3 6 9 10 11 14 16
Chapter 3. THE CONTRIBUTION OF PT NNT......................................................... 3.1. ECONOMIC CONTRIBUTION OF PT NNT ..................................... 3.2. FISCAL CONTRIBUTION OF PT NNT.............................................. 3.3. CSR CONTRIBUTION OF PT NNT ..................................................
18 18 26 31
Chapter 4. SURVEY RESULTS ............................................................................... 4.1. STAKEHOLDER INTERVIEWS ........................................................ 4.1.1. Economic Aspects.............................................................. 4.1.2. Employment Aspect .......................................................... 4.1.3. Fiscal Aspect...................................................................... 4.2. SUPPLIER’S SURVEY .....................................................................
34 34 34 36 38 39
Chapter 5. SOCIO ECONOMIC ANALYSIS ............................................................. 5.1. SOCIO-CULTURAL CHANGES........................................................ 5.2. ECONOMIC IMPACT.....................................................................
43 43 45
Chapter 6. CONCLUSION AND RECOMMENDATIONS .......................................... 6.1. CONCLUSION ............................................................................... 6.2. RECOMMENDATION....................................................................
49 49 50
REFERENCES ..........................................................................................................
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LIST OF TABLES Page Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 2.5 Table 2.6 Table 2.7 Table 2.8 Table 2.9 Table 2.10 Table 2.11 Table 2.12 Table 2.13 Table 2.14 Table 2.15 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 3.8 Table 3.9
GRDP of NTB by Economic Sectors In Current Prices 2006-2011 (Rp billions)....................................................................................... The Growth of NTB GRDP by Economic Sector In Current Price, 2000-2011 (%) .................................................................................. Population by Districts/Cities in NTB Province, 2011....................... Population 15 Years of Age and Over Who Worked by Economic Sector in NTB, 2006 – 2011 (person)............................................... Percentage of Population 15 Years of Age and Over Who Worked by Field in NTB, 2006 – 2011 (Percent) ........................................... Population 15 Years of Age and Over Who Worked by Level of Education in NTB, 2006 – 2011 (Person) ......................................... Percentage of Population 15 Years of Age and Over Who Worked by Level of Education in NTB, 2006 – 2011 (Percent) ...................... Realization Revenue of NTB Provincial Budget, 2008-2011 (Rp million and %) ................................................................................... Realization Expenditure of NTB Provincial Budget, 2008-2011 (Rp million and %) ................................................................................... GRDP of KSB by economic sectors in current prices 2000-2011 (Rp billions)....................................................................................... Growth Rate of KSB GRDP in Constant 2000 Price by economic sector, 2006-2011 (percent)............................................................. Percentage of Population 15 Years of Age and Over Who Worked by Field in KSB, 2010 – 2011............................................................ Percentage of Population 15 Years of Age and Over Who Worked by Level of Education in KSB, 2006 – 2011....................................... Realization Revenue of KSB, 2008 – 2011 (Rp million and %).......... Realization Expenditures of KSB, 2008 – 2011 (Rp million and %)... The Proportion of Primary Inputs of NTB Province in Mining Sector based on 2005 IRIO Table...................................................... Employment Generation of PT NNT across sector and region in Indonesia based on IRIO Model in 2011........................................... PT NNT’s Direct and Indirect Employee based on Nationality ......... Fiscal Impact Scheme of PT NNT to Central and regional Government ..................................................................................... The Distribution of Tax and Revenue Sharing, Local Tax and Retribution Related to Mining Industry........................................... PT NNT Fiscal Contribution to Central and Regional Budgets, 2005-2012 (Rp billions)..................................................................... PT NNT Spending for Community Development, 2006-2012 (in thousands US$)................................................................................. PT NNT Spending for Community Development, 2006-2012 (percent) ........................................................................................... The Five Years Goal Indicator of Success..........................................
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Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5
Distribution of Respondent by Location and Type ........................... Year of Established of Respondents ................................................. Respondent’s Type of Business ........................................................ Percentage of Workers Origin by Respondent................................. The outputs of respondents and their input sources.......................
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40 40 40 41 42
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LIST OF FIGURES Page Figure 2.1 Figure 2.2 Figure 2.3 Figure 2.4 Figure 2.5 Figure 2.6 Figure 2.7 Figure 3.1 Figure 3.2 Figure 3.3 Figure 3.4 Figure 3.5 Figure 3.6 Figure 3.7 Figure 3.8 Figure 3.9 Figure 4.1 Figure 4.2 Figure 4.3
West Nusa Tenggara (NTB) Province................................................ Distribution of NTB GRDP by economic sector in current price, 2000-2011 (%) .................................................................................. Population of NTB Province, 2006 – 2011 (person) ......................... Unemployment Rate in NTB, 2006 – 2011 ....................................... West Sumbawa District .................................................................... Distribution of KSB GRDP by economic sector in current price, 2000-2011 (%) .................................................................................. Population in KSB, 2006 – 2011 (person) ......................................... PT NNT sales, 2006-2011.................................................................. NTB GRDP with and without PT NNT, 2006-2011 ............................ Contribution of PT NNT to NTB GRDP, 2006-2011 ........................... KSB GRDP with and without PT NNT, 2006-2011............................. Contribution of PT NNT to KSB GRDP, 2006-2011............................ Growth of PT NNT sales, KSB GRDP, and West Nusa Tenggara GRDP................................................................................................. The Accumulation of PT NNT Fiscal Contribution, 2005-2012 (Rp billions) ............................................................................................. PT NNT’s Fiscal Contribution to NTB budget, 2005-2012 (Rp millions and percent)........................................................................ PT NNT’s Fiscal Contribution to KSB budget, 2005-2012 (Rp millions and percent)........................................................................ Procurement Spending of PT NNT in 2012 (percent)....................... Type of Survey Respondents ............................................................ Source of Input of Respondents.......................................................
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3 5 6 8 11 13 14 19 20 20 21 21 22 29 30 30 37 39 41
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Chapter 1
INTRODUCTION 1.1.
BACKGROUND
Resistance of local community over the activities of extractive industries has been continually growing in recent years in resource rich districts of Indonesia. This is due to the fact that local community feels that these industries do not bring significant benefit. This seems to be supported by the low Human Development Index (HDI) of related district. Most of natural resource extractive industries are located in remote area, where local community is commonly poor due to limited economic and social access, thus contributing to low HDI. The benefit of extractive industry to local economies is actually quite significant. In the case of mining, for example, the contribution of PT Newmont Nusa Tenggara in 2009 to National GDP and GRDP of West Nusa Tenggara were estimated to reach 0.12% and 15% respectively. While the fiscal contribution to budget of West Nusa Tenggara province, and budget of West Sumbawa district are projected to reach 3.74% and 16.73% respectively in 2009 (LPEM-FEUI, 2007). Similar pattern of significant contribution to local economy will be found in other resource rich districts where extractive industries operated. Yet, the expected “trickling down” effect is felt to be slow. Therefore, the condition of local people seems to be slowly improving. Sources of problem may be hypothesized, among others are, first, there is very limited connection of extractive industry to the local economy. Second, the fiscal revenue from extractive industry in local budget is dominantly disbursed for routine expenditure, such as salary, creating limited fiscal space for government program and investment. Third, local people do not have the capability and skill to be involved in skilled activities required by this kind of industry. Other causes are also possible. According to the World Bank and IFC (2002) there are often substantial social and economic benefits to local communities from mining operations, but that these do not come automatically. Lesson learned from several mining companies in South America reveals some important aspects: (i) benefits have to be sustainable, and outsource is the key; (ii) companies need a “social license” to operate, and a trilateral dialogue with open communication is key to achieving this; and (iii) a successful community development process will build social capital, but it needs management and funding. First aspect needs special attention. It means that outsourcing is the key and will create huge multiplier effects
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to the local economy, thus more employment may be created and is expected to bring wealth to the region. This research addresses the extractive industry and local community. PT Newmont Nusa Tenggara (PT NNT) in West Sumbawa District is used as a case. 1.2.
OBJECTIVE OF THE RESEARCH
The objectives of the study in general are to identify economic contribution of extractive industry to the local economy and to identify some problems related to extractive industry and the local economy. 1.3.
METHODS OF THE RESEARCH
The method of the research consists of three phases: Phase 1: Conducting descriptive data analysis. In this initial phase, the research focuses on (i) conducting regional data analysis, based on secondary data; (ii) estimating economic and identifying fiscal impact of PT NNT to the local economy as well as the employment creation of PT NNT by using Interregional Input Output Method, (ii) developing relevant instruments for analysis, such as questionnaires which will be used as guidelines for in-depth interviews and local FGDs to capture stakeholder perception on local employment creation. Phase 2: Conducting survey, in depth interviews, field study and observation to selected district. During this secondary phase, the research conducted field survey by interviewing local stakeholder on local employment created by PT NNT. The stakeholders may include Bappeda, Office of Mining and Energy, Office of Trade and Industry, Small and Medium Enterprises, Office of Labor, and PT NNT. Field survey was done in mid-end of May 2013. Phase 3: Analyze the findings and provide recommendation. In this final stage, the findings from the first two phases will be presented for further analysis. Some recommendations will also be provided to address the problems.
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Chapter 2
REGIONAL PROFILE 2.1.
WEST NUSA TENGGARA PPROVINCE
West Nusa Tenggara has a provincial status by the Law No. 64/1958 on the Establishment of Bali, West Nusa Tenggara (NTB), and East Nusa Tenggara Provinces (NTT). Two largest islands in this province are Lombok island in the west and Sumbawa island in the east (Figure 2.1). the capital of the province is Mataram located in Lombok island. The NTB consists of 8 districts and 2 cities. The districts are (i) Bima, (ii) Dompu, (iii) Lombok Barat, (iv) Lombok Tengah, (v) Lombok Timur, (vi) Lombok Utara, (vii) Sumbawa, and (viii) West Sumbawa. While cities are (i) Mataram, and (ii) Bima. Figure 2.1 West Nusa Tenggara (NTB) Province
Source: NTB dalam Angka (BPS, 2012)
2.1.1. NTB Economic Profile Mining and quarrying dominates the GRDP of NTB Province, even though 50 percent of NTB population still works in agricultural sector (Table 2.1). Since 2006, mining and quarrying has contributed consistently about 30 percent of GRDP. It is followed by agriculture and trade,
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hotel, and restaurant as the second and third major contributors to the GRDP. Their contributions are approximately 25 percent and 13 percent respectively. The contribution of agricultural sector has been declining for the last seven years (except in 2008 and 2011). This indicates that NTB experience structural transformation from agriculture-based economy to manufacturing and services in the long term. It is supported by the fact that the contribution of services, financial, and trade sectors have increased in GRDP composition. Table 2.1 GRDP of NTB by Economic Sectors In Current Prices 2006-2011 (Rp billions) Description 2006 1. Agriculture 6,505 2. Mining and quarrying 10,104 3. Manufacturing 948 4. Electricity, gas, and clean water 112 5. Construction 1,649 6. Trade, hotel and restaurant 3,384 7. Transportation and Communication 2,236 8. Financial, real estate, rent, services 1,141 9. Other services 2,512 TOTAL GRDP 28,596 Source: NTB dalam Angka (BPS, various years)
2007 7.181 12.669 1.083 130 1.917 3.951 2.456 1.315 2.816 33.522
2008 8.319 10.870 1.279 153 2.299 4.625 2.772 1.590 3.403 35.314
2009 9.117 15.851 1.491 178 1.854 5.411 3.027 1.878 4.203 44.014
2010 10.038 18.048 1.638 204 3.086 6.264 3.270 2.159 4.849 49.559
2011 11.350 12.888 1.758 226 3.473 7.215 3.545 2.486 5.785 48.729
GRDP of NTB nominally increased significantly from approximately Rp 28.60 trillion in 2006 to Rp 48.73 trillion in 2011. During the same period, average GRDP growth was 11.58 percent per annum. The growth of NTB’s GRDP is mostly supported by the growth in mining and quarrying sector and financial, real estate and rental services which grow about 68.56 percent per annum and 3 percent per annum respectively.
