2014 final qa report ipc by Arbain

CIVIL SOCIETY

& TRANSPARENCY IN THE EXTRACTIVE INDUSTRY Tales from Southeast Asian Countries

Editor : Darmawan Triwibowo Ahmad Hanafi

Civil Society And Transparency in The Extractive Industry: Tales From Southeast Asian Countries

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Civil Society And Transparency in The Extractive Industry: Tales From Southeast Asian Countries Editors : Darmawan Triwibowo, Ahmad Hanafi

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DISCLAIMER : This report is made possible by the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of Indonesian Parliamentary Center (IPC) and do not necessarily reflect the views of USAID, the United States Government, or the Revenue Watch Institute (RWI).

National Library of Indonesia : Cataloguing in Publication (CiP) Civil Society And Transparency In The Extractive Industry: Tales From Southeast Asian Countries; Editor : Darmawan Triwibowo, Ahmad Hanafi --- Jakarta : Indonesian Parliamentary Center, 2014 96 pages +viii ; 24,8 x 17,4 cm2

ISBN : 978-602-17446-4-2

First Published @ March 2014

Indonesian Parliamentary Center (IPC) Jl. Tebet utara III D No. 12 A, Tebet, Jakarta Selatan INDONESIA Ph : +62 (21) 8353626 e-mail: admin@ipc.or.id www.ipc.or.id

Cover & Layout Design : Ayoenk Cover image : “oil pump sunset” (modified) arb.ca.gov (http://goo.gl/o2umUv)

TABLE OF CONTENTS FOREWORD - vi ACKNOWLEDGEMENT - vii

Stitching The South East Asia's Tale: Diverse Landscapes, Varied Scripts | Darmawan Triwibowo and Ahmad Hanafi

.................................

A Long Walk to Transparency: The Indonesia's CSO Experience With EITI | Gita W.L. Soerjoatmodjo, Ahmad Hanafi, and Darmawan Triwibowo ........................................................................................................ 13

III

Dissecting The Invisible Elephant: The CSO's Challenges and Opportunities to Promote Better Transparency In Cambodia's ......................................................... 25 Extractive Industries | Darmawan Triwibowo

The Safe Passage in an Acrimonious Environment: The Role of EITI in Strengthening Multi-stakeholders Engagement Towards Extractive Industries' Transparency in The Philippines Darmawan Triwibowo ............................................................................................................... 41

Addressing The Gorilla in The Room: Complementary Relationship, Vertical Integration and The Potential of Fence-breakers in Vietnam Darmawan Triwibowo .................................................................................................................. 57

Resisting The Honey Pot Temptation: Lesson-learned From The Management Of Petroleum Fund in Timor Leste Darmawan Triwibowo and Nelson A. Seixas Miranda .................................................... 73

VII Post-script: Liberating The Political in Extractive Industries Governance | Emanuel Bria ........................................................................ 89

SHORT BIOGRAPHY OF EDITOR AND AUTHORS - 95

FOREWORD This report is the output of the qualitative assessment process in five Southeast Asian countries, which was conducted by the Indonesian Parliamentary Center (IPC) as part of its partnership with the Revenue Watch Institute (RWI) under the â&#x20AC;&#x153;IKAT-US: A Southeast Asian Partnership for Better Governance in Extractive Industries: Translating the Indonesian Civil Society Experience in Advocating Transparency and Accountability in the Oil, Gas, and Mineral Sectorâ&#x20AC;? project. The report aims to record lesson-learned from the RWI partners' current advocacy effort in promoting EITI in Indonesia, the Philippines, Vietnam, Cambodia, and Timor Leste that serve as learning device for CSOs in the Southeast Asia region. It is part of the IPC's role to shore up the national level EITI advocacy effort in the region by advancing knowledge-sharing and networking among civil society. The qualitative assessment process was conducted in two rounds. The first round took place from July 2012 to January 2013 through series of focus group discussion with Bantay Kita, Luta Hamutuk, CRRT, REFSA, and CODE to identify the stakeholder map in each respective country. The second round took place in June to August 2013 though series of in-depth interviews and focus group discussion with various stakeholders in Cambodia, the Philippines, Vietnam, and Timor Leste. The report writing was conducted during September to December 2013. IPC distributed the final draft to RWI and all regional partners before the final editing on February 2014. As IPC will no longer be part of the project in its final year, we hope the report can serve not only as learning tool but also providing RWI and its partners a solid foundation to develop future advocacy strategy to advance the extractive industry's transparency agenda in the Southeast Asia region. Thank you Sulastio Executive Director the Indonesian Parliamentary Center

ACKNOWLEDGEMENT The development of IPC's qualitative assessment report: â&#x20AC;&#x153;Civil Society and Transparency in the Extractive Industry: Tales from the Southeast Asian Countriesâ&#x20AC;? is a long and winding process that would not be possible without many helping hands. We would like to use this opportunity to express our deep gratitude to Revenue Watch Institute and all of its national and regional partners in the IKAT-US project, which never fail to give us assistance, support and encouragement during the entire process. We are grateful to have good cooperation with the Revenue Watch Institute's team in Jakarta, especially with Matthieu Salomon, Emmanuel Bria, and Roslita Arsyad, who helped us with the review on the ToR and the early draft of each country case, as well as the writing of the final chapter in this report. We are also gratified to Gita Widya Laksmini Soerjoatmodjo and Sulastio who conducted the first round of qualitative assessment process, and (for Gita) wrote the early version of the Indonesia case; and Nelson Seixas Miranda who helped us during our visit in Dili as well as became the co-author of the Timor Leste case. Last but not least, we were indebted to Maryati (PWYP Indonesia) in refining the Indonesia case; Kim Natacha and CRRT staffs during our visit to Phnom Penh; DR. Cielo Magno (Bantay Kita) and Alessandra V. Ordones (The Philippines EITI Secretariat) and their staffs who arranged our schedule in Manila and Quezon city, as well as Tran Thi Thanh Hai (PanNature) and Nguyen Dinh Hoa (CODE) who accompanied us during the process in Hanoi and Estevanus Coli (CGT) for his assistance in Dili. Furthermore, we are thankful to all source persons and informants in five countries who provided us with a lot of information for this report.