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Figure 2.2 Distribution of NTB GRDP by economic sector in current price, 2000-2011 (%) 2011 2010 2009 2008
year
2007 2006 2005 2004 2003 2002 2001 2000 0%
20%
40%
60%
80%
100%
% Agri c
Mi ni ng
Manuf
El ectr
Cons truct
Tra de, hotel
Tra ns port
Fi na nce s erv
other serv
Source: NTB dalam Angka (BPS, various years)
In fact, there is strong correlation between the growth of NTB’s GRDP with the growth of mining and quarrying sector. Table 2.2 shows that during the period of 2006 and 2011 the mining sector of NTB experienced negative growth twice, in 2008 and 2011 respectively. In those years the growth of GRDP is low, reaching 5.35 percent and even -1.67 percent in 2008 and 2011 respectively. While the other sectors of the economy have positive growth. This indicates that mining and quarrying has a strong impact to NTB’s economy. Table 2.2 The growth of NTB GRDP by economic sector in current price, 2000-2011 (%) Description 2006 1. Agriculture 11.87 2. Mining and quarrying 8.79 3. Manufacturing 9.22 4. Electricity, gas, and clean water 13.13 5. Construction 12.18 6. Trade, hotels, and restaurant 15.77 7. Transportation and communication 12.14 8. Finance, real estate, and rent Services 14.33 9. Other services 13.00 TOTAL GRDP 11.35 Source: NTB dalam Angka (BPS, various years)
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2007 10.39 25.39 14.24 16.07 16.25 16.76 9.84 15.25 12.10 17.23
2008 15.85 -14.20 18.10 17.69 19.93 17.06 12.87 20.91 20.85 5.35
2009 9.59 45.82 16.58 16.34 -19.36 16.99 9.20 18.11 23.51 24.64
2010 10.10 13.86 9.86 14.61 66.45 15.76 8.03 14.96 15.37 12.60
2011 13.07 -28.59 7.33 10.78 12.54 15.18 8.41 15.15 19.30 -1.67
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2.1.2. Demographic Profile The population of NTB in 2011 was 4,540,060 person (Figure 2.3). Given NTB’s total area of 20.153 km2, the population density was about 225 person/km2. The population of NTB is mostly concentrated in Lombok island in which three districts are densely populated (Table 2.3). Since 2006, the population of NTB has shown an increasing trend. Population growth is about 1.32 percent per year. Given increasing trend of population growth, employment opportunity has become a major challenge for the local government. Figure 2.3 Population of NTB Province, 2006 – 2011 (person)
Source: NTB dalam Angka (BPS, various years)
Table 2.3 Population by Districts/Cities in NTB Province, 2011 District/City Lombok Timur Lombok Tengah Lombok Barat Bima Sumbawa Kota Bima Dompu Kota Mataram Lombok Utara Sumbawa Barat
Jumlah Penduduk 1.116.745 868.895 606.044 443.663 419.987 406.910 221.184 202.092 144.018 116.112
Source: NTB dalam Angka (BPS, 2012)
About 45 percent of the population works in agriculture (Table 2.4 and 2.5). It is followed by trade, hotel, restaurant (about 17.5 percent) and financial real estate, and rent (about 12 percent), as the second and third largest sectoral employments. Even though the agriculture sector employs highest worker, the trend is declining toward 2011. Employment in Extractive Industry and Local Economy
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agriculture sector declines about 0.19 percent per year. This fact supports the argument above that the economy of NTB is experiencing structural transformation. Table 2.4 Population 15 Years of Age and Over Who Worked by Economic Sector in NTB, 2006 – 2011 (person) Description 2006 1. Agriculture 899.526 2. Mining and quarrying 42.772 3. Manufacturing 190.271 4. Electricity, gas, and clean water 1.176 5. Construction 65.587 6. Trade, hotel and restaurant 346.017 7. Transportation and Commu114.523 nication 8. Financial, real estate, rent, 14.864 services 9. Other services 232.080 TOTAL 1.906.816 Source: NTB dalam Angka (BPS, various years)
2007 929.975 30.895 195.357 1.407 92.263 350.279
2008 866.695 41.475 209.940 4.688 96.900 326.537
2009 884.215 33.068 213.099 6.430 93.951 347.247
2010 1.005.240 62.373 204.111 4.926 85.007 372.560
2011 872.088 49.587 169.577 2.508 89.284 370.239
121.228
122.575
127.792
109.118
85.578
17.539
16.167
14.220
15.307
29.560
217.239 1.956.182
219.804 1.904.781
247.358 1.967.380
274.291 2.132.933
293.819 1.962.240
If we analyze the employment figures for the last two years (2010 and 2011), the number of people working in financial, real estate and rental services has increased significantly. Number of people working in this sector in 2011 increased 93.11 percent compared to the subsequent year. In the same time, sector experiencing significant decline in number of worker is electricity, gas, and clean water by 49.09 percent. Table 2.5 Percentage of Population 15 Years of Age and Over Who Worked by Field in NTB, 2006 – 2011 (Percent) Description 2006 1. Agriculture 47,17 2. Mining and Quarrying 2,24 3. Industry 9,98 4. Electricity, Gas, and Water Supply 0,06 5. Construction 3,44 6. Trade, Hotels, and Restaurants 18,15 7. Transportation and Communication 6,01 8. Financial, Rental, and Business Service 0,78 9. Services 12,17 TOTAL 100 Source: NTB dalam Angka (BPS, various years)
2007 47,41 1,58 10,01 0,07 4,73 17,95 6,21 0,9 11,13 100
2008 45,5 2,18 11,02 0,25 5,09 17,14 6,44 0,85 11,54 100
2009 44,94 1,68 10,83 0,33 4,78 17,65 6,5 0,72 12,57 100
2010 47,13 2,92 9,57 0,23 3,99 17,47 5,12 0,72 12,86 100
2011 44,44 2,53 8,64 0,13 4,55 18,87 4,36 1,51 14,97 100
Level of open unemployment in NTB is low (Figure 2.4). In 2011 the level is 3.52 percent. Since 2006-2011, the level of open unemployment in NTB has shown a decreasing trend, i.e. approximately 10.07 percent per year. It might be interpreted that employment opportunity has increased during the period resulting in higher labor absorption in the economy.
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Figure 2.4 Unemployment Rate in NTB, 2006 – 2011
Source: NTB dalam Angka (BPS, from various years)
Labor education level in NTB is not too good (Table 2.6). Highest level of education achieved by most of working population in NTB is primary school, i.e. approximately 27 percent. Ironically, percentage of working population who are not graduated from primary school is higher than those who graduated from high school, diploma, or even university. Since 20062011, number of working population who do not graduated from primary school does not show a declining trend. Table 2.6 Population 15 Years of Age and Over Who Worked by Level of Education in NTB, 2006 – 2011 (Person) Description 2006 1. No Schooling 301.856 2. Not Completed Primary School 309.618 3. Primary School 613.309 4. Junior High School 289.468 5. Senior High School 290.995 6. Diploma 47.445 7. University 54.125 Total 1.906.816 Source: NTB dalam Angka (BPS, various years)
2007 326.415 327.814 603.875 300.995 298.151 38.294 55.638 1.951.182
2008 289.241 452.386 475.052 280.765 266.765 32.096 108.192 1.904.781
2009 298.058 468.827 506.404 307.403 303.173 28.625 54.791 1.967.380
2010 303.359 466.397 499.961 342.311 391.084 40.948 88.873 2.132.933
2011 327.392 359.862 452.497 273.453 376.830 44.364 127.842 1.962.240
Table 2.7 Percentage of Population 15 Years of Age and Over Who Worked by Level of Education in NTB, 2006 – 2011 (Percent) Description 2006 1. No Schooling 15,83 2. Not Completed 16,24 Primary School 3. Primary School 32,16 4. Junior High School 15,18 5. Senior High School 15,26 6. Diploma 2,49 7. University 2,84 Total 100 Source: Calculated from Table 2.6
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2007 16,73
2008 15.19
2009 15.15
2010 14,22
2011 16,68
16,8
23.75
23.83
21,87
18,34
30,95 15,43 15,28 1,96 2,85 100
24.94 14.74 14.01 1.69 5.68 100
25.74 15.62 15.41 1.45 2.78 100
23,44 16,05 18,34 1,92 4,17 100
23,06 13,94 19,2 2,26 6,52 100
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Low level of labor education in NTB becomes major challenge to local government, especially when the economy undergoes structural transformation. The uncompetitive level of labor education in NTB will minimize the employment opportunities in labor market. Furthermore, the low level of labor education could pose a disincentive to investor who wants to recruit local worker. 2.1.3. Fiscal Profile During 2008 – 2011, the government of NTB applied budget surplus policy. In macroeconomic theory, budget surplus policy is good for suppressing demand pressure to slow down overheating economy. It is not clear however whether this budget policy is directed to slow down economic growth or not. The regional budget of NTB nominally also shows an increasing trend. The level of dependency of regional government to central government to obtain financial support is relatively high (Table 2.8). More than 50 percent of NTB budget revenue is from balancing fund (dana perimbangan) given by central government. Own regional revenue (pendapatan asli daerah/PAD) is about 40 percent of budget revenue. PAD of NTB however has been increasing since 2008. The increase is due to management of local wealth (kekayaan daerah), averaging 8,462.2 percent per year. Local tax revenue and retribution –as part of PAD- also increase averaging 13.81 percent and 18.21 percent respectively. Increasing tax revenue indicates that tax incidence in NTB is relatively good. Table 2.8 Realization Revenue of NTB Provincial Budget, 2008-2011 (Rp million and %) Description I. Own Regional Revenue 1. Local Tax Revenue 2. Local Retribution 3. Separated Wealth Management revenue 4. Other Legal Revenue II. Balancing Funds 1. Tax and Non Tax Revenue Sharing 2. General Allocation Funds 3. Specific Allocation Funds 4.Contingency Funds III. Other Legal Revenue 1. Revenue from Grants 2. Emergency and Special Autonomy Funds 3. Other Revenue TOTAL
2008 value 413,161 348,568 36,680 100 27,812 626,994 78,492 511,286 37,215 0 9,500 9,500 1,049,655
% 39.36 33.21 3.49 0.01 2.65 59.73 7.48 48.71 3.55 0.91 0.91 100.00
2009 value 474,454 369,172 50,047 25,192 30,041 701,179 98,723 554,431 48,024 0 341 341 1,175,974
% 40.35 31.39 4.26 2.14 2.55 59.63 8.39 47.15 4.08 0.03 0.03 100.00
2010 value 515,340 391,690 54,900 40,937 27,812 756,256 158,426 573,065 24,764 0 620 620 1,272,216
% 40.51 30.79 4.32 3.22 2.19 59.44 12.45 45.04 1.95 0.05 0.05 100.00
2011 value 741,291 506,909 59,556 135,639 39,185 855,310 162,674 646,671 45,964 0 92,749 5,449 87,300 1,689,350
% 43.88 30.01 3.53 8.03 2.32 50.63 9.63 38.28 2.72 5.49 0.32 5.17 100.00
Source: NTB dalam Angka (BPS, various years)
From expenditure side, the regional spending is relatively good. During 2008 – 2011, realization of local expenditure was more than 92 percent. It means that 92 percent of planed expenditure for government programs was able to be implemented. It is only once that expenditure realization in NTB is below 90 percent.
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Expenditure consists of indirect and direct expenditures. Indirect expenditure is government spending which does not relate to implementation of government programs and activities. Direct expenditure is the opposite of indirect expenditure. The expenditure that has great impact to the economy is direct expenditure, since it is intended for purchasing goods and services, and capital locally thus creating multiplier effect. The expenditure of NTB budget tends to prioritize indirect than direct expenditures (Table 2.9). More than 50 percent of NTB budget expenditure is spent on indirect expenditure. Table 2.9 Realization Expenditure of NTB Provincial Budget, 2008-2011 (Rp million and %) Description I. Indirect Expenditure 1. Public Services Expenditure 2. Subsidy Expenditure 3. Grants Expenditure 4. Social Expenditure 5. Expense of Sharing Holder 6. Expense of Financial Aid 7. Unpredicted Expense II. Direct Expenditure 1. Public Services Expenditure 2. Goods and Services Expenditure 3. Capital Expenditure Total Expenditure
2008 value 590,847 284,952 8,902 55 107,416 118,225 163 5 449,099 58,036 217,322 173,739 1,039,946
% 56.82 27.40 0.86 0.01 10.33 11.37 0.02 0.00 43.18 5.58 20.90 16.71 100.00
2009 value 724,553 357,906 6,542 29,666 847 164,138 80,725 872 375,984 45,188 196,983 133,813 1,100,537
% 65.84 32.52 0.59 2.70 0.08 14.91 7.34 0.08 34.16 4.11 17.90 12.16 100.00
2010 value 859,304 385,403 4,929 116,432 96,006 201,232 53,986 1,315 416,441 44,205 227,678 144,557 1,275,746
% 67.36 30.21 0.39 9.13 7.53 15.77 4.23 0.10 32.64 3.47 17.85 11.33 100.00
2011 value 886,085 426,228 2,994 138,283 99,291 176,666 40,632 1,988 764,516 37,987 276,464 450,063 1,650,601
% 53.68 25.82 0.18 8.38 6.02 10.70 2.46 0.12 46.32 2.30 16.75 27.27 100.00
Source: NTB dalam Angka (BPS, various years)
2.2.
WEST SUMBAWA DISTRICT
West Sumbawa district (Kabupaten Sumbawa Barat/KSB) is located in Sumbawa island, West Nusa Tenggara (Figure 2.5). The district was originally part of Sumbawa district and formally split out on December 18, 2003 to form a new district called KSB according to Law Number 30 Year 2003 on the Establishment of West Sumbawa District in West Nusa Tenggara Province. The district is headed by a definitive Bupati in 2005. The capital of KSB is in Taliwang. The district consists of 8 sub districts, namely Brang Ene, Brang Rea, Jereweh, Maluk, Poto Tano, Sekongkang, Seteluk, and Taliwang.
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Figure 2.5 West Sumbawa District
Source: KSB dalam Angka (BPS, 2012)
2.2.1. Economic Profile Macroeconomic condition of KSB could be analyzed from Gross Regional Domestic Product (GRDP) perspective. GRDP represents incomes of all economic agents in KSB. Before PT NNT operated in the district in 2000, agricultural sector dominates the district economy, especially crops to meet local needs. In same time, local community also raises cattle as part 1
of their farm activities and catch fish in the sea . GRDP of KSB by economic sectors in nominal term and percentage are presented in Table 2.10 and Figure 2.6 respectively. Mining and quarrying has dominated KSB economy since 2000. The contribution was more than 90% each year. This is primarily due to the contribution of PT NNT. The mining, mills, and infrastructure projects were completed in 1999 and PT NNT fully operated in 2000.
1
LPEM-FEUI (2007)
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The contribution of mining and quarrying in KSB tends to increase overtime in nominal terms. In 2000 the contribution was Rp 2.98 trillions or 92.3% of GRDP while in 2011 the 2
contribution reached Rp 12.00 trillions or 92.4% of GRDP . It is clear that the KSB economy reflects the intensity of PT NNT activities. Total contribution of the other 8 sectors in GRDP of KSB only accounted about 10 percent. Second largest contributor of KSB GRDP is agriculture sector which contribute about 2 percent. With no significant change during 2006-2011, it can be said that diversification of economic sector has not occurred in KSB. Mining and quarrying has been engine of growth in KSB and it is very risky to the local economy, especially when the mining and quarrying production or product price are declining. Table 2.10 GRDP of KSB by economic sectors in current prices 2000-2011 (Rp billions) Description 1. Agriculture 2. Mining and quarrying 3. Manufacturing 4. Electricity, gas, and clean water 5. Construction 6. Trade, hotel and restaurant 7. Transportation and Communication 8. Finance, real estate, rent, ser 9. Other services Total GRDP
2006 175.646 9.527.789 14.369 1.897 62.705 111.756 69.159 14.974 48.077 10.026.376
2007 190.993 12.163.942 15.820 2.258 85.864 123.445 74.150 16.670 52.221 12.725.366
2008 216.480 10.271.273 16.987 2.605 109.661 144.946 85.028 18.536 63.150 10.928.669
2009 231.775 15.097.359 19.075 3.075 145.084 170.180 90.895 21.234 77.671 15.856.352
2010 257.380 17.098.138 20.067 3.507 176.252 194.277 99.121 23.754 89.726 17.962.226
2011 288.272 12.002.526 21.711 3.922 202.631 226.420 110.746 26.527 103.797 12.986.557
Source: LPEM-FEUI (2007) and KSB dalam Angka (BPS, 2012)
During the last six years all sectors show an increasing GRDP contribution in absolute term. It seems logical to say it is a result of NNT activities. For example, the absolute contribution of agricultural sector has been increasing from Rp 104.51 billions to Rp 288.27 billions. Average annual growth of the sector is 9.7%. Its relative contribution to GRDP however is decreasing from 3.23% to 2.22%. This is mainly due to higher contribution of PT NNT to GRDP of KSB overtime.
2
Based on Head of Bappeda’s interview, the mining and quarrying sector contributes about 88.0% of GRDP in 2011 in constant price.
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Figure 2.6 Distribution of KSB GRDP by economic sector in current price, 2000-2011 (%) 2011 2010 2009 2008
year
2007 2006 2005 2004 2003 2002 2001 2000 0%
20%
40%
60%
80%
100%
% Agric
Mining
Manuf
Electr
Construct
Trade, hotel
Transport
Finance serv
Other serv
Source: LPEM-FEUI (2007) and BPS (2012)
During 2006 – 2011, KSB experienced an economic stagnation (Table 2.11). It could be detected from the slow growth of KSB real GRDP which was only 0.83 percent per year on average. During that period the growth of GRDP frequently fluctuates from positive to negative growth. Slow growth of GRDP might potentially hinder the effort to accelerate the unemployment and poverty reduction in KSB. The GRDP fluctuation in KSB is caused largely by fluctuation in the growth of mining and quarrying sector. Mining and quarrying sector only grow 0.43 percent per year on average. In the mean time, the other 9 sectors showed a positive growth during the same period. Construction has the highest growth rate averaging 15.97 percent per year.
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Table 2.11 Growth Rate of KSB GRDP in Constant 2000 Price by economic sector, 2006-2011 (percent) LAPANGAN USAHA 1. Agriculture 2. Mining and quarrying 3. Manufacturing 4. Electricity, gas, and clean water 5. Construction 6. Trade, hotels, and restaurant 7. Transportation and communication 8. Finance, real estate, rent services 9. Other services GRDP TOTAL Source: LPEM-FEUI calculation (2013)
2006 2.97 -6.02 5.25 7.41 12.12 9.77 7.31 6.10 3.51 -5.13
2007 -0.25 5.29 4.81 7.65 28.82 4.53 4.54 4.52 4.29 5.34
2008 5.38 -10.45 3.78 10.61 13.34 5.60 5.10 4.21 3.45 -9.09
2009 0.55 29.82 5.62 12.22 21.74 9.31 3.78 6.36 15.05 27.76
2010 3.39 12.96 4.03 8.63 12.21 8.22 5.91 4.24 5.26 12.46
2011 4.49 -29.00 4.62 9.65 7.59 7.65 6.39 5.15 7.05 -26.33
2.2.2. Demographic Profile Population of KSB in 2011 was 116.112 person (Figure 2.7). Given total area of 1,849.02 km2, population density in KSB was 62,8 person/km2. Since 2006, population of KSB tends to increase with population growth of 1.84 percent per year. Rate of open unemployment in KSB fluctuates during 2007 to 2011. It was increasing in until 2009, but decreasing toward 2011. Unemployment rate in KSB is considered low, it is about 4.99 percent in 2011. Figure 2.7 Population in KSB, 2006 – 2011 (person)
Source: KSB dalam Angka (BPS, various years)
Observing by economic sector in KSB, agricultural sector dominantly employs labor (Table 2.12). More than 30 percent of KSB labor working in agricultural sector. Even though many people working in the agricultural sector, the sector does not contribute significantly to local economy, i.e. only about 2-3 percent of GRDP. It is suspected that inefficiency occurs in human resource allocation at farm level. Service is the second largest sector that employs
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labor in KSB. Percentage of labor who works in the mining sector was 4.79 percent in 2011. For a single mining company, like PT NNT, the percentage is quite meaningful. Some workers outside KSB might be also worked for PT NNT. The decision to recruit non KSB labor is probably due to education background of labor in KSB which will be explained in the next section. Table 2.12 Percentage of Population 15 Years of Age and Over Who Worked by Field in KSB, 2010 – 2011 Economic Sector
2010
2011
1. Agriculture
33.32
37.7
2. Mining
6.28
4.79
3. Trade
19.9
16.05
4. Services
24.2
25.43
5. Others
16.3
16.03
Total
100
100
Source: KSB dalam Angka (BPS, various years)
Labor level of education in KSB is not good (Table 2.13). During 2007- 2011, about 30 percent of labor in KSB is primary school graduated. Percentage of labor who never goes to school or graduated from primary school is higher than those who graduated from senior high school, diploma, or university. Toward 2011, there is no tendency for improvement in the percentage of labor whose never goes to school or graduated from primary school. Given the data on labor education background, the employment opportunities is very limited, especially in sector which needs skilled worker. This could be the reason why only small number of worker could be employed by PT NNT in production and managerial position. As the result, local labor who graduated from high school might end up working in agricultural sector or equip herself with courses that may improve their skill, such as driving, computers, etc. to work in services industry.
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Table 2.13 Percentage of Population 15 Years of Age and Over Who Worked by Level of Education in KSB, 2006 – 2011 Description
2007
2008
2009
2010
2011
1. No schooling and Not Completed Primary School
16.76
17.74
20.49
23.24
22.98
2. Primary School
40.56
36.37
31.09
25.81
30.03
3. Junior High School
14.39
15.02
15.51
16.01
14.24
4. Senior High School
23.52
23.94
24.99
26.05
22.45
5. Diploma and University
4.76
6.94
7.91
8.89
10.3
Total
100
100
100
100
100
Source: KSB dalam Angka (BPS, various years)
2.2.3. Fiscal Profile During 2008 - 2011, source of KSB revenue has been mostly from balancing fund (Table 2.14). Balancing fund is fund transferred by central government. Therefore KSB budget revenue depends on central government transfer. Percentage of balancing fund is more than 50 percent each year. An interesting feature of KSB budget is that the contribution of other legal revenue is quite large. It contributed approximately 22 percent of total revenue which was higher than own regional revenue with 19 percent. Other legal revenue might consist of revenue from share in PT DMB and scrap metal given by PT NNT. The share of NTB province and KSB on PT NNT will be presented in the next chapter. Table 2.14 Realization Revenue of KSB, 2008 – 2011 (Rp million and %) Description I. Own Regional Revenue 1. Local Tax Revenue 2. Local Retribution 3. Separated Wealth Management revenue 4. Other Legal Revenue II. Balancing Funds 1. Tax and Non Tax Revenue Sharing 2. General Allocation Funds 3. Specific Allocation Funds III. Other Legal Revenue Total Revenue
2008 value 16,559 1,864 1,091 923 12,679 294,743 77,124 180,749 36,869 33,862 345,164
% 4.80 0.54 0.32 0.27 3.67 85.39 22.34 52.37 10.68 9.81 100.00
2009 value 22,058 1,665 1,020 1,090 18,283 314,597 95,164 173,465 45,967 99,861 436,517
% 5.05 0.38 0.23 0.25 4.19 72.07 21.80 39.74 10.53 22.88 100.00
2010 value 8,937 1,935 907 613 5,481 271,660 94,779 147,770 29,110 41,328 321,925
% 2.78 0.60 0.28 0.19 1.70 84.39 29.44 45.90 9.04 12.84 100.00
2011 value 122,933 11,767 3,439 21,094 86,123 384,301 144,229 214,927 25,143 141,765 649,000
% 18.94 1.81 0.53 3.25 13.27 59.21 22.22 33.12 3.87 21.84 100.00
Source: KSB dalam Angka (BPS, various years)
KSB expenditure showed an increasing trend in 2008-2011 (Table 2.15). The highest expenditure was for direct expenditure. Based on Minister of Interior Regulation No 13 Year 2006, the indirect expenditure is local government spending not related to government programs and activity implementation (apparatus spending), while direct expenditure is the opposite (public spending). In addition, capital expenditure within direct expenditure is an
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expenditure intended for the provision or development of fixed asset for long term use, such as infrastructure facilities. Table 2.15 below shows that the highest direct expenditure was for capital expenditure, followed by good and services expenditure and public services expenditure. This proportion of spending in the expenditure is quite good, since capital expenditure will support capital formation which is required to expand the local economy. However further information on how direct expenditure was spent based on sectoral activities –such as education, health, etc- was not available when this study is conducted. That kind of information will provide an explanation on the quality of expenditure. Table 2.15 Realization Expenditures of KSB, 2008 – 2011 (Rp million and %) Description I. Indirect Expenditure 1. Public Services Expenditure 2. Subsidy Expenditure 3. Grants Expenditure 4. Social Expenditure 5. Expense of Sharing Holder 6. Expense of Financial Aid 7. Unpredicted Expense II. Direct Expenditure 1. Public Services Expenditure 2. Goods and Services Expenditure 3. Capital Expenditure Total Expenditure
2008 value % 126,558 41.40 108,456 35.48 0 0.00 0 0.00 4,903 1.60 0 0.00 11,932 3.90 1,266 0.41 179,109 58.60 12,786 4.18 59,799 19.56 106,523 34.85 305,667 100.00
2009 value % 144,749 27.61 115,716 22.08 0 0.00 0 0.00 12,381 2.36 13,102 2.50 0 0.00 3,550 0.68 379,440 72.39 31,161 5.94 83,870 16.00 264,407 50.44 524,189 100.00
2010 value % 208,474 45.46 147,052 32.07 835 0.18 33,259 7.25 9,640 2.10 0 0.00 15,836 3.45 1,853 0.40 250,071 54.54 30,845 6.73 80,116 17.47 139,110 30.34 458,545 100.00
2011 value % 243,085 37.46 196,463 30.27 4,900 0.76 9,224 1.42 10,497 1.62 0 0.00 19 0.00 3 0.00 405,914 62.54 20,556 3.17 127,569 19.66 257,788 39.72 649,000 100.00
Source: KSB dalam Angka (BPS, various years)
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Chapter 3
THE CONTRIBUTION OF PT NNT PT Newmont Nusa Tenggara (PT NNT) has signed Contract of Work Agreement in 1986 with the Government of Indonesia to conduct exploration and exploitation in the Contract area of West Nusa Tenggara Province. In 1990 PT NNT found copper reserve, which is later called Batu Hijau (green rock). After the find, technical and environmental studies were done for 6 years. The studies were approved by the government in 1996 and served as the basis for the development of Batu Hijau Mining Project valued at US$ 1.8 billions. The mining, mills, and infrastructure projects of PT NNT were done in 1999 and PT NNT was fully operational in 2000. Newmont and Sumitomo serve as operators of PTNNT's Batu Hijau mine. Batu Hijau is a copper-gold mine located in the south west region of the Island of Sumbawa, Sekongkang sub-district, West Sumbawa district, West Nusa Tenggara province, Indonesia. More specifically the project and its facilities cover Maluk, Sekongkang, and Jereweh sub districts. Under the terms of a contract signed in 1986, the company’s shareholders -Newmont Mining Corp. and Sumitomo- must divest 51 percent of their shares in PT NNT to local investors after five years of commercial operation. The firms have divested 24% of their shares to PT Multi Daerah Bersaing, a joint venture of PT Multicapital -a business unit of PT Bumi Resources, which owns 18 percent share- and PT Daerah Maju Bersaing -consisting of three regional governments which own 6 percent share, i.e. the provincial government of West Nusa Tenggara, district of Sumbawa, and district of West Sumbawa. Therefore PTNNT is currently a joint venture company that is owned by Nusa Tenggara Partnership (Newmont and Sumitomo) 56 percent, PT Multi Daerah Bersaing (PTMDB) 24 percent, and PT Pukuafu Indah 20 percent. A further divestation of 7 percent from 56 percent Nusa Tenggara Partnership share is expected in the current year. 3.1.