Darmawan Triwibowo & Ahmad Hanafi Editor

vii

I. STITCHING THE SOUTH EAST ASIA'S TALE: DIVERSE LANDSCAPES, VARIED SCRIPTS

* Darmawan Triwibowo and Ahmad Hanafi

1.1. The global context- civil society organizations as norm entrepreneurs for transparency in the extractive industry The global promotion of transparency for the extractive sector—oil, gas and mining—has become widely accepted as an appropriate solution to weak governance in resource-rich developing nations. The current rise of EITI (Extractive Industry Transparency Initiative) and increasing number of resource –rich countries, both in developed and developing world, which are tempted to comply with the standard, shows the ongoing popularity of transparency at the global context. Proponents of greater transparency believe that it would reduce corruption and mismanagement, and increased accountability would produce more benefits to the citizens and the overall development process. Therefore, the benefits of the industry will extend beyond the extractive sector, empowering citizens to demand more equitable and sustainable development. The rapid emergence of transparency as an adopted norm in the industry cannot 1 be separated from its fit with the global normative environment. As described by O'Sullivan (2013) transparency is technocratic and relatively neutral idiom appealing to governments and companies that want to respond to governance problem without being viewed as hardliner. It also attracts to civil society, especially in more repressive states, due its potential to address accountability problem “within conceptual framework tolerated by their rulers”. The norm intersects with a number of complementary agendas and overlapping trans-national networks, particularly those concerned with good governance, corruption, and private sector accountability (Gillies 2010; Haufler 2010). The prioritization of good governance by the international donor community has dominated the North-South relationship since the 1990's (Haufler 2010). One of the agenda commonly advanced by the ''good governance'' platform is transparency that emphasizes the proposed linkage between the provision of information and accountability (Florini in Gillies 2010). In the good governance “big tent”, donors have placed transparency as a valuable tool for combating corruption, advancing accountability, and improving public financial management. By ''grafting'' onto the general transparency movement, extractive industry transparency advocates acquire their language, legitimacy, and allies (Gillies 2010). It CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

explains the second factors that contribute the expansion of the norms, namely the role of civil society organization, especially NGOs, as “norm entrepreneurs or initiators” (Gillies 2010; Haufler 2010). Civil society is broadly defined as the space or arena or sector that is between the state and the market. Civil society organizations (CSOs) are thus defined as groups that are organized independently of and operate outside of but interact with the state and the market (Abao 2011). The groups can take many forms in various levels of society. One of the form, Non-Government Organizations, is often refers to a formal, more-institutionalized form of civil society organizations with clear structure, strategy, and resource mobilization mechanism that build around centralized leadership and decision-making process (Earle in Triwibowo 2006). As the norm entrepreneurs, NGOs are actors that do the initial framing process by raising the importance of an issue, and set the agenda for norms institutionalization and compliance as well as enforcement for other actors as follow up (McCarthy and Zald in Triwibowo 2006). NGOs act as entrepreneurs for transparency in extractive industry because their observation of persistent human suffering in resource-rich countries made them believe that the extractive industry operations are “directly related to the wider issues of democracy, conflict, and social justice which characterize their mandate” (Gillies 2010).

Box 1.1. EITI at glance The Extractive Industries Transparency Initiative (EITI) is an independent, internationally agreed upon, voluntary standard for creating transparency in the extractive industries. At its core, the EITI requires transparency in the payments made by companies and revenues received by governments relating to the exploitation of a nation's extractive resources. The United Kingdom government played a pivotal role in establishing the institution as DFID and other parts of the government strongly supported oil sector transparency. However, they also recognized the difficult terrain facing the ambitious PWYP and other international NGO approach, finding it unlikely to succeed. In 2002, DFID worked to devise an alternative approach, a concrete mechanism for advancing transparency that would be acceptable to host countries, NGOs, donors, and IOCs. Prime Minister Blair announced the EITI as the resulting compromise at the September 2002 Johannesburg World Summit for Sustainable Development. The EITI legitimizes transparency in the reporting of natural resource sector revenues, and de-legitimizes the traditional secrecy that surrounds major oil, gas and mining projects. It represents a partial move outside the state-centric arena: it is an international NGO with states as members, but it also requires action by corporations and civil society. Its goals, as stated above, are to improve management of natural resource development, but it also has ambitious goals regarding more democratic accountability of elites to citizens. The broad-sweeping EITI 2013 Standard which is effective by May 22, 2013 reflects that ambition as it includes detail information on allocation of rights, state-owned enterprise, sub-national transfers, social impact and revenue management in the EITI Report. Source: Revenue Watch Institute (2013a), Gillies (2010) and Haufler (2010)

International NGOs in the North lead the norms initiation and advancement process. Global Witness, Human Rights Watch, and Publish What You Pay coalition are examples of key players that push for transparency in the extractive industry (Gillies 2010; Haufler 2010). They followed the foot steps of Transparency International that

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launched an effort to change laws regarding corruption and attempted to “name and shame” countries through its annual Corruption Perception Index, which list countries with the best and worst reputation (Haufler 2010). According to Giilies (2010), aside from harnessing support from the Northern NGO communities, the entrepreneurs also spread the alliance by involving civil society organizations in resource rich developing countries. Among various transparency measurements, the EITI becomes the primary institutional vehicle for the promotion of extractive industry transparency as an international norm (Gillies 2010). The EITI has grown in strength and prominence over the years by winning the support from international donors, as well as private sector and state government, due to its moderate and voluntary stance. In contrast to the original PWYP agenda that put more pressure on company, EITI placed the obligation of disclosure squarely on the host government, and favoured voluntary compliance over any kind of international enforcement. The voluntary nature of EITI has a strong resonance with the emergence of other voluntary initiative in mining sectors since the early 2000, such as the ISO 14001, the Global Reporting Initiative and the ICMM Sustainable Development Framework (Schiavi and Solomon 2007). The EITI's relatively initial “low” standard together with its voluntary nature helped the norm's emergence by permitting a higher number of countries to participate, introducing the transparency discourse more widely and retaining donor and corporate support when, with higher oil prices, they could have walked away (O'Sullivan 2013; Gillies 2010). On the other hand, the creation of a multi-stakeholder body to oversee the country's EITI implementation provides space for dialogue and collaboration between civil society, government and private sector in the extractive industry governance.

1.2. The Southeast Asia context - an inhospitable terrain for norms advancement? EITI has broadened its geographical reach in one decade since it was launched, with nearly forty countries following its rules as of 2013 (O'Sullivan 2013). But, do Southeast Asia countries join the cavalcade and grab the EITI's coat-tail? Does the “Southeast Asia tale” follow the global story line? The current progression shows that trajectory for the norms advancement, including the NGOs role as the entrepreneurs, is steep and tricky for most countries in the region. Despite the significant amount of minerals and oil and gas reserves that they are endowed, up until 2014, Timor Leste is the only EITI compliant country in Southeast Asia. Indonesia and the Philippines, two countries that traditionally are key players in the extractive industry at global and regional level, are still in candidacy process while Malaysia and Vietnam have not announced their formal commitment. On the other hand, despite years of unprecedented reform following the 2010 election and the installation of a nominally civilian government, the foundation for

CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

transparency and good governance of extractive industry in Myanmar is still shaky (Shwe Gas Movement 2013). The regulation and legal framework is arbitrary, incomplete, and inconsistent with international standards. Although civil society organizations believe that becoming compliant with the EITI is one way in which the country could potentially improve its transparency related legal setting, following President Thein Sein announcement on the government's intention to sign the EITI in July 2012, they are aware that Myanmar does not yet have the framework or civil society participation to claim the EITI candidacy. Therefore, rushing EITI implementation could â&#x20AC;&#x153;leave out meaningful participation with civil society groups and could result in inefficient 2 watered-down legislationâ&#x20AC;? (Shwe Gas Movement 2013). The 2013 Resource Governance Index (RGI) from the Revenue Watch Institute (RWI) describes the challenge for transparency and good governance in the extractive industry in Southeast Asia countries. The index shows that no countries obtain satisfactory score (Revenue Watch Institute 2013b). Timor Leste, Indonesia, and Philippines lead the rank with partial score while Malaysia and Vietnam get weak score. Unfortunately, Cambodia and Myanmar can only receive failing score. The detail index calculation, as described in table 1.1, reveals that those countries (except Malaysia) share weak or failing enabling environment, which indicate poor performance in accountability, government effectiveness, rule of law, corruption, and democracy in general. Table 1.1. The 2013 Resource Governance Index for Southeast Asia countries Composite score

Institutional and legal setting

Reporting practice

Safeguards and quality control

Enabling environment

Timor Leste

Indonesia

Philippines

Malaysia

Vietnam

Cambodia

Myanmar

Note : :0-40 = failing; 41-50 = weak; 51-70 = partial; 71-100 = satisfactory Source: Revenue Watch Institute (2013b)

The tale also illustrates a more restricted role of NGOs in advancing the transparency norms. In Southeast Asia, as argued by Ramasamy in Landau (2008), the state is not something aloof from civil society, but rather it will seek to dominate civil society through various means. State, such as showed by government in Myanmar, Vietnam, Cambodia, Malaysia, and Indonesia in some degree, always attempts to 4

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constrict and marginalize non-state forces from taking an active part in public sphere (Schmidt 2005). In a gloomy summary, Schmidt concludes that: “Even if societies are legally considered democratic there has not been complete freedom for opposition parties, freedom of speech, a separation of powers, or civil and political rights. In societies where the emphasis is upon consensus and harmony, especially as an ideologically legitimizing device with reference to economic growth, it has proved possible to deem opposition as subversive. Cultural values have been a tool to control dissent and the role of civil society has been curtailed to marginalization”

Series of survey by CIVICUS show that civil society organizations continuously face unfavorable external environment as state aims to control their role through restrictive regulation, complicated permit bureaucracy, and direct intervention (Ibrahim 2006; Norlund et al 2006). Based on this circumstance, Chong and Elies (2011) have mapped three types of civil society- state working relationship in Southeast Asia, namely; (i) 'tacit understanding' where there is a convergence of interests between civil society organizations and the state, especially in the area of public service delivery; (ii) 'advocacy-oriented and potentially conflictive' relationship when the civil society take action against government's policy and intervention; (iii) a 'mediated' relationship where civil society organizations enjoy some autonomy but operate largely under the political and legal conditions set by the state. Furthermore, although ASEAN, as multi-nations forum in the region, indicated its desire to open the Association to civil society organizations towards ASEAN community by 2015; the accesses are still limited (Chong and Elies 2011; Gerard 2011).3 In order to move toward an ASEAN's 'people-centered' approach to regional integration, ASEAN has created two new venues for civil society organizations engagement alongside the existing system of civil society organizations affiliation, namely government-NGO forum and ad hoc consultation forum. Two of these three opportunities, namely the affiliation system and the government-NGO forums, are structurally biased towards the inclusion of organizations that are well-resourced and have formalized systems of operation (Gerard 2011). These spaces, therefore, do not accommodate the grassroots organizations that form the majority of the Southeast Asian civil society sector. Given that the Committee of Permanent Representatives (CPR) determines which organizations can participate in these two spaces, they are also biased towards organizations that do not challenge the position of their governments or ASEAN. (Gerard 2011) CSOs' contributions to the ad hoc consultations, meanwhile, are dependent on whether an interaction is classified as formal or informal. Formal gatherings remain tightly controlled affairs where opportunities for CSOs to deliberate policy are minimized (Gerard 2011). However, there is always light at the end of the tunnel. The ASEAN Ministerial Meeting on Minerals (AMMin) held in Hanoi (Dec 9-10, 2011) has approved the ASEAN Mineral Cooperation Action Plan (AMCAP) for 2011-2015: “Dynamic Mineral Sector Initiative for Prosperous ASEAN” which acknowledge the importance of EITI.4 The Joint Press Statement of AMMin as the summary of the 3rd AMMin Outcomes published to the CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

public stated that: “The Ministers noted the Extractive Industries Transparency Initiative (EITI) that is known as international quality standard on revenue collection in mineral sector and agreed to the proposal to include capacity building on revenue collection in mineral sector, and agreed to the proposal to include capacity building on EITI in ASEAN Mineral Cooperation Action Plan (AMCAP) 2011-2015.” Although it is still far cry from a solid commitment among member countries for EITI implementation, the statement can serve as evidence that transparency in the extractive industry as norm can no longer be ignored.

Box 1.2. Towards a “people-centered' ASEAN ASEAN first signaled its shift to widen participation during the late-1990s by the release of . Vision 2020 in 1997. This document committed ASEAN member states to the creation of a “'community of caring societies” in 2020, where “civil society is empowered and gives special attention to the disadvantaged, disabled and marginalized and where social justice and the rule of law reign,” and countries are “governed with the consent and greater participation of the people”. Bali Concorde II was signed on 7 October 2003, after which the idea of a people-centred community became a buzzword in the region the document is considered by many observers represent stronger ASEAN commitment towards democratic peace. Significantly, it was also the first time the term 'democratic' was used in an official accord. The Bali Concorde II agenda took a more concrete form with the Vientiane Action Programme, signed in 2004, which elucidated tangible strategies for achieving these goals, as well as indicating the Association's commitment to the negotiation and drafting of the ASEAN Charter. In the Vientiane Action Programme, ASEAN's leaders also endorsed the “effective participation of family, civil society and the private sector in tackling poverty and social welfare issues,” noting that “approaches and mechanisms to closely involve other ASEAN stakeholders, including the private sector and civil society, must also be addressed”. With the decision to design the Charter, the term 'people-centered' became even more “en vogue”. Therefore, consulting with civil society became a consistent part of ASEAN rhetoric, and the possibility of “participatory regionalism” developing in Southeast Asia was raised. Source: Gerard (2011)

1.3. The country context – between a flat track and steep climbing Looking deeper into country level, this report finds diverse landscapes and varied scripts for the norms advancement. The relation between state and non-state actors in Southeast Asia underlines the significance of political opportunity structure that affects the effective role of civil society. Political opportunity structure, according to Tarrow is “consistent – but not necessarily formal or permanent – dimensions of the political environment that provide incentives for people to undertake collective action by affecting their expectations for success or failure“ (Vráblíková 2010). The political opportunity structure varies among countries since Southeast Asia hosts various types of political systems from one party control, soft authoritarianism to full-fledged democracies (Schmidt 2005). The 2013 Freedom Index shows that Indonesia is the only free country in the Southeast Asia that enjoys an open political competition, a climate of respect for civil liberties, significant independent civic life, and independent media (Freedom House

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2013). The remaining countries are either partly free (Philippines, Malaysia, Timor 5 Leste, Thailand, Singapore) or not free (Vietnam, Cambodia, Laos and Myanmar). The political opportunity structure in free country will be relatively more open and varied than the one in the not free country. In Indonesia and Philippines, as example, civil society can exercise its role and influence through various participation and engagement spaces in the political system.