ECONOMIC CONTRIBUTION OF PT NNT
The economic contribution of PT NNT to the local economy relates to the sales of PT NNT. Higher sales growth will have positive impact to local economy, and vice versa. Historical data on PT NNT sales –in term of shipment- is presented in Figure 3.1.
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Figure 3.1 PT NNT sales, 2006-2011 2,500
US$ million
2,000 1,500
1,000 500 2006
2007
2008
2009
2010
2011
year sales Source: PT NNT, 2013 Note: sales is approximated by the value of shipment
The figure shows a fluctuating value of PT NNT sales. During 2006-2011, the highest sale was in 2010 where shipment reached 831,177 dmt (dry metric ton). However in 2011, when the price of copper was higher than in 2010, the shipment was only 537,505 dmt. It created a slow down in sale in 2011. From theoretical perspective, economic impact of PT NNT to GRDP is transmitted by coppergold concentrate export in the mining sector at national, provincial, and district levels. In IO and IRIO models, the copper-gold concentrate shipment/sales will act as final demand shifter that increases GRDP through inter-industry and/or inter regional linkages. These direct and indirect effects might be analyzed by multiplier effects. 3
The economic impacts of PT NNT to NTB province (by using IRIO analysis) and KSB (by using 4
IO analysis) are presented in Figure 3.2 – 3.5. The contribution of PT NNT to NTB GRDP ranges from 25 – 37 percent of the total GRDP. While the contribution to KSB GRDP ranges from 75 – 99 percent.
3 4
IRIO model is presented in the Appendix IO model is presented in the Appendix
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Figure 3.2 NTB GRDP with and without PT NNT, 2006-2011 60,000
IDR billion
50,000 40,000 30,000 20,000 10,000 2006
2007
2008
2009
2010
2011
year
GRDP with PT NNT
GRDP without PT NNT
Source: LPEM-FEUI calculation, 2013
Figure 3.3 Contribution of PT NNT to NTB GRDP, 2006-2011 40
37
37 34
35 28
30
28
percent (%)
25 25 20 15 10 5 0 2006
2007
2008
2009
2010
2011
year
Source: LPEM-FEUI calculation, 2013
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Figure 3.4 KSB GRDP with and without PT NNT, 2006-2011 20,000 18,000 16,000 IDR billion
14,000 12,000 10,000 8,000 6,000 4,000 2,000 2006
2007
2008
2009
2010
2011
year
GRDP with PT NNT
GRDP without PT NNT
Source: LPEM-FEUI calculation, 2013
Figure 3.5 Contribution of PT NNT to KSB GRDP, 2006-2011 120
percent (%)
100
99 92
87
89
91
2010
2011
75
80 60 40 20 2006
2007
2008
2009 year
Source: LPEM-FEUI calculation, 2013
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Based on economic profile and economic impact analysis by using IRIO table, it is clear that the mining sector, i.e. PT NNT, has been the major contributor of NTB and especially KSB economies. Its share in KSB GRDP has been more than 90 percent on average during period of 2006-2011. It can be said that the economy of KSB depends heavily on the PT NNT activity. Figure 3.6 shows further that the growth of West Nusa Tenggara GRDP and KSB GRDP correspond to the growth of PT NNT sales. The reduction of production capacity of PT NNT 5
due to mining expansion site in 2011 , for example, has lowered the contribution of mining sector to the local economy. A 26 percent decrease in PT NNT sales growth was followed by a decrease in KSB GRDP growth about 28 percent. In the same, growth of NTB’s GRDP growth declined about 1.7 percent, since KSB GRDP contributes significantly to NTB GRDP. Figure 3.6 Growth of PT NNT sales, KSB GRDP, and West Nusa Tenggara GRDP 60 50 40 30
%
20 10 0 -10
2006
2007
2008
2009
2010
2011
-20 -30 -40
year growth of PT NNT sa l es
growth of KSB GRDP
growth of WNT GRDP
Source: LPEM-FEUI calculation from BPS (2012) and PT NNT (2012)
From economic model construction, IO/IRIO model provides three methods of GRDP calculation. The methods include the calculation from (i) expenditure/final demand approach, (ii) income/primary input approach, and (iii) production approach. Those three approaches should yield the same number.
5
http://www.thejakartapost.com/news/2010/01/07/ri-copper-gold-output-fall-2011.html
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To estimate how much percentage of GRDP that stays in NTB, we may use income/primary input approach. The income approach measures gross domestic product by summing incomes originating from production within the geographical boundaries of NTB. Factor incomes, so named because in a general way they correspond to the economic factors of production, labor and capital. In IRIO table, they are represented by (i) wages and salary; (ii) surplus; (iii) depreciation; and (iv) indirect tax. According to 2005 IRIO table, the proportion of each primary inputs are presented in Table 3.1. Table 3.1 The Proportion of Primary Inputs of NTB Province in Mining Sector based on 2005 IRIO Table No
Description
6
Explanation
%
1
Wages and salary
29.9
income paid to labor, either in cash or in kind
2
Surplus
55.2
include property rent, nett interest, and gross firm profit
3
Depreciation
7.5
allocating firm profit to replace capital good that wears of
4
Indirect tax
7.4
Tax levied by the government for every firm's sales
Total
100.0
Source: 2005 IRIO Table (BPS and Bappenas, 2006)
Wages and salary comprise about 30 percent of NTB GRDP from income approach. Assuming 7
68 percent of PT NNT workers are NTB’s origin , it means about 21 percent of wages and salary paid is enjoyed by NTB province. Firm’s surplus is the highest contributor of NTB GRDP from income approach. It contributes more than a half of GRDP, about 55 percent. As explained in the table, surplus may consist of several items, such as property rent, net interest and gross firm profit. While gross firm profit consist of before tax profit and shareholders right (dividend). After all payment obligation is deducted, the share of NTB in firm’s surplus is likely to be small. As already mentioned, the three local governments of NTB – Provincial government, Kabupaten Sumbawa Barat, and Kabupaten Sumbawa- only own 6 percent of PT NNT share. Therefore NTB only receives a small amount of income from firm surplus. Depreciation will go to the owner of capital good used in PT NNT activities. Since most of capital goods used are machinery imported from other regions or even abroad, this income from capital is slightly received by NTB province. 6 7
Daryanto and Hafizrianda (2010) Data from PT NNT
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Indirect tax will most likely be collected by central government. So tax revenue will go to central government. The tax revenue is used for financing national development. However tax revenue may be redistributed again to local governments across Indonesia as part of fiscal balance mechanism between central and local governments. Therefore, some of indirect tax revenue will be enjoyed by NTB province. Another economic impact of PT NNT operation is employment generation. Using the latest 8
and verified Indonesian Interregional Input-Output (IRIO) Table in 2005 , the research tries to estimate the employment generation by using the production value of PT NNT in 2011 as shock to regional economy. Table 3.2 shows employment generation due to PT NNT activity in KSB. The production value of PT NNT in 2011 has created direct and indirect employment about 57,687 jobs across Indonesia. The total job is resulted from inter-industry and interregional linkages. Table 3.2 Employment Generation of PT NNT across sector and region in Indonesia based on IRIO Model in 2011 No 1 2 3 4 5 6 7 8 9 10
Description Agriculture Mining: oil and gas Mining: non oil and gas Manufacture Electricity, gas, and clean water Construction Trade, hotel and restaurant Transportation and communication Financial institution, real estate, and rent services Public, social, and private services Total Percentage by region
Java and Bali 7,522 5,992 28 135 59 2 1,453 4,870 14 12 47 115 845 1,989 161 440 143 243 127 394 10,399 14,192 18.03% 24.60%
Sumatra
NTB* 3,783 3,556 1,711 20 784 9,579 5,616 3,633 2,348 31,030 53.79%
Kalimantan 518 31 127 1 4 119 31 22 19 872 1.51%
Sulawesi 186 21 1 53 7 6 3 277 0.48%
Others** 864 1 5 1 35 5 5 1 917 1.59%
Total 18,865 195 3,617 8,187 47 952 12,620 6,260 4,052 2,892 57,687 100.00%
Source: LPEM-FEUI calculation based on 2005 IRIO table Note: * including West Sumbawa district ** Others consist of Papua, Maluku, North Maluku, and East Nusa Tenggara Provinces
The highest employment is created in NTB (including KSB), followed by Java and Bali; and Sumatra. Total employment created in NTB is about 31,030 jobs or approximately 54 percent of total national employment creation. Despite mining sector itself, the highest employment generations in NTB are in (i) trade, hotel and restaurant; (ii) transportation and communication; (iii) agriculture; and (iv)financial institution, real estate, rent services sectors.
In the production activity of PT NNT, the mobility of goods and services (people) to and from 8
Methodology for IRIO is presented in the Appendix.
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PT NNTs mining site will be frequent. The mobility of goods and service will increase transportation activities and at the same induce trade activities. People mobility also relates to higher demand for food and accommodation (hotel and restaurant). PT NNTs employee and their family concentration in KSB will also create demand for goods and services. The demand for financial and housing services will increase the financial institution and real estate sectors. Furthermore, the demand for agricultural products will be supplied by agricultural sector in the region. All increase in those sectors will create job opportunities. The second and third largest employment generations related to PT NNT are in Java and Bali; and Sumatra which account about 14,192 persons and 10,399 persons respectively. They work on agriculture and manufacturing sectors. Agricultural products in Indonesia are mostly produced in Java and Bali (crop, fruit, meat, etc.) and Sumatra (fruit, palm oils, etc.). They are distributed to other provinces, including NTB province. A mining activity in KSB will demand food products to feed their employee. As the result agricultural activities in producing regions will increase and creating employment opportunity in the sector. The same analogy applies to high employment generation in manufacturing sector. For example, the need for steel of PT NNT is supplied from a vendor in Medan, North Sumatra. Further demand of steel due to PT NNT production activities will induce steel production which employs additional worker. The actual number of employee of PT NNNT however is higher than the ones predicted by the IRIO model. PT NNT’s data in Table 3.3 shows that the company directly employs 4,297 workers compared to 3,566 workers generated by the model. Based on Table 3.3, PT NNT employee who is NTB residents is about 68 percent of total Indonesian Nationality of which 37 percent are specifically KSB resident. The slight discrepancy between two figures might be caused by the definition of PT NNT employee. It might be that there is PT NNT workers who are hired from local labor services, such as security, cleaning services, driver, etc. So these kinds of workers are calculated as employment generated in services sector, and not in the mining sector. The number of workers in the IRIO model calculation is worker of PT NNT actually working in the mining sector.
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Table 3.3 PTNNT’s Direct and Indirect Employee based on Nationality No I
Description PT NNT Employee a. Indonesian Nationality (i) KSB (ii) West Nusa Tenggara province, non KSB (iii) Non West Nusa Tenggara province Sub total b. Expatriate
II
worker
1,572 1,333 1,350 4,255 42
Total PT NNT Employee
4,297
PT NNT Contractor and Sub contractor employee a. Indonesian Nationality b. Expatriate
4,363 55
Total PT NNT Contractor and Sub-con employee
4,418
Source: PT NNT (2012)
In the mean time, the number of workers working for PT NNT Contractor and Subcontractor are obviously distributed in sectors other than mining. They may work in services, transportation, trade sectors, etc. 3.2.
FISCAL CONTRIBUTION OF PT NNT
As business entity, PT NNT pays tax and non tax revenues to central governments under prevailing tax law. Taxes and non taxes payments will become domestic revenue in state budget (APBN). Then part of state revenue will be transferred to regional governments as regional expenditure. These transfers include tax and natural resource revenue sharing (BHP and BHSDA), general allocation fund (DAU), and specific allocation fund (DAK). These will become revenue in regional budget (APBD). Therefore the taxes and non taxes payment of PT NNT will benefit central and regional governments (Table 3.4).
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Table 3.4 Fiscal Impact Scheme of PT NNT to Central and regional Government FISCAL IMPACT DIRECT IMPACT
CENTRAL GOVERMENT I. Domestic Revenue
1. Tax revenue a. Domestic Tax i. Income tax ii. Value added tax iii. Land and building tax (PBB) iv. Excise v. Other tax b. International trade tax i. Import duty ii. Export tax 2. Non Tax Revenue a. Natural Resource Revenue b. State Owned Enter. Profit c. Other non tax revenue (PNBP) INDIRECT IMPACT II. Regional Expenditure 1. Balancing fund (DP) a. Revenue sharing fund i. PBB ii. PPh PS 21, Ps 25, Ps 29 iii. SDA b. General Allocation Fund (DAU) c. Specific Allocation Fund (DAK) TOTAL IMPACT Domestic Revenue – Regional Transfer/Expenditure
REGIONAL GOVERNMENT NON-PRODUCING PRODUCING REGION REGION I. Regional Revenue I. Regional Revenue 1. Own Revenue (PAD) a. Regional tax b. Retribution
2. DP (Direct) 1. DP (Direct) a. Revenue sharing a. Revenue sharing i. PBB iii. SDA ii. PPh Ps 21, Ps 25, Ps 29 iii. SDA
3. DP (Indirect) a. DAU b. DAK
2. DP (Indirect) a. DAU b. DAK
PAD+DP (DIRECT) + DP (INDIRECT)
DP (DIRECT AND INDIRECT)
Source: Law No.33/2004, Law No. 28/2009, and Government Regulation PP No. 55/2005.
Despite taxes and non taxes paid to central government, PT NNT also pays local tax and retributions to regional governments, both provincial and district governments. Local taxes and retribution include surface water tax, public road lights tax, vehicles tax, building license permit, etc. Thus local government will obtain benefit from PT NNT. Table 3.5 shows the distribution of tax and natural resource sharing, local tax and retribution related to the mining industry.
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Table 3.5 The Distribution of Tax and Revenue Sharing, Local Tax and Retribution Related to Mining Industry Percentage Sharing (%) No
Type of Payment
1
Profit tax: PPh 4, 14, 23
100
0
2
Individual income tax: PPh 21, 25/29
80
8
8.40
3.6
100
3 4
Corporate income tax: PPh 22, 27 Deviden interest and royalty income tax: PPh 26 Value added tax and Luxury good value added
100 100
0 0
0 0
0 0
100 100
100
0
0
0
100
6 7
Imported goods tax Land rent
100 20
0 16
0 64
0 0
100 100
8
Royalty
20
16
32
32
100
Applied in general mining
9
Surface water rent tax
0
100
0
0
100
Regional tax
10 11
Vehicle tax Vehicle ownership
0 0
100 100
0 0
0 0
100 100
12
Public road light tax
100
13
Land and Building tax
14 15
Betterment tax Other regional tax
16
Regional retribution
0
0
100
0
100
17
Building license permit
0
0
100
0
100
Other regional retributions
0
0
100
0
100
5
18
Province
Neighbor. districts 0
Explanation
Producing district 0
Central
Total 100
0
0
100
0
10
16.2
64.8
0
91
0 0
0 0
100 100
0 0
100 100
Collected by central government
Regional retribution
Source: Law No.33/2004, Law No. 28/2009, and Government Regulation PP No. 55/2005.
By using the formula stated in Table 3.5, the accumulation of fiscal contribution of PT NNT to central and regional budgets during 2005-2012 can be traced. The result is presented in Table 3.6 Figure 3.7. Total payment of PT NNT amounted to about Rp 31.85 trillion. The payment to central government alone was about Rp 31.55 trillion or on average about 0.4% of domestic revenue of central budget. Figure 3.7 shows that about Rp 9.55 trilion of Rp 31.55 trilion is spent by central government 9
for regional expenditure, such as DAU, DAK, etc . While central government developed a fiscal distribution formula with the intention to reduce disparity among regions, the result however shows that NTB region only received Rp 2.02 trillion (22 percent), while other regions (provinces) across Indonesia enjoyed the rest of Rp 7.52 trilion (78 percent). Looking more detail, during 2005-2012 the producing region (NTB, KSB, and other regencies/cities in 9
The figures presented in this part of analysis are estimated figures based on the fiscal model. The actual figures may differ from the estimated ones.
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NTB) received about Rp 675 billion, Rp 703 billion, and Rp 638 billion respectively from PT NNT fiscal contribution. Table 3.6 PT NNT Fiscal Contribution to Central and Regional Budgets, 2005-2012 (Rp billions) NO. I
Description PTNNT Payments to Central and Regional Govts
2005
2006
2007
2008
2009
2010
2011
2012
2005-2012
1,163.34
1,444.33
2,621.79
4,575.53
3,931.52
8,512.99
8,080.53
1,524.02 31,854.05
1,162.18
1,406.57
2,587.23
4,507.11
3,897.74
8,480.40
8,041.86
1,466.99 31,550.07
427.5
513.8
872.6
1,127.3
1,328.5
2,434.1
2,312.4
530.4
9,546.7
198.2
202.3
224.3
231.5
314.7
354.3
296.1
194.9
2,016.4
230.5
349.3
682.9
964.2
1,047.6
2,112.4
2,054.9
392.5
7,834.3
VI Revenue in APBD NTB Province
45.0
73.4
75.6
103.7
93.3
97.4
93.3
93.2
675.0
VII Revenue in APBD of Kab. Sumbawa Barat Revenue in APBD of other Reg/city in NTB VIII Province
83.7
71.2
79.0
68.0
114.4
123.2
100.5
63.0
703.1
69.5
57.6
69.7
59.8
107.0
133.6
102.3
38.8
638.3
II
Domestic Revenue in APBN
III
Regional Transfer/ Expenditure in APBN
IV Revenue in APBD of NTB Region*) Revenue in APBD of other province in Indonesia V **)
*) Consolidated for NTB Region (Province + Regency/City) **) Consolidated for regions outside NTB (Province + Regency/City)
Source: PT NNT (2013)
Figure 3.7 The Accumulation of PT NNT Fiscal Contribution, 2005-2012 (Rp billions) 35,000
31,854
31,550
30,000 25,000 20,000 15,000 9,547
10,000 5,000
7,834 2,016
675
703
638
0 Pembayaran PTNNT Penerimaan Dalam Transfer/Belanja Penerimaan APBD ke Negara dan Negeri APBN Daerah dalam APBN Wilayah Provinsi Daerah NTB*)
Penerimaan APBD Penerimaan APBD Penerimaan APBD Penerimaan APBD Wilayah Lain di Provinsi NTB Kab. Sumbawa Barat Kab/Kota Lain di Indonesia **) di Prov. NTB Prov. NTB
Source: LPEM-FEUI calculation, 2013
At regional level, the contribution of PT NNT fiscal payment to NTB budget was ranging from 4.2–9.9 percent during 2005-2012. On average it was about 7 percent of NTB budget (Figure 3.8). While the fiscal contribution of company to KSB budget was higher, ranging from 10.7 – 59.9 percent, or 24 percent in average during the same period (Figure 3.9).
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Figure 3.8 PT NNT’s Fiscal Contribution to NTB budget, 2005-2012 (Rp millions and percent) 20.0 140
18.0
120
16.0 93
100
93
14.0
93
12.0
76
73
80 60
97
9.9
10.0
9.9 8.8
8.5
7.9
45
8.0
7.7
6.0
5.5
40
(%)
(Rp. Miliar)
104
4.2
20
4.0 2.0
-
2005
2006
2007
2008
2009
2010
Kontribusi Fiska (Rp. Miliar)l
2011
2012
Share (%)
Source: LPEM-FEUI calculation, 2013
Figure 3.9 PT NNT’s Fiscal Contribution to KSB budget, 2005-2012 (Rp millions and percent) 80.0 140 70.0
123 114
120
60.0
101
50.0
84
80
79 71
68
40.0
63
32.5
60
28.8
26.4
40
(%)
(Rp. Miliar)
59.9
100
30.0
28.7
19.7
20.0
19.0
20
10.7 10.0
-
2005
2006
2007
2008
2009
Kontribusi Fiska (Rp. Miliar)l
2010
2011
2012
Share (%)
Source: LPEM-FEUI calculation, 2013
From producing region perspective, the percentages of fiscal contribution to NTB and KSB budgets from the total fiscal payment accumulation from 2005-2012 paid by the company were 2.11 percent and 2.21 percent respectively. Some say that fiscal payment returned to producing regions are very small. While at the same time local people believe that company’s fiscal contribution is very huge. The discrepancy between expected and actual contribution has not been publicly discussed. Extractive Industry and Local Economy
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3.3.
CSR CONTRIBUTION OF PT NNT
PT NNT commits to contribute on community development especially for people living surrounding the mining activities and PT NNT believes that taking part on social responsibility is important to do their business. Hence PT NNT developed the Strategic Plan of Community Development Program. First phase of strategic plan was done for period 2005 – 2009, and it is continued to the second phase of Strategic plan 2009 - 2013. The program focuses on three subdistricts. Those subdistricts are Maluk, Sekokang and Jereweh. The vision and mission of community development program of PT NNT is shown in Box 1 below. Box 1 Community Development Program Strategic Plan (2009-2013) Vision: Develop a healthy, smart, self-sufficient, prosperous and religious community. Mission:
1. Improve the quality of health human resources. 2. Improve the quality of smart and productive human resources. 3. Encourage and facilitate the creation of business opportunity and community economic activities. 4. Develop the natural potential of the area to an optimal, competitive and sustainable level. 5. Develop art, cultural and religious values in the effort of attaining a harmonized civil society. Source: “Social Impact Assessment – Batu Hijau Project Sumbawa Indonesia”, PT NNT and AMEC Geomatrix, 2010
To implement the missions, based on the presentation from community development (comdev) PT NNT (2013) the community development programs focuses on five main sectors namely health sector, education sector, business of economy sector, agriculture, fishery and tourism sector and religion, social and cultural sector. The program was planed based on participatory method. To do those programs PT NNT involved the local government, NGOs, contractors and consultants, universities and schools and also community groups/societies. PT NNT has allocated large amount of fund for community development program. Table 3.7 shows that during 2000 – 2012, PT NNT has spent US$ 107.4 million or US$ 8.3 million per year in average.
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Table 3.7 PT NNT Spending for Community Development, 2006-2012 (in thousands US$) Type of works
2006
2007
2008
2009
2010
2011
Infrastructures Capacity Building Contribution/donation Operational cost Total in thousand US$
1,769 1,167 1,102 1,621 5,660
1,731 1,176 925 1,842 5,675
1,832 1,587 1,316 2,059 6,796
2,430 5,387 12,703 1,415 2,599 5,946 749 1,171 2,918 1,538 1,946 2,155 6,133 11,104 23,724
Total 2000-2012 3,566 41,117 2,873 20,345 11,694 24,140 6,227 21,837 24,361 107,440 2012
Source: PT NNT (2013)
Table 3.8 PT NNT Spending for Community Development, 2006-2012 (percent) Type of works
2006
Infrastructures Capacity Building Contribution/donation Operational cost
31.26% 20.62% 19.47% 28.64%
2007
2009
2010
2011
2012
Total 2000-2012
39.62% 23.08% 12.21% 25.09%
48.51% 23.41% 10.55% 17.53%
53.55% 25.07% 12.30% 9.08%
14.64% 11.80% 48.00% 25.56%
38.27% 18.94% 22.47% 20.33%
2008
30.51% 26.97% 20.73% 23.36% 16.30% 19.37% 32.46% 30.31%
Source: PT NNT (2013)
Infrastructures development receives the highest portion of PT NNT community development spending (Table 3.8). The total share of infrastructure expenditure in PT NNT’s community development from 2006 – 2012 was about 38 percent compared to capacity building that only received 19 percent. The high percentage of infrastructure expenditure has created criticism. The company is expected to allocate more fund for capacity building, preparing the local community to participate in economic activities created by PT NNT and also to deal with post mining era. It is local government’s role to finance infrastructure development, not the company. However, PT NNT argued that infrastructure development is important since it could create access for local people to education, health, and transportation. Furthermore, local government is lack of funding ability to finance local infrastructure projects due to limited budget. The infrastructures development in comdev programs could in fact stimulate additional economic impact to the local economy through construction sector, thus creating additional job. This study, however, does not estimate the employment generation due to infrastructure development in comdev programs. Based on the presentation from community development of PT NNT (2013), the progress of the CD programs in 2012 is more than 90% and the program has some good achievements.
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The key performance indicator of PT NNT community development program is presented in Table 3.9. In health sector, PT NNT claims that the program done by CD program contributes to reduce malaria incident rate. In education sectors, PT NNT states that the study assistance program for students on junior secondary level and senior secondary level has contributed to increase graduation rate. Besides there was IDR 18 billion scholarship fund distributed to 3,242 students. Furthermore PT NNT also built some health and education infrastructures such as drainage, clean water facility, some community health centre and schools. Table 3.9 The Five Years Goal Indicator of Success Major Field Health
Indicators of Success Numbers of malnutrition children in Sekongkang, Maluk, Jereweh, monthly average Numbers of people with clean and healthy behaviour in 15 RT
Education
Economy
Agriculture, Marine, and Tourism
2012 Progress
<1%
0.33%
> 90%
89.19%
Malaria SPR in Sekongkang, Maluk, Jereweh
< 2%
1.47%
Graduation rate at Junior High School level in KSB
85%
99.66%
Graduation rate at Senior High School level in KSB
80%
99.90%
Graduation rate at Vocational School level in KSB
80%
99.66%
Enrollment rate at Elementary School level in KSB *)
n/a
99.68%
Enrollment rate at Junior High School level in KSB*)
n/a
96.79%
Enrollment rate at Vocational and Senior High School level in KSB*)
n/a
75.39%
Rp30,000
Rp35,742
Employment Rate in Sekongkang, Maluk, Jereweh (%)
>90%
93.21%
Omzet/capita/month of local SME labor under NNT supervision (xRp1000)
1,000
901
Farm income (xRp1000/HH/month)
1,500
1,163
Fisheries income (xRp1000/HH/month)
1,500
1,733
20%
-
Income per capita at Sekongakng, Maluk, Jrwh (/day)
Growth of tourism arrival (/th) Religion and Social-Culture
2013 Target
Number of preserved NTB traditional culture Religious conflict
3
-
0%
0%
Source: PT NNT (2013)
In agriculture sector, the intensification program using SRI (System of Rice Intensification) method done in 10 villages in three targeted districts has resulted in the increasing rice production from 4.59 ton per hectare in 2005 to 6.40 ton per hectare in 2012. Infrastructure of irrigation built by PT NNT also supported the improvement of agriculture productivity. In business sector, PT NNT has stimulated the growth of SMEs in KSB and NTB. From 2001 to 2012 PT NNT spent USD 313,318,000 for procurement to the local vendors and contractors.