Box 1.3 Variety of Decentralization Deconcentration refers to decentralization of central government ministries and arrangements whereby sub-national governments act as agents of the centre. Sometimes regional branches of central offices and agent governments have some authority to make independent decisions, usually within central guidelines. Often, though, deconcentrated local government lacks authority over the scope or quality of local services and how they are provided. Under delegation, sub-national governments rather than branches of central government are responsible for delivering certain services, subject to some supervision by the central government. Delegation may improve efficiency when sub-national governments can better administer programs of national interest—including certain aspects of education, water, and health—in ways that better reflect local circumstances. The centre, or sometimes intermediate government, determines what should be spent, and may also set minimum service standards, while sub-national governments define the details. The design of intergovernmental fiscal transfers, and the degree and nature of central monitoring, influence the balance between central and local decision making under delegation. Devolution is the most complete form of decentralization. Independent or semi-independent and, typically, elected sub-national governments are responsible for delivering a set of public services and for imposing fees and taxes to finance those services. Sub-national governments have considerable flexibility in selecting the mix and level of services they provide. Other levels of government may provide intergovernmental transfers. For devolution to work, the central and local governments must act as partners, with the former keeping its commitment to devolve functions, and local officials agreeing to make difficult choices and develop the capacity to exercise their powers effectively Source: White and Smoke (2005)

Decentralization is another key feature that differentiates the structure in each country. Before 1990 most Southeast Asian countries were highly centralized; however, today sub-national governments have emerged as the “fulcrum for much of the region's development” (White and Smoke 2005). Therefore, decentralization marks a fundamental transformation in the structure of government in the region. Southeast Asian countries have taken different approaches to decentralization, combining standard elements of delegation, deconcentration, and devolution. In general, the approaches can be divided into three broad categories: fast starters, incrementalists, and cautious movers (White and Smoke 2005). The fast starters (the Philippines and Indonesia) have rapidly introduced major structural, institutional, and fiscal reforms in response to a sudden and far-reaching political stimulus. These countries introduced the basic elements of a decentralization framework, sub-national democratic elections, and substantial resource sharing swiftly. The incrementalist, like Vietnam, has taken a more piecemeal approach to decentralization. Decentralization has focused on administrative and fiscal reform, with modest political change and the retention of considerable central control over sub-national governments. On the other hand, the cautious mover (such as Cambodia) has established significant elements of decentralization at the formal policy CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

and legislative levels, but there has been limited progress with implementation. The elected commune councils have limited functions and receive only modest resources. The provincial system is stronger but heavily managed by national line ministries and centrally appointed governors. A country by country analysis, as revealed by the remaining chapters of this report, shows that the structure defines the “script” in which the civil society have to follow to advance transparency norm in the country's extractive industry. In the Philippines, as an example, the civil society is able to form a broad based coalition to advance the norms, which involve continuous support from the Church. This formation will be hard to be replicated in countries like Cambodia and Vietnam with different political system and dissimilar state-civil society relationship. The alliance in Cambodia is relatively narrow and consists exclusively of NGOs, while in Vietnam the formation is a hybrid one with close involvement of state agencies, GONGOs (government-organized6 or supported-NGOs) and QUANGOs (quasi-autonomous NGOs). As another example, the “big-bang” decentralization in the Philippines and Indonesia have altered the balance of the structure and opened additional space at sub-national level. The incremental format of decentralization in Vietnam is gradually following the similar trend. On the contrary, the cautious process in Cambodia has only created limited openings at sub-national level. Table 1.2. summarizes the different landscape in several Southeast Asia countries and the diverse strategies that civil society apply in response to the existing political opportunity structure.

Table 1.2. Variation of political opportunity structure and civil society strategy in Southeast Asia Philippines

Cambodia

Vietnam

Political system

Full-fledged democracy

Pseudo-democracy

One-party control

State-civil society relation

Mediated relationship

Tacit understanding

State commitment towards norm

Strong

Weak

Moderate

Decentralization

Big-bang

Cautious

Incremental

Civil society alliance

Broad-base

Narrow, NGOs only

Hybrid, involvement of GONGOs

Civil society strategy

Direct advocacy, bad cop-good cop role

Persuasion

Collaboration

Perception towards ASEAN

Effective but not a priority

Ineffective

Effective

Influencing factors

Game-changer

Regime change

Fence breakers

Projected trajectory

Flat track

Steep climbing

Winding road

Source: various interviews

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The projected trajectory in the table highlights the achievement of NGOs in advancing the norms in each country. Applying framework from Betsill and Corell (2001), the influence of NGO as norms entrepreneur can be measured through two dimensions: (i) the successful transmission of ideas, and (2) alterations in behavior in response to that information. The Philippines, based on those measurements, face a flat track trajectory as the smooth EITI candidacy process under current government reflects a well transmitted ideas and ongoing behavior change among the government agencies and private sector. The existence of “game-changer” embodied by President Aquino and his administration is pivotal in revamping the political opportunity structure at national level by introducing various policy reforms in the extractive industry governance. More than “champions” that serve mostly as adherent for the norms, the game changer has the authority and commitment to alter the structure. It is the advantage that the Philippines has over its neighboring countries. In Indonesia, for example, the number of champions cannot substitute the role of game changer that put the country into the “winding road” trajectory and not a “flat track” one. Vietnam follows the same trajectory like Indonesia. Although the NGOs have transmitted the idea well, the behaviour change has not yet occurred. However, the opening up of space at sub-national level can influence the change of political structure at national level. The combination of international pressure and the work of fence breakers as champions at sub-national level will gradually help the advancement and institutionalization process. Cambodia, on the contrary, is facing a steep climbing as the government constantly ignoring the idea and the current post-2013 election upheaval disturbs the transmission process. Nevertheless, the recent development in several countries shows that the structure is not written in stone. The speedy democracy transition in Myanmar and the surprising political stalemate in Cambodia have underlined the notion that the situation in Southeast Asia is fluid and open for change. NGOs must be responsive to the ongoing dynamics and constantly adjust their strategies to the evolving political opportunity structure. Therefore, NGOs must be able to build the “depth” and “width” of their work. NGOs in Cambodia and Indonesia are still lack specialized knowledge dealing with technical complexities of extractive industries sector and struggle to come to term with the close alliance between government and private companies when pushing for transparency. On the other hand, NGOs needs to expand the network to reach for other civil society organizations. In country like Timor Leste, NGOs consist of “thin layer of people” who is vulnerable to “overstretch and in-fighting” (O'Sullivan 2013). The Philippines case shows how the involvement of the church and community-base organizations can change the dynamics of advocacy and amplify the pressure for transparency. Last but not least, the international dimension of the work must not be ignored. While advancing own country reform is the priority, it will be a worthy investment for civil society organizations to improve their engagement with ASEAN. The formation of CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

ASEAN community is inevitable and should be used to form a binding commitment among countries in institutionalizing transparency in their extractive industries.