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Chapter 4
SURVEY RESULTS 4.1.
STAKEHOLDER INTERVIEWS
4.1.1. Economic Aspects Despite so many economic contributions of PT NNT to the local economy, Bappeda of KSB 10
said that the economic benefit did not stay in KSB . He suspected that regional leakage has occurred in KSB, i.e. the economic benefit of PT NNT went to other regions. He estimated that only 5% economic benefit stays in KSB. Bappeda already identified several factors that contributed to regional leakages, among others are: a.
Lack of PT NNTâ&#x20AC;&#x2122;s backward and forward linkages with local economic sectors Most of PT NNT inputs are imported from other regions and the concentrate produced is exported. It means that there is no linkage with local economic sectors. While forward linkage is not possible due to the exported copper concentrate, backward linkage of PT NNT activity with local economic sector is expected.
b.
Wage and salary spent in KSB is relatively small Wage and salary is payment to input factor which is labor. It is one component of GDP from income approach. Theoretically, spending of wage and salary locally will stimulate the local economy. Bappeda KSB estimated that only 34% of PT NNT current workers are KSB residents who spend their wage and salary locally. The remaining 66% will potentially spend their wage and salary outside KSB, thus creating regional leakage.
c.
The extractive industry surpluses go out of the KSB region Other component of GDP from income approach is surplus received by the company for entrepreneurship. In the input-output table, surplus is translated as profit. In this case, profit will be enjoyed by the company and distributed to the shareholders. The majority of shareholders of PT NNT are foreign companies and non KSB companies. Therefore the surpluses of extractive industry will go out of KSB region.
10
Based on the interview with the Head of Bappeda of KSB
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d.
Tax revenues mostly go to central government Tax revenues could be used to finance government programs. The important and high valued taxes are collected by central government (see Table xx). They include profit tax, individual income tax, corporate tax, and value added tax.
Bappeda has been thinking of how to solve these regional leakage problems and take more benefit from PT NNT. First, concerning the local economic sector involvement in PT NNT, the most promising sector is agriculture, since other sectors in KSB have not developed yet. Agriculture is the second largest contributor to GRDP of KSB and expected to be able to supply the need for agricultural products of PT NNT. However there has to be serious and continuous effort to develop the sector, since continuity and quality of local supply to PT NNT are still the major issues. Staple food in KSB â&#x20AC;&#x201C;such as rice, maize, and sweet potato- is currently adequate. In some sub districts rice consumption is larger than production. However, horticultural products are quite limited. Some horticultural products like fruits and vegetables are rarely grown locally. Plantation product is dominated by coconut and cashew nuts. Local people raise cows, buffalo, goat and horses. They also catch fish in the sea. Pedigree chicken is not so popular until it has just recently been opened. It seems that agricultural sector requires a further boost. Secondly, to increase the wage and salary locally, the KSB government has issued Bupati Regulation Perbup No.9/2010 on the policy to employ local residents. The regulation said that PT NNT and its contractors should hire KSB residents at least 50% of their total workers. The regulation is implemented by coordination with PT NNT. There is no explicit punishment if the company could not accomplish the target. The local government declares that Local Economic Development Plan of KSB has been developed through cooperation with several institutions, such as PT NNT, CPR-Indonesia, and PSP3 IPB. The strategy is directed toward the development of: (i) micro scale agri business, (ii) micro scale non agri business, (iii) small enterprises, (iv) small medium enterprises (SME) in ecotourism, and (v) Green SME. For local economic sustainability post mining closure, local government has developed the Master Plan of Community Based Area Development in the Year 2010-2014. The plan specifies 6 packages to accomplish the objectives: a.
Policy package, which consists of (i) blue print of KSB local economic development, (ii) community empowering institution, (iii) marine culture and coastal area, (iv) optimizing forest area use for low emission(REDD)
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b.
Human resource package, which consists of (i) community empowerment etos, (ii) entrepreneurship design and strengthening education
c.
Business package, directed toward (i) seaweed, (ii) shrimp pond, (iii) SME in food/animal husbandry, (iii) agro forestry industry based on rattan and ecotourism.
d.
Financing packages, aimed at micro and small scale business, and investment in business and industry,
e.
Cluster development package, intended for (i) export oriented sales, (ii) household based partnership and cooperation, and (iii) infrastructure
f.
Management package, in the form of (i) central management office in 3 locations, and (ii) Expert workshop.
4.1.2. Employment Aspect There is no economic sector that can employ new labor force that come into market in KSB, since the economy has not developed yet. Their only hope is working for PT NNT that is seen as big company in KSB. Every student graduated from high school thinking of working in PT NNT. Bappeda estimated that the growth of labor force is 0.55 percent per year. In the mean time non mining wage is very uncompetitive compared to mining wage. The wage in non mining activity is Rp 30.000/personday, while wage in mining activity is Rp 75.000/personday. It almost two times the difference. Therefore, it is unattractive for younger generation to work in non mining activity, such as agriculture sector. There is also concern on income disparities in the community due to PT NNT operation. A general perception has also been formed that financial status of PT NNT and PT NNT contractor workers is better compared to other occupation. This creates jealousy and at the same time pressure to work in PT NNT. To lift the pressure on the obligation of PT NNT to recruit local labor, a strategy should be employed. One strategy is through community empowerment by providing training given in Balai Latihan Kerja (BLK/Vocational Training center). The curriculum for the training is adjusted so participant may become PT NNT worker or independent worker. However, Local Labor Office said that this strategy has not been effective yet, since the BLK is built in wrong location (by the sea). Local Labor Office also urges PT NNT to apply one door policy when recruiting local worker. Both of them form an institution called Batu Hijau Recruitment Committee (BHRC). This institute is managed by Human Resource Division of PT NNT and supervised by Local Labor Office in the process of local recruitment. The decision to hire local worker should be approved by Local labor Office.
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As already mentioned, at the same time local government issued Regulation Perbup No.9/2010 on the policy to employ local residents. The regulation said that PT NNT and its contractors should hire KSB residents at least 50% of their total workers. While the spirit is understandable, the regulation seems to be not effective. First, there is no explicit punishment by violating the regulation, since local government prefers to prioritize communication and negotiation on the implementation of the regulation. Secondly, the regulation said that who is meant by local resident is people who already live in KSB for 5 years. If the definition is literary translated, then it must be more than 50% of current worker of PT NNT are KSB resident. Thus, PT NNT already complies with the regulation. There is also issue of low capacity of business actors in KSB, both at individual and institutional level. Most individual business actor is in the stage of trial and error, while business institutions in KSB mostly are co-op, CV, and PT that need empowerment and coaching. Government regulation to empower these business actors has not been effective either. For example, local government has issued Bupati Regulation Perbup No.5/2010 that provides economic stimulus to local business actor by establishing cooperation between government and banking sector. However the result is not there yet. Due to the nature of commodities supplied and the capability of the companies to supply PT NNT, the procurement spending of PT NNT in 2012 was about 50 percent from foreign companies (Figure 4.1). About 47 percent was procured from national company located outside NTB, whereas 2 percent was from KSB and 1 percent was from NTB. Figure 4.1 Procurement Spending of PT NNT in 2012 (percent)
2% 1%
50%
47%
KSB
NTB non KSB
Na tiona l
Off-shore
Source: PT NNT, 2013
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Purchases that were made locally in KSB dan NTB provinces have the same characteristic, they are small scale general services which can be easily found locally, such as vehicle vendors, general contractors, general procurement, employment agencies, printing and advertisement agency, office supply/equipment, limestone quarry, and transportation services. While purchases made from other regions (nationally) is mostly for specific products that can not be produce/found locally, such as coal, heavy equipment, iron and steel foundry, mining equipment, fuel provider (PT Pertamina), medical evacuation, survey instruments, etc. 4.1.3. Fiscal Aspect When discussing PT NNT in KSB, it should be understood that it administratively involves three levels, i.e. central government, provincial government, and district government (KSB). Since PT NNT has a contract with central government, the obligation related to fiscal terms is largely directed to central government. Bappeda identifies potential additional revenue for KSB budget. For example, corporate tax which 100 percent collected by central government. The local government seems to be interested to take some shares from this tax revenue. Secondly, the role of local government has been acknowledged in the Law No 4/2009 on Minerals and Coal which give authority to local government to issue mining permit. Third, KSB government demands higher percentage of allocation fund from NTB government when discussing regional budget allocation. Since KSB GRDP contributes 26 percent of NTB GRDP, government of NTB should apply affirmative policy for KSB. The government of KSB is pleased that they currently have shares in PT NNT, by joining consortium of PT Daerah Maju Bersaing (PT DMB). It means that the regional government will receives part of the surplus. In 2009 three regional governments as members of the consortium received US$ 38 millions as share compensation. The fund is distributed 40% for NTB, 40% for KSB, and 20% for Sumbawa. KSB government and PT NNT cooperate in managing the fund for local empowerment program. KSB provides the fund and PT NNT evaluates business proposal sent by local entrepreneur to be financed. The fund is called DPPM (Dana Pengembangan dan Pemberdayaan Masyarakat) or Community Development and Empowerment Fund. Last year KSB also received grant from PT NNT valuing US$ 9 million in metal scrap. The grant is recorded and added as additional revenue to the KSB budget.
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Having understood the important role of direct expenditure in stimulating the economy, Bappeda also tries to allocate more budget to indirect expenditure. Currently the allocation of direct and indirect expenditures ranges between 35-40 percent and 60-65 percent, respectively. For example, if the budget of KSB is Rp 661 billion, then indirect and direct budget would be Rp 280 billion and Rp 380 billion or 42 percent and 58 percent respectively. In the mean time, the local government offices (SKPD) demand Rp 2 trillion for financing their programs. Bappeda has to allocate budget wisely on local programs that stimulate the economy. 4.2.
SUPPLIERâ&#x20AC;&#x2122;S SURVEY
To verify the model estimation and stakeholder interview, this study conducted a small survey to the vendors or suppliers of PT NNT in NTB. The objective of the survey is mainly to verify a pattern of local content and local job creation generated by the vendors and their supplier.
The respondents are divided into three categories (Figure 4.2), i.e. (i) the vendor that directly supply goods and services to PT NNT; (ii) layer 1 respondent which is the supplier of PT NNTâ&#x20AC;&#x2122;s vendor, and (iii) layer 2 which is the supplier of layer 1 respondent. The source of data on vendor is provided by PT NNT, while layer 1 and layer 2 respondents are generated directly from the interview with the vendor. Figure 4.2 Type of Survey Respondents
Vendor/ PT NNT
Supplier
Supplier of Vendor
Supplier of supplier
(layer 1)
(layer 2)
Source: LPEM-FEUI Survey 2013
The survey took sample of vendor and their suppliers in KSB, Mataram city and West Lombok District which represent the impact of PT NNT in NTB region (local economy). The total respondents are 39 companies. Sometimes vendor respondent does not want to share information on layer 1, since it is confidential. As the result, only small number of layer 1 and layer 2 respondents could be obtained. The distribution of respondent by location and type of respondent is presented in Table 4.1.
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Table 4.1 Distribution of Respondent by Location and Type Survey Location Mataram West City Lombok 11 0 44% 0% 4 1 33% 8% 1 0 50% 0% 16 1 41% 3%
KSB Vendor Type of Respondent
Layer 1 Layer 2
Total
14 56% 7 58% 1 50% 22 56%
Total 25 100% 12 100% 2 100% 39 100%
Source: LPEM-FEUI Survey 2013
Based on the year of established, 75 percent respondents in Mataram city have started before year 2000 (Table 4.2). Those respondents already operated before PT NNT started its operation in 2000. However, 82 percent of respondents in KSB were established after the year 2000. It means that the respondents in KSB have strong correlation with PT NNT which started to operate in 2000. Even 37 percent of the respondents in KSB just established after year 2008. Table 4.2 Year of Established of Respondents
Survey Location
KSB Mataram City West Lombok
Total Source: LPEM-FEUI Survey 2013
< 2000 4 12 1 17
Year of Establishment 2000 - 2008 10 3 0 13
Total > 2008 8 1 0 9
22 16 1 39
Most of respondents surveyed are not only specialized in one type business. Some of them provide two or more type of business. Table 4.3 presents type of business of the respondents. The highest type of business is in trading which accounts about 37 percent of the respondents. It is then followed by services (31 percent), production (22 percent), and agriculture (10 percent). Table 4.3 Respondentâ&#x20AC;&#x2122;s Type of Business Type of business
Type of Respondent
Vendor Layer 1 Layer 2
Total Source: LPEM-FEUI Survey 2013
Trading
Services
Production
12 5 2 19
16 0 0 16
7 4 0 11
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Agriculture/ Animal production 1 4 0 5
Total 36 13 2 51
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Table 4.4 presents the origin of worker of respondents. Total respondents employ 98 percent of their worker from NTB province in which 40 percent of worker from KSB. Only 2 percent of workers are originated from other province. This pattern is also found from respondent by type. Approximately between 96 â&#x20AC;&#x201C; 100 percent of worker of respondent are from NTB Province. It means that PT NNT created local employment for local worker within the province significantly. It does not necessarily in the mining sector, but also in other sectors in the economy. Table 4.4 Percentage of Workers Origin by Respondent Workerâ&#x20AC;&#x2122;s Origin Other NTB Province 59% 1% 66% 4% 24% 0% 58% 2%
KSB Type of Respondent
Vendor Layer 1 Layer 2
Total Source: LPEM-FEUI Survey 2013
39% 30% 76% 40%
Foreign country 0% 0% 0% 0%
Total 100% 100% 100% 100%
Source of input used in the production process of respondent is presented in Figure 4.3. About 67 percent of production input of the respondent is from NTB province, in which 26 percent is specifically from KSB. Production inputs used from KSB are generally from (i) quarrying and construction materials, such as sand, brick, etc.; and (ii) agricultural products, such as woods, seeds, and manure. These kinds of products are available locally in KSB. Figure 4.3 Source of Input of Respondents
1.2% 26.5% 31.2%
41.2%
KSB
NTB non KSB
Other Provinces
Others
Source: LPEM-FEUI Survey 2013
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Some illustrations on the outputs of respondents and their input sources are presented in Table 4.5. For some specific outputs, such as safety equipments and building materials, the inputs definitely come from other regions outside NTB, since the local economy could not produce those inputs, such as helmed, wearpack, shoes, and building materials. However for food services, the inputs should have been produced by local sources/economy, such as rice and fruits. In fact, some of these products are still imported from other regions outside NTB. Table 4.5 The outputs of respondents and their input sources Goods and Services produced by respondents Brick Limestone Fruits Roof tile Wood trader Construction services Ferilizer: compost Food services
input from KSB
inputs from NTB
Sand, woods, hoe heavy equipment rental, fuel fertilizer clay
clay fuel fertilizer Clay, coconut fiber wood Cement, sand, brick processing pot vegetables Steel, sand, plat, cement Wood, tools sand Cow, cement, knife Helmet, wearpack, shoes cow fish, vessel Labor cement
Sand, brick terpaulin Vegetables, fruit, rice
Building material Furniture Paving block Trading services: livestock
sand tools Sand, wood knife
Safety Equipment Cow Fish supplier Employment agency Brick House Keeping services Construction services
cow Fish, vessel Labor Sand, wood Labor Cement, labor, sand, brick
General contractor Nursery
Labor Seed
inputs from other region outside NTB sand plastic bag wood
Fruit, rice Steel, plat, cement Wood, tools Cement, wood Cow, cement Helmet, wearpack, shoes fuel Labor
labor fuel Labor, project project material material Fertilizer, plastic pot
Source: LPEM-FEUI survey, 2013
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Chapter 5
SOCIO ECONOMIC ANALYSIS As extractive industry presence ‘dominates’ local economy and surpasses the role of regional government, local expectations to the company in managing natural resources and relation with local community surrounding mining area has increased. These expectations are at least motivated by two aspects. First, mining activity has a potential damage to the environment that may affect local community. Therefore managing natural resources responsibly and sustainably and maintaining a good community relation should become the main priority of company. Secondly, increasing domestic and international pressure groups in monitoring mining practices and conflicts demand an active role of the company to respond appropriately. In the mean time, local community feels that they directly bear the negative impact and only obtain little benefit from mining activity, especially related to employment where local workers may have been less hired by the company due to capital-intensive nature of the industry. This chapter will review some socio-economic impacts of PT NNT mining activities to local economy/community, especially in KSB. The materials have been summarized from in-depth interview with stakeholders and some previous studies on the issues. 5.1.
SOCIO-CULTURAL CHANGES
PT NNT presence has obviously brought good and bad cultural changes in terms of values and norms of local community. Values are beliefs that guide people’s life, while norms are rules how people should conduct (code of conduct). Changes in norm occurred at individual as well as community levels. Company’s presence has an impact on changes in community values, especially in economic ones. For example, industrial culture brought by the company has increased how community valued their land higher than before, especially in areas related directly or indirectly to mining activities. The land value increase is caused by the expectation that the opportunity cost of land for agriculture uses is lower than that of (mining) industry. Industrial culture also causes an increasing wage. It is supported by the expectation that wage in industrial sector is higher than other sector (such as in agricultural sector). New value also emerges that payment for labor should be in terms of monetary values (wage) which once may be paid in kind. It should be acknoweldged that these facts are also driven
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by massive information and new culture. However, it can not be denied that the company presence is the main triger and accelerating the value changes. Industrial transformation has also driven mobilization from agricultural sector to industrial (mining) sector. This is caused by the belief that working industrial sector is more prestigious and rewarding. This fact produces an impact that new generation start leaving the old tradition of working in agricultural and forestry sectors. This is also accelerated by the fact that agriculture land decreases caused by land conversion which seek higher return. At the same time, the behavioral changes also happened in consumption pattern. Increasing income is followed by less expenditure for food and more on non food consumption, i.e. tertiary goods such as motorcyles (LPEM-FEUI 2007 and AMEC Geomatrix, 2010). Entertaining services then grows around mining area to cater consumption pattern changes, such as restaurant, hotel, cafĂŠ, bar, etc. While these establisment enjoy the economic benefit from company presence, they have disturbed traditional cultural value which give negative stigma, especially from religious perspective professed by the majority of the community. The company presence also changes levels of cooperation and conflict in the region. LPEMFEUI (2007) reported that level of cooperation in local community surrounding mining area is quite good. However, the cooperation between the company and local community based on social status tends to benefit middle-high income group of the community (village elite group). The company usually uses village elite group to approach local community for community development programs. Therefore, this village elite grup may benefit individually and/or their communities (see also Welker, 2007). Socio-cultural impact that has been directly felt by local community after the company presence is the jealousy among community members (LPEM-FEUI, 2007 and AMEC Geomatrix, 2010). There are at least two factors creating social jealousy. First, elite group due to their position could tap greater opportunities from the company related to job recruitment information and funding for program implementation. Second, some community members are recruited by the company. As company workers, they received relatively high fixed income compared to local standard and are guaranteed a decent living. The income inequality between the company workers and other community members clearly appeared from their homes, lifestyles, consumption pattern, etc. Social jealousy among community is at least sourced from income inequality. Social jealousy also emerges among subdistrict levels. As already set by the standard operating procedures, community development program of the company are focused on the areas surrounding mining operation, meaning only three subdistricts of Maluk, Sekongkang, and Jereweh. Substantial amount of fund has been allocated for comdev programs in these Extractive Industry and Local Economy
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subdristricts. The results are better infrastructures, health, education, and economic opportunities compared to other subdistricts in KSB. These facts create a demand for equal treatment of the company by the other subdistricts. Even the Bupati once said that the comdev programs should be better coordinated with local government programs. The LPEM-FEUI report (2007) also stated that conflict was rarely happened in mining area. Perception survey found that 24 percent of respondents said that conflict frequently occursed in his/her area against 76 percent who said there was no conflict in his/her area. The conflict occurred due to interaction between local community and the company, and interaction among community members (horizontal conflicts). The top three sources of conflict between company and local community are caused by lack of PT NNT contribution to village development, lack of compensation for (agricultural) land taken over by the company, and lack of local employment opportunity in the company. On the others side, there is however good cultural changes due to the company presence (LPEM-FEUI, 2007). Local community has increased their awareness on the importance of formal education. Again, this value transformation is the impact of industrial culture, especially in the areas surrounding mining activities. People clearly begin to understand that formal education and training could produce skilled labor needed by the industry. Therefore by attending formal education, they expect to be able to participate in the company as worker. 5.2.
ECONOMIC IMPACT
Mining activities in NTB certainly has an impact at national, regional, and local levels. It creates additional economic and fiscal impacts, directly through input demand for mining activities or indirectly or multiplier effect through demand for food and services to meet mining workers needs. The economic impact of PT NNT has been discussed in the previous chapter. The analysis rested on GRDP contribution and employment generation by the company. Yet, some say that the benefit of employment generation is relatively small in KSB. LPEM-FEUI (2007) reported that the impact of PT NNT presence in KSB to the employment creation consisted of two parts. First, PT NNT certainly needs big amount of workers for its operation, including local workers which has been targeted to 60 percent of total labor as part of corporate social responsibility. The problem is that few local workers can only be employed due to the qualification of local workers who are dominated by unskilled-labor and do not match the companyâ&#x20AC;&#x2122;s qualification. In addition the number of job offered is limited.
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As the result, this employment problem frequently trigers conflict between the company and local community. In addition, jealousy between those who works and do not work for the company has become community internal problem which indirectly impact the relationship between community and company. In an occasion, the company has to accept the unqualified worker and considered them as reserve workers to lower local labor tension. This action does not eliminate the problem when these reserve workers demand the same right with PT NNT workers. Secondly, PT NNT presence has reduced the access of local community to their livelihood, due to limited access to the forest, especially those who depend on forest products. People who used to have an easy access to forest products –such as rattan, enau, wood, etc.- could not benefit from the forest any more since the forest has became mining area which is protected by working contract between Government of Indonesia and the company. Some cases emerge from this problem. Therefore, small number of employment creation do not necessarily means that the company do not largely employ local workers, but more on the final result of two forces. The number of local workers employed by the company is about the same as those who lost their livelihood. Another problem on the economic impact is due to lack of backward linkage with local economy. It does not mean that the company is not aware on this problem. Welker (2007) stated that dominant wisdom of CSR in mining holds that companies whose presence is depended on the exhaustible resources must avoid creating relation of dependences of local people, i.e. they should empower local people. Rather than spending large money on unsustainable projects and infrastructures, the company should work through “participatory” mechanism to “empower” people to help themselves towards modest goals of improved education, agriculture practice, and small enterprises. Based on those premise, the company launched comdev program on agricultural practices. However, the programs was not sustainable and not properly designed (LPEM-FEUI, 2007). For example, fruit planting program was done up to production process only, while the product marketing was not facilitated. The result was excess of supply. Program participants were only taught how to produce but not how to market the product. Furthermore, the most important thing is that the program was not directed to supply the company need for fruit, while at the same time local content for the company’s input from local economy is still low.
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The company should extend the program up to coaching stage. It will ensure company’s target cooperation or small enterprise to be able to meet the rquirements set by the company in the bidding process. Without coaching, they would lost against more experienced suppliers. In other word, they would face same level playing field. This kind of affirmative action is needed to create linkage between the company and local economy. The company’s CSR also need further criticism. It is shown in the previous chapter that about 38 percent of CSR fund is allocated for infrastructure development while only 19 percent for capacity building. Following Welker (2007) argument, the practice is against the wisdom of CSR that avoid large spending on unsustainable projects or infrastructure. She believed that CSR spending for capacity building will assist local community to better prepare for future condition, thus creating more sustainable and diversified economy. However, the company argued that it is good intention of the company to assist regional government developing infrastructure. Under current Laws, only small fraction of fiscal contribution paid by the company returned to producing region as revenue budget. In addition to finance infrastructure development, regional government should also finance routine expenses, such as civil servant salaries. This creates limited fiscal space in regional budget to finance infrasructure development. While at the same time local community expect more infrastructure services as the large company operates in their region. Not surprisingly, local community sometimes directly asks the company. Regional government also tries every effort to get extra revenues from the company, central, and provincial governments. Therefore local community should know that Fiscal Balance Law does not favor producing region. Welker (2007) provided another explanation that village elites regard the company as the potential conduit of modern development. Village elites may mobilize young men, and sometimes women and children, to demonstrate for mine jobs, contracts for local businesses, new community infrastructures, and other material flows. Because a one day mine shut-down would cost severely to the company, village elites can force the company to respond to their understanding of development and the mine’s social obligation. However village elite plays a dual role. Despite forcing the company to fulfill their demand, they also cultivate relations of interdepence with the company by defending it against village critics as well as external activists who attack the company’s social and environmental records. She added further that in response to village elite’s demand, the company has become primary agent of development in KSB, building, maintaining, or subidizing roads, health facilities, schools, dam, tourist facilities, mosques, power generators, etc. Thus the company Extractive Industry and Local Economy
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is caught between sustainable development trends and the economic rationale that legitimizes its presence in the region, i.e. acquiring social licence to operate. From discussion above it is imperative that the long term interest of global investor, central government, regional government, and local community should be harmonized. Global investor need a conducive environment in doing business locally to earn sufficient profit. Central and regional governmentsâ&#x20AC;&#x2122; interests are to have economic and fiscal benefits from global investor presence to accelerate national development. While local community expect that they can participate in the economic changes brought by the global investor and improve their livelihood.
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Chapter 6
CONCLUSION AND RECOMMENDATIONS 6.1.
CONCLUSION
a.
The economy of NTB and KSB corresponds with PT NNT sales production. An increase in sales of PT NNT will have positive impact to the economy of NTB Province and KSB, and vice versa.
b.
Mining has dominated KSB economy by contributing more than 90 percent annually to GRDP since 2000. The same pattern also found in NTB province where mining sector contributed more than 30 percent in total GRDP. However, NTB begins to diversify its economy and experiences structural transformation, while KSB still heavily depends on mining sector.
c.
In economic perspective, PT NNT has contributed nationally to national GDP, and especially regionally to NTBâ&#x20AC;&#x2122;s GRDP, and locally to KSBâ&#x20AC;&#x2122;s GRDP. In addition, PT NNT has also created employment opportunities in 2011 to approximately 57.687 workers across Indonesia in which 54 percent of the total occurs in NTB province.
d.