ENDNOTE 1

Norms is ''collective expectations for the proper behaviour of actors with a given identity,'' are primary mechanisms by which communities demarcate and shape member behaviour. For community members, norms are used to distinguish appropriate from inappropriate behaviour, and also help to organize and simplify reality for the purpose of effective interrelations. Norms can acquire authority within communities even if they are not enshrined in any formal law, and impact both state and non-state actor behaviours. See Alexandra Gillies. 2010. Reputational Concerns and the Emergence of Oil Sector Transparency as an International Norm. International Studies Quarterly, 54, pp 103–126 2

Myanmar has accelerated the effort to become EITI candidate country. On December 2013, fifty representatives from government, private sector and civil society gathered to nominate members for Myanmar EITI Multi-stakeholders group. The group has discussed the work plan and the coverage of the Myanmar EITI report. See http://eiti.org/news/myanmar-moving-towards-eiti 3

For a long time ASEAN has been perceived as an 'elitist club', an organisation comprising mostly Government officials and the 'we feeling' and sense of ownership among the common citizens of ASEAN was felt to be almost non-existent. The appeal to widen participation in ASEAN signalled an abrupt shift from its previous style of regional governance that was characterised by closed-door meetings and tacit agreements among leaders. Civil society organizations in Southeast Asia have also taken strides in developing their own discursive processes, with the three traditional tracks of CSO discussions, namely, the ASEAN-ISIS network's ASEAN People's Assembly (APA), the ASEAN Civil Society Conference (ACSC), and the ASEAN People's Forum (APF), now amalgamated into what is currently known as the ACSC/APF. At an ASEAN-CSO interface session in February 2009 following the ACSC/APF, one government official protested the inclusion of a particular CSO representative. At the following ACSC/APF in October of the same year, five out of 10 civil society representatives (selected by their peers) were rejected from another official interface session between ASEAN and CSO representatives and their ASEAN heads of government. This issue was compounded by the fact that among the five representatives refused entry to the session, two were replaced by governmentsanctioned representatives. The actions of ASEAN officials were seen as undermining the democratic efforts of civil society to speak for their constituents. Unfortunately, the interface session was not offered in 2010 under Vietnam's chairmanship of ASEAN. Under Indonesia's chairmanship, nomination of CSO representatives continues to be a contested issue, although the ACSC/APF continues to convene annually. See Kelly Gerard. 2011. “Effort to Engage Southeast Asian Civil Society: Smoke and Mirrors?” Working Paper No. 38. New Approaches to Building Markets in Asia Working Paper Series, and Terence Chong and Stefanie Elies. 2011. An ASEAN Community for All: Exploring the Scope for Civil Society Engagement. Friedrich Ebert Stiftung. Singapore 4

See http://www.iesr.or.id/english/2011/12/eiti-welcomed-in-asean-mineral-cooperation/

Freedom index measure the degree of freedom in the context of electoral democracy and classified countries into three categories, namely (i) free -- one where there is open political competition, a climate of respect for civil liberties, significant independent civic life, and independent media; (ii) partly free -- one in which there is limited respect for political rights and civil liberties. Partly Free states frequently suffer from an environment of corruption, weak rule of law, ethnic and religious strife, and a political landscape in which a single party enjoys dominance despite a certain degree of pluralism; and (iii) not free -- one where basic political rights are absent, and basic civil liberties are widely and systematically denied. See Freedom House. 2013. Freedom in the World 2013: Democratic Breakthrough in the Balance. Selected Data from Freedom House's Annual Survey of Political Rights and Civil Liberties. Freedom House. New York.

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The NGOs can be differentiated based on their varying degree of autonomy. Based on this dimension, scholars are distinguishing fully autonomous NGOs from government-organized or –supported groups or GONGOs, quasi-autonomous NGOs or QUANGOs, and donor-organized NGOs or DONGOs. Still other distinctions are made among NNGOs (NGOs in Northern or industrialized countries), SNGOs (NGOs based in Southern or developing countries), and INGOs (international NGOs). See William F. Fisher. 1997. DOING GOOD? The Politics and Antipolitics of NGO Practices. Annual Review of Anthropology, 26, p 439- 464

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REFERENCEs Abao, Carmel Veloso (2011) “Mapping and Analyzing Philippines Civil Society organizations (CSOs)” in Lydia N. Yu Jose (ed) Civil Society Organizations in the Philippines, A Mapping and Strategic Assessment. Quezon City: Civil Society Resource Institute. Betsill, Michele M. and Corell, Elisabeth (2001) NGO Influence in International Environmental Negotiations: A Framework for Analysis. Global Environmental Politics 1:4, November Chong, Terence and Elies, Stefanie (eds) (2011) An ASEAN Community for All: Exploring the Scope for Civil Society Engagement. Singapore: Friedrich Ebert Stiftung. Fisher, William F. (1997) “DOING GOOD? The Politics and Antipolitics of NGO Practices”. Annual Review of Anthropology, 26, p 439- 464 Freedom House (2013) Freedom in the World 2013: Democratic Breakthrough in the Balance. Selected Data from Freedom House's Annual Survey of Political Rights and Civil Liberties. New York: Freedom House. Gerard, Kelly (2011) “Effort to Engage Southeast Asian Civil Society: Smoke and Mirrors?” Working Paper No. 38, New Approaches to Building Markets in Asia Working Paper Series. Gillies, Alexandra (2010) “Reputational Concerns and the Emergence of Oil Sector Transparency as an International Norm”, International Studies Quarterly, 54, pp 103–126 Haufler, Virginia (2010) “Disclosure as Governance: The Extractive Industries Transparency Initiative and Resource Management in the Developing World”, Global Environmental Politics, 10:3, August, pp 53-73. Ibrahim, Rustam (2006) Indonesian Civil Society 2006: A Long Journey to a Civil Society. CIVICUS Civil Society Index Report for the Republic of Indonesia. Jakarta: YAPPIKA, IDSS-ACESS, Australia Indonesia Partnership. Landau, Ingrid (2008) “Law and Civil Society in Cambodia and Vietnam: A Gramscian Perspective”, Journal of Contemporary Asia, Vol. 38, No. 2, May, pp. 244-258