PT NNT also pays taxes and non taxes to central government and local governments (taxes and retribution). The taxes and non taxes paid to central government will become domestic revenue in state budget where part of it will be distributed to local governments as balancing fund. Furthermore NTB and KSB get additional revenue from their membership in the PT DMB consortium as shareholder of PT NNT. Thus there is fiscal benefit received by central and local governments to finance their development programs.
e.
PT NNTs Community Development program within CSR activity has benefit local people in KSB in terms of infrastructure development, economic, health, and education status.
f.
The domination of PT NNT in KSB economy has been considered as the main job provider for local employment. At the same time, other economic activities slowly grow and provide salary lower than mining sector (PT NNT). It makes other sector unattractive compared to mining sector.
Furthermore, from labor perspectives,
working at industrial sector (mining) will leverage their social status compared to agriculture sector or other non-formal sectors, in addition to higher rewards. g.
In terms of supply chain, local economy is limited by its capacity and capability in connecting with PT NNT activities.
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h.
Social jealousy exists after PT NNT presence among community members (those who working vs. not working for PT NNT) and subdistricts (around vs. outside mining area)
6.2.
RECOMMENDATION
a.
Fiscal revenue received from non renewable resource extraction should be invested in productive sector for future economy. Thus, the improvement of local government in planning and budgeting becomes important.
b.
KSB should focus on strategies on how to develop its economy sustainably based on its comparative advantage. For example, the operation of PT NNT in KSB should be considered as an opportunity to diversify its economic sectors, for example improving agriculture sector to be able to integrate with PT NNT activity. Therefore KSB should provide continuous efforts to increase the capability of agricultural sector.
c.
KSB should not attempt to issue local regulations, i.e. affirmative policies, which may not be effective and have negative impact to local investment climate.
d.
Local education and training should be encouraged to open further opportunities for local labor to work in other sectors.
e.
KSB and PT NNT should foster local entrepreneurship by providing empowerment, coaching, and business opportunities, so they are able to compete with other non local companies and meet the requirement set by PT NNT.
f.
Comdev programs need redefinition by putting capacity building as the main objective and avoiding polarization between areas around and outside of the mine
g.
A good existing cooperation and communication between Local government and PT NNT has to be continued and intensified.
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REFERENCES AMEC Geomatrix. 2010. Social Impact Assessment Batu Hijau Project, Sumbawa Indonesia. AMEC Geomatrix and PT NNT, Batu Hijau. Daryanto, Arief and Yundy Hafizrianda. 2010. Analisis Input-Output dan Social Accounting Matrix: untuk Pembangunan Ekonomi Daerah. IPB Press, Bogor. Bappeda Kabupaten Sumbawa Barat. 2005. Rencana Pembangunan Jangka Panjang Daerah (RPJPD) Tahun 2005-2026 Kabupaten Sumbawa Barat Provinsi Nusa Tenggara Barat. Bappeda Kabupaten Sumbawa Barat, Taliwang. Bappeda Kabupaten Sumbawa Barat. 2005. Rencana Pembangunan Jangka Menengah Daerah (RPJMD) Tahun 2005-2010 Kabupaten Sumbawa Barat Provinsi Nusa Tenggara Barat. Bappeda Kabupaten Sumbawa Barat, Taliwang. Bappeda Kabupaten Sumbawa Barat. 2011. Rencana Pembangunan Jangka Menengah Daerah (RPJMD) Tahun 2011-2015 Kabupaten Sumbawa Barat Provinsi Nusa Tenggara Barat. Bappeda Kabupaten Sumbawa Barat, Taliwang. BPS. 2012. Kabupaten Sumbawa Barat dalam Angka. Bappeda and BPS Kabupaten Sumbawa Barat, Taliwang. ___. 2012. Provinsi Nusa Tenggara Barat dalam Angka. Bappeda and BPS provinsi Nusa Tenggara Barat, Mataram. Hadi, Agus Purbathin. 2001. Hubungan antara Komunikasi Publik Perusahaan dan Sikap Komunitas Setempat (Kasus Perusahaan Pertambangan di Nusa Tenggara Barat). Tesis Master Program Pasca Sarjana Institut Pertanian Bogor. LPEM-FEUI. 2007. Dampak Ekonomi PT NNT. Laporan Penelitian tidak dipublikasikan kerjasama LPEM-FEUI dengan PT Newmont Nusa Tenggara, Jakarta. _________. 2007. Dampak Sosial PT NNT. Laporan Penelitian tidak dipublikasikan kerjasama LPEM-FEUI dengan PT Newmont Nusa Tenggara, Jakarta. Malanuang, Lukman. 2009. Model Daerah Berkelanjutan Melalui Transformasi Struktur Ekonomi Berbasis Sumberdaya Pertambangan ke Sumberdaya Lokal Terbarukan (Studi Kasus Tambang Tembaga dan Emas Proyek Batu Hijau PT Newmont Nusa Tenggara di Sumbawa Barat NTB). Disertasi Program Doktor, Program Pasca Sarjana Institut Pertanian Bogor. Miler, Ronald E. and Peter D. Blair. 1985. Input-Output Analysis: Foundation and Extensions. Prentice-Hall, New Jersey. Extractive Industry and Local Economy
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Welker, Marina A. 2007. The Rationality of Corporate Social Responsibility in Indonesia. Mimeo, Cornell University. ______________. 2009. Corporate Security Begins in Community: Mining, the Corporate Social Responsibility Industry, and Environmental Advocacy in Indonesia. Cultural Anthropology, Vol. 24, Issue I, pp. 142-179 ISSN 0886-7356. World Bank and Intenational Finance Corporation. 2002. Large Mines and Local Communities: Forging Partnership, Building sustainability. World Bank, Washington DC.
Call E:/1data/2013a/Extractive Industry/Final Report Extractive Industry and Local Community_130912.doc Set
: ma/16/9/13/4:56:03 PM
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Appendix Method of PT NNT Impact Estimation
1. IO and IRIO Analysis In estimating the economic impact of PT NNT in NTB, this study basically applies a modification of Input-Output (IO) Analysis. IO analysis is the name given to an analytical framework developed by Professor Wassily Leontief in the late 1930s, work for which he received the Nobel Prize in Economic Science in 1973 (Miler and Blair, 1985). It is a method, also known as inter industry analysis that allow us to: a. characterized economic activity of a region in a certain time of period b. predict reaction of a regional economy to stimulation resulting from: •
increased consumption
•
changes in government policies (spending, tax policy, etc.)
•
market oriented demand changes
•
production by given sector
c. provides an important tool to address questions of “economic impact” Originally, applications of the IO model were carried out at national level. More recently, interest in economic analysis at the regional level –such as a group of provinces, metropolitan area, etc- has led to modifications of IO model which attempts to reflect peculiarities of regional (subnational) problem. Single region model as initially developed represents one approach to modeling a regional economy in input-output terms. What they fail to do is to recognize in any operational way the interconnections between regions. For a country made up of several regions, such as Indonesia, a number of important questions have several–region implications. A production activity of PT NNT in Nusa Tenggara Barat (NTB) province will have ramification not only within the (NTB) province where the work is done, but also in other provinces. The total economic effect is therefore likely to be greater than regional effect in NTB province. Firms outside NTB will produce goods that will be imported to NTB for copper production; those firms, in turn, may import goods from other provinces for their production. This study used input output model that attempt to capture these interregional linkages as well as the regional aspects of production. This is interregional input-output (IRIO) model. Table 1 presents the framework of IRIO Table.
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Table 1 The Framework of IRIO Table: Two Regions
Intermediate Demand
Final Demand
Region A :
Region B :
Economic Sector
Economic Sector
1
1
……
n
……
Region-A
Region-B
Export ROR
Total Output
n
1 Region-A : … Intermediate
Economic
X ijAA
XijAB
Fi AA
Fi AB
EiA
X iA
X ijBA
X ijBB
Fi BA
Fi BB
EiB
X iB
X MA j
X MB j
F MA
F MB
n
Sect
Inputs
or Region-B : Economic Sector
1 … n
Import ROR Total Intermediate Inputs
X
A j
=
∑
X
A ij
X
B j
=
∑
Total Primary Inputs (VA)
V jA
V jB
Total Input
X jA
X Bj
X
B ij
Source: LPEM-FEUI, 2013 The study used 2005 National IRIO Table published by BPS (National Statistical Office) and Bappenas (National Planning and Development Agency) in 2006. The original 2005 IRIO table consists of 30 provinces and 35 economic sectors for each province. For simplicity of the analysis, the IRIO Table was aggregated into 6 regions and 10 economic sectors (Table 2).
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Lembaga Penyelidikan Ekonomi dan Masyarakat Fakultas Ekonomi Universitas Indonesia Kampus UI Salemba, Jl. Salemba Raya 4, Jakarta 10430
Final Report
Table 2 Regional and Economic Sector Aggregation of 2005 IRIO Table Regional Aggregation
Economic Sector Aggregation
1
Sumatra
NAD, North Sumatra, Riau Island, Riau, Jambi, Bengkulu, West Sumatra, South Sumatra, and Lampung provinces
1
Agriculture
Paddy, other food ingredient plant, plantation, livestock, forestry, and fishery
2
Java and Bali
Banten, DKI, Jakarta, West Java, Central Java, Jogjakarta, East Java, and Bali provinces
2
Mining: Oil and Gas
Mining: Oil and Gas
3
NTB
West Nusa Tenggara (NTB) province
3
Mining: Non Oil and Gas
Mining: non Oil and Gas
4
Kalimantan
West Kalimantan, East Kalimantan, South Kalimantan, and Central Kalimantan provinces
4
Manufacture
Petroleum refining; palm oil industry; seafood processing industry; food and beverage industry; textile and textile product; footwear industry; industry of goods timber, rattan, and bamboo; pulp and paper industry; rubber and rubber goods industry; petrochemical industry; cement industry; basic iron steel and base metal non ferrous industry; metal product; machinery and electrical equipment repair industry; other industry
5
Sulawesi
North Sulawesi, Gorontalo, Central Sulawesi, Southeast Sulawesi, and South Sulawesi provinces
5
Electricity, city gas, and water
Electricity, gas, and heat supply
6
Others
North Maluku, Maluku, Papua, and East Nusa Tenggara provinces
6
Construction
Construction
7
Trade, Hotel, Restaurant
and
Commerce, restaurant
8
Transportation communication
and
Land transport, sea transport, air transport, and communication
9
Financial, real estate, and rent services
Financial and insurance
10
Other services
Public administration defense services
hotel
and
and
Source: LPEM-FEUI, 2012
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Lembaga Penyelidikan Ekonomi dan Masyarakat Fakultas Ekonomi Universitas Indonesia Kampus UI Salemba, Jl. Salemba Raya 4, Jakarta 10430
Final Report
The stimulus to the IRIO model was the value of PT NNT shipment each year in Rupiah and nominal terms to NTB province only (Table 3). It is treated as final demand shock to the local economy. The period of analysis started from 2006â&#x20AC;&#x201C;2011. Table 3 The Value of PT NNT Shipment in 2006-2011 Item Shipment Exchange Rate Shipment
Unit US$ IDR/USD Million IDR
12/2006 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012 1,424,489,341 1,623,358,585 1,086,685,572 1,624,398,095 2,299,934,541 1,687,539,333 655,440,997 9,087 9,334 11,325 9,457 9,023 9,088 9,646 12,944,049.74 15,151,779.69 12,306,542.52 15,362,582.54 20,751,433.20 15,337,161.05 6,322,311.03
Source: PT NNT, 2013 Note: exchange rate was from CEIC Databank, 2013 The indicators of economic impact to NTB province due to PT NNT operation were (i) output impact; (ii) GRDP/Value added generated; and (iii) employment generation. Central to calculation was Leontief inverse matrix which produced multipliers and was used to estimate all the economic impact indicators. The results of last two indicators estimation have been presented in Chapter 3. Output impact relates to the change in total sales in the economy due to PT NNT operation. The value added generated can be estimated through a change in primary input rows. These rows represent GRDP calculation from income approach, i.e. income of production factors owned by household, firm, and government. In IO table, these primary inputs consist of wage and salary, trade surpluses, depreciation, and indirect tax. While employment generation is a change in employment due to final demand stimulus in the region, such as PT NNT activity, and calculated from employment multiplier. Despite using IRIO analysis, the study also tried to estimate the economic impact of PT NNT to West Sumbawa District (Kabupaten Sumbawa Barat/KSB). However, KSB does not have an IO Table. The study therefore developed a KSB IO table based on the characteristic of NTB province production technology. The purpose of the IO analysis is to estimate the economic impact in terms of economic sector in KSB, with and without PT NNT. 2. Limitation of Method There are limitations of the IO and IRIO methods which source from their basic assumptions: a. IO table characterized economic activity of a region in a given period. In this case, the 2005 IRIO represent economic activity in 2005. Since there is no updated version of IRIO yet for economic impact estimation, we use 2005 IRIO table to estimate the economic impact of PT NNT in 2006 until 2011. It means that we use a strong assumption that there is no technological change during 2005 until 2011, i.e. all multipliers remain the same. b. The IO model assume fixed price. The stimulus therefore can not differentiate whether a shock is due to quantity or price changes. The stimulus therefore is taken from the value of transaction, which is a product between price and quantity.
Call E:/1data/2013a/Extractive Industry/Final Report Extractive Industry and Local Community_130912.doc Set : ma/16/9/13/4:56:03 PM
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