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Norlund, Irene et al (eds) (2006) The Emerging Civil Society: An Initial Assessment of Civil society in Vietnam. CSI-SAT Vietnam. Hanoi: VIDS, UNDP Vietnam, SNV Vietnam, CIVICUS CSI. O'Sullivan, Diarmid (2013) What's the Point of Transparency? A report supported by grant from Open Society Fellowship. Revenue Watch Institute (2013a) Extractive Industries Transparency Initiative: Linking the 2013 STANDARD to Reform. Presentation in Revenue Watch Institute EITI Training, Jakarta, 11 November. Revenue Watch Institute (2013b) The 2013 Resource Governance Index. New York: Revenue Watch Institute Schiavi, Petrina and Solomon, Fiona (2007) “Voluntary Initiative in the Mining Industry: Do They Work?” Greener Management International , No. 53, pp 27-41. Schmidt, Johannes Dragsbaek (2005) “Civil Society at the Crossroads in Southeast Asia”, Working Paper No. 132. Research Center on Development and International Relations (DIR)-Institute for History, International, and Social Studies. Aalborg University. Shwe Gas Movement (2013) Good Governance and the Extractive Industry in Burma: Complications of Burma's Regulatory Framework. Shwe Gas Movement. Triwibowo, Darmawan (2006) “Menakar Signifikansi Aktivisme Masyarakat Sipil bagi Demokratisasi Melalui Lensa Gearakan Sosial” in Darmawan Triwibowo (ed). Gerakan Sosial: Wahana Civil Society bagi Demokratisasi. Jakarta: Perkumpulan Prakarsa and LP3ES. White, Roland and Smoke, Paul (2005) “East Asia Decentralizes” in World Bank (ed). East Asia Decentralizes: Making Local Government Works. Washington DC: World Bank.

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II. A LONG WALK TO TRANSPARENCY: THE INDONESIA'S CSO EXPERIENCE WITH EITI

* Gita W.L. Soerjoatmodjo, Ahmad Hanafi, and Darmawan Triwibowo

2.1. Background – a long walk The Indonesia's journey to adopt transparency measures in its extractive industries, as reflected by the Extractive Industry Transparency Initiative (EITI) process, is long and winding. As one of the resource rich countries with bad record in corruption, Indonesian government always sees transparency both as a challenge and a necessity (Perdanahari 2012).1 On one hand, the public does not really understand how the industries were governed. Hence, there have been perceptions that extractive industry firms are not transparent in declaring its production, its operational costs and its revenues (Hardjapamekas 2012, Perdanahari 2012). On the other hand, the industries have become more complicated as decentralization change the landscape and bring local government into the arena. As an example, currently Indonesia has about 12,000 district-licensed mining concessions with only 4,500 of these locally-licensed units have been declared “clean and clear” (Hardjapamekas 2012). As retrograde, the journey began from 2001 when the former Minister of Environment, Emil Salim, was appointed by the World Bank to lead the process in the development of Extractive Industries Review (EIR) until the country holding an EITI Candidacy status in 2010 and published its first EITI report in April 2013 (Soerjoatmodjo 2012). Overall, the voyage can be classified into four stages, namely: (i) understanding EITI (2001-2003) when stakeholders learned to know EITI, (ii) promoting EITI (2003-2007) when stakeholders referred to EITI for their anticorruption and good governance advocacy, (iii) institutionalizing EITI (2007-2010) when stakeholders put together formal regulations to cement their commitment on EITI and (iv) implementing EITI (2010-now) when Indonesia has been accepted as EITI Candidate Country and stakeholders implements EITI rules accordingly. This writing aims to review the journey in stage by stage basis, and describe how the role of the government and civil society evolve during the process. It will highlight civil society organizations' strategy in promoting EITI in Indonesia, as well as identify lesson-learned from their current engagement.

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2.2. The EITI in Indonesia – a work in progress The EIR report brought new perspective to the Indonesian government on the need for bigger transparency and accountability in the extractive industries (Soerjoatmodjo 2012).. The report shows the negative impact of mining and oil and gas sector development, and recommends the World Bank Group (WBG) to abstain from financing extractive industries unless it ensures that their operations lead to poverty alleviation. The involvement of prominent person, such as Emil Salim, who continues to carry out the message of EIR into his work with the government, had initiated the first 2 stage of Indonesian experience with the EITI. The record showed that the government was keen to the idea (Soerjoatmodjo 2012).. During the first EITI conference in London in June 2003, the Government of Indonesia through Masnellyati Hilman, then Deputy Minister for Technical Infrastructure Development for Environmental Management, delivered a statement that Indonesian would do its utmost to implement the EITI according to Indonesian laws and regulations (IESR, 2012a). Moreover, in December 2003, when the EIR report was issued and triggered controversy due to its critical tone, Minister of Finance Boediono in his position as one of WBG governors, released a statement from the Government of Indonesia to support the implementation of EIR recommendations. The conversations regarding the EITI continued to take place in the midst of wider fiscal reform efforts in Indonesia. In 2006, the International Monetary Fund (IMF) Report on the Observance of Standards and Codes (ROSC) for Indonesia praised Indonesia for its national reforms to improve transparency, yet highlighted the lack of transparency in extractive industry's revenues and referred to EITI as an option for reform (Brown and Kirana 2009). It was reported that Minister of Finance Sri Mulyani supported transparency initiatives in the extractive industries sector in the mid-2007. The Minister of Energy and Mineral Resources, Purnomo Yusgiantoro, also expressed his favorable inclination towards the EITI (Brown and Kirana 2009). Since 2007, there are attempts to put EITI in formal, legal binding regulations – marking the transition toward the third phase – institutionalizing EITI (Soerjoatmodjo 2012). A process towards the presidential decree in support for EITI was first initiated by vice chairman of the Corruption Eradication Commission, Erry Riyana Hardjapamekas, in 2007. This initiative received support from Indonesian civil society, especially those advocating for anti corruption, transparency and good governance (Soerjoatmodjo 2012).. In the process of the decree formulation, civil society took up consultative role vis-à-vis this agency. The draft formulation process was a multistakeholder attempt – pushed by various champions from government, civil society and international actors (Soerjoatmodjo 2012). In 2008, due to cabinet reshuffle, the position of the Coordinating Minister of Economic Affairs was passed from Boediono to Sri Mulyani Indarwati who took up the role to continue endorsing EITI. It should be noted that prior to leaving his post,

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Boediono played crucial role in the issuance of the Presidential Instruction No. 5/2008 with the focus of economic programs of 2008-2009, that gave EITI a push to his successor (Soerjoatmodjo 2012). As a result, the policy context in support to EITI was firmly established in the regulatory stage. On 4 March 2009, the Government of Indonesia announced its intention to work towards EITI compliance. An official Note of Understanding amongst Coordinating Minister of Economic Affairs, Finance Minister and Minister for Energy and Mineral Resources marked this intention. This note set out an agreement to work together on the implementation of extractive industries revenue transparency â&#x20AC;&#x201C; led by Coordinating Minister for Economic Affairs (Extractive Industries Transparency Initiative, 2009). Following this step, the Coordination Team for the Preparation of the Implementation of Extractive Industries Revenue Transparency was established. Representatives from the International EITI Secretariat and the World Bank-administered Multi Donor Trust Fund (MDTF) visited Jakarta in March to meet with Indonesian stakeholders to continue this initiative. As the result of those initial processes, on the 23rd of April 2010, the President of Indonesia signed Presidential Regulation No 26/2010 on Transparency of National and Local Extractive Industry Revenue into force. The MSG (Multi Stakeholder Group) was set up according to this presidential regulation. The EITI Multi Stakeholder Group held its first meeting on June 14, 2010, and approved a work plan. Representatives from civil society members and extractive company associations - including the Indonesian Coal Mining Association, Indonesian Mining Association, and Indonesian Petroleum Association - were also part of the MSG. The Government of Indonesia through Coordinating Minister of Economic Affairs, Hatta Radjasa, released a public announcement that Indonesia will implement EITI and requested formal admission for Indonesia into EITI Candidacy from the EITI Board on September 14, 2010 (Inisiatif Transparansi Industri Ekstraktif, 2011a). On 21 October 2010, in the EITI Board meeting in Dar-es-Salam, Tanzania, Indonesia was named as a candidate country by the EITI, meaning that all state revenue generated by the extractive industries was open to public scrutiny. Afterward, on November 2010, the Coordinating Minister for Economic Affairs appointed the full membership of the multi-stakeholder EITI Implementation Team as the follow up. Throughout 2011, Indonesia began its process to set up a reporting template. This was marked with the dynamics amongst stakeholders due to differences of interests over the details of this template (Soerjoatmodjo 2012). On March 2011, a workshop on EITI template finally agreed on the scope of the report, detailing companies to be involved in EITI process. On August 24, 2011, in an EITI Implementing Team meeting, attended by representatives from the government, corporation, civil society organization and EITI Secretariat from Oslo, a template used as the basis of EITI report was finally agreed (Inisiatif Transparansi Industri Ekstraktif 2011b). In 2012, in accordance to the EITI Rules, the EITI Board agreed that Indonesia was given time until 18 October 2012 to complete an 'EITI Validation' - an independent assessment of compliance with the EITI's requirements. Countries that meet these requirements are

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designated as EITI Compliant (Extractive Industries Transparency Initiatives 2010). However, the transitional procedures agreed by EITI Board provided Indonesia with more time and Indonesia had to complete EITI Validation by 18 April 2013 (Soerjoatmodjo 2012).

2.3. The role of civil society organizations – advocating home and abroad During the 2001-2003 periods, Indonesian civil society organizations had been pushed for transparency in the government (Soerjoatmodjo 2012).. The initiative included the advocacy for freedom of information law pushed by a coalition of 40 civil society organizations that put together a draft bill and proposed it to the National Parliament in February 2001 (Laksmini 2003). In the context of extractive industries, through its linkage with Transparency International (TI), Indonesian-based Transparency International Indonesia (TII) had been involved in Publish What You Pay (PWYP) coalition and became the entry point to further dissemination EITI to civil society organizations in the country. In June 2003, TII was one of the attendees of the first EITI global conference in London. In general, the civil society in Indonesia continued to push for transparency and good governance, particularly by taking the roles of government watchdogs during the promoting EITI phase. In 2005, TII produced 'Extractive Industry Economy Transparency in Indonesia' report – exposing corruption loopholes in the extractive industry revenue stream. This phase also witnessed the move made by Indonesian civil society to connect with the global network for similar cause. In 2006, TII and ICW attended the 3rd EITI international conference and became part of PWYP (Institute for Essential Services Reform 2012). The CSO believed that EITI can provide a platform to advocate transparency from the revenue side of extractive industries in Indonesia, especially for CSO advocating for transparency and good governance. This framework has complemented their core concerns on expenditure transparency. TII also hosted discussion rounds with civil society organizations to understand this global standard better. It can be argued that during the phase of promoting EITI, civil society organizations in Indonesia intensified their links with the international community in promoting transparency. In 2007, Revenue Watch Institute (RWI) in partnership with TII initiated a series of multi-stakeholder workshops in resource-rich districts – bringing together government officials in national and district levels and achieving twofold purpose: (i) mobilizing support to transparency initiatives in the local levels and (ii) amplifying demands for these initiatives to the national government (Soerjoatmodjo 2012). In mid 2007, TII board members visited Minister of Finance Sri Mulyani to discuss the EITI. In the same year in October, the visit of Peter Eigen to endorse EITI also showed significant

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endorsement from civil society organizations. In 2007, when the Government attempted to institutionalize EITI in the form of the Presidential Decree, civil society organizations played an important role, as TII provided technical assistance and an academic paper supporting the drafted decree that was produced by the Center for Indonesian Law and Policy Studies (Pusat Studi Hukum dan Kebijakan/PSHK) and reviewed by PWYP Indonesia (Institute for Essential Services Reform 2012). The end of 2007 marked a pivotal milestone on the civil society organization side. On November, 43 civil society organizations established PWYP Indonesia. These civil society organizations came from 7 resource-rich provinces all over the county and continued to advocate the EITI through engagement with local government who have informally professed support from the EITI and looking for ways to move forward. This coalition served as a strategic platform â&#x20AC;&#x201C; as they comprised of a wide ranging civil society organizations with an array of core concerns and key expertises which complement each other. As a result, it created an inclusive platform for extractive industries stakeholders to establish civil society engagement. In this civil society-driven initiative, representatives from regional government from oil-rich Riau province also participated in this event (Brown and Kirana 2009). This marked the convergence of civil society and the government in promoting the same interest for revenue transparency (Soerjoatmodjo 2012). In 2008, RWI collaborated with the Indonesian Centre for Environmental Law (ICEL) on researching policies and practices of Environmental Financial Assurance (EFA) models on funds from the government or other third parties be used to finance mine closure and rehabilitation programs (Revenue Watch Institute 2012a). In this research, ICEL worked together with fellow Publish What You Pay Indonesia member Pokja 30, a local civil society network operating in resource-rich East Kalimantan that suffered from environmental pollution and damage from un-reclaimed 18 coals and mining companies. This research enabled civil society organizations and governments to weigh in on the formation of new EFA models. In the following year, another Publish What You Pay Indonesia member, Indonesian Corruption Watch (ICW) collaborated with RWI and produced numerous reports that have resulted in myriad institutional changes throughout the government (Revenue Watch Institute 2009). Among ICW's projects were: the compilation of an oil and gas and minerals and mining data base for both future analysis and public education; advocacy efforts through press outreach; meetings with Indonesia's Corruption Eradication Commission (KPK), the Supreme Audit Agency (BPK) the parliament (DPR) and the Regional Representative Council (DPD); interviews with extractive industry experts; and the uncovering of discrepancies in the state's cost recovery, reported revenue, royalties and subsidies from extractive activity. Part of their work identified discrepancies in government revenues, over-reported cost recovery, backlogs of unpaid coal royalties, and variation in policies for mineral royalties, the BPK has ordered a special audit of all oil and gas contracts, the KPK has created a special task force to monitor the production and sale of oil and gas, the parliament has created a special CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

committee to monitor the oil and gas industry, and the government has attempted to renegotiate some of its contracts.

Box 2.1. The first Indonesia's EITI Report Indonesia issued its first EITI Report on April 22, 2013. The first EITI report presents the results of reconciliation of revenue data conveyed by the nation's largest 50 oil and gas operators, 15 mineral companies, and 53 coal companies to the Government of Indonesia (GOI) with the amounts of those same revenues said to have been received by reporting GOI agencies, the Directorate General of Oil and Gas, the (now former) Executive Agency for Upstream Oil and Gas Development (BPMIGAS), the Directorate General of Budget, the Directorate General of Tax, and Directorate General of Minerals and Coal, all related to calendar year 2009. Overall, the GOI reported $20.712 billion in oil and gas revenue and $4.214 billion in mineral and coal revenues, for a total of $24.926 billion. Amounts covered by Indonesia's EITI report among the largest in the world, surpassed only by oil and gas giants Iraq, Nigeria and Norway. Indonesia's report is also one of the most complex in the world, as it is one of the very few, if not the only one, to deal with both wellestablished oil and gas and mining sectors, all set against the background of a complex decentralization environment. Total net differences between what companies reported vs. what government reported amounted to $370 million. This level of discrepancies is more than five times larger than any EITI reporting nation analyzed in the Overview of EITI Reports published by the EITI International Secretariat in July 2010. In Indonesia companies reported paying $370 million less than the government reported receiving. In addition to highlighting amounts conveyed vs. received (and discrepancies thereto) for material EI revenue streams from all material extractive industry producers, EITI Indonesia findings are of interest for at least three other reasons. 1. Understanding the contribution of the coal and mineral sectors to the nation's revenue base. 2. Understanding the burgeoning locally-licensed mining sector 3. Providing a tool for local communities to hold local government accountable Source: Brown (2013)

Furthermore, it should be noted that after 7 years of advocacy by the civil society coalition, Freedom of Information Act (known as Undang-Undang Keterbukaan Informasi Publik) was finally enacted in 2008 â&#x20AC;&#x201C; allowing the public to access to public information, including revenue-related information (Soerjoatmodjo 2012). Open access of information helped in reverberating the call for revenue transparency to the local levels. This could be seen in sub-national governments of Blora and Bojonegoro, two districts in East and Central Java provinces of Indonesia, home to an oil reserve Cepu Block (Soerjoatmodjo 2012). The Block's contribution of up to 20 percent of Indonesia's oil production resulted in the view of the communities to see it as 'a jackpot.' From 2008-2010, RWI along with the Open Society Foundations Local Government and Public Service Reform Initiative (OSF-LGI) joined forces with Pattiro â&#x20AC;&#x201C; also a Publish What You Pay Indonesia member - as a civil society organization to initiate capacity building for local government of both districts, through partnership with Institute for Discourse Research and Application (Lembaga Penelitian dan Aplikasi Wacana/LPAW) in Blora and Bojonegoro Institute (BI) in Bojonegoro (Revenue Watch institute 2012b). The project was to help the local partners, government and other stakeholders understand the challenge of oil wealth and develop two important instruments to manage that wealth: a transparency mechanism 18

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(to address the issues of revenue transparency) and a mid-term development plan (to address the issues of revenue management). In this period of time, LPAW launched the first attempt for civil society to use the FOI Act. Efforts to obtain information on a government-owned company garnered wide supports from both national and subnational media attention and support. Now both districts are known as 'world pioneers in implementing transparency for sustainable development at the local level' (Prijosusilo 2012). Blora and Bojonegoro have also been the sites for resource-rich district government officials to visit and exchange experience. In 2010-2011, Indonesian Parliamentary Centre (IPC) trained civil society representatives from 5 resource rich districts and Jakarta to provide technical assistance on revenue transparency to members of parliament (MPs). These trained activists later on providing direct technical assistance to sub-national MPs in 4 regions and to national MPs to play a more active oversight role and draft more effective governance (Revenue Watch Institute 2012c). It is expected that through this initiative, constructive dialog between civil society and the government at the local level could be established as both were on the same page on the issue of revenue transparency. At the end of the initiative, civil society organizations developed their action plans to engage with stakeholders â&#x20AC;&#x201C; this catapulted civil society to exercise in this constructive mode of dialogue.

2.4. Engagement in the MSG â&#x20AC;&#x201C; a litmus test for an effective civil society's advocacy The engagement in the MSG provides the CSO with the opportunity to play as insiders and influence the process from within. The MSG is pivotal during the EITI candidacy process since the group decide the work plan, the materiality and format of the reporting template, and ensure the credibility of EITI report reconciler and the satisfactory result produced by the reconciler, as well as ensure that the EITI Report is comprehensive and publicly accessible (Soerjoatmodjo 2012). Furthermore, as the group represents various stakeholders with diverse interests that involve an inclusive decision making process, MSG is essentially the forum where trust amongst stakeholders are nurtured, information shared, views exchanged, negotiation takes place, decisions made, conflict resolved, consensus and commitment built and strengthened (Soerjoatmodjo 2012). The 2nd Article of the Presidential Regulation No. 26/2010, which marked the official launch for Indonesia to apply EITI, stipulates the formation of Transparency Team. In the EITI parlance, this Transparency Team is essentially Indonesia's multi stakeholder group (MSG).3 The regulation allocates three posts for civil society representatives to sit in the group. As follow up, the PWYP Indonesia takes the driver's seat to elect civil society representatives for those positions. The final selection in June 2010 decided three people to represent civil society, namely: economist Faisal Basri, Maryati Abdullah from PATTIRO and Wasingatu Zakiah from IDEA to sit in the MSG from 2010 to 2013 per 1 November 2010 (Soerjoatmodjo 2012). CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

Box 2.2. Setting up the civil society engagement within the MSG PWYP was contacted by EITI Transparency Team in May 2010 regarding the posts for civil society representatives in the MSG. PWYP Indonesia coordinator, Ridaya Laodengkowe , announced this invitation and discussed this with PWYP members to set up an election process. Afterward, PWYP Indonesia set up an election committee to lead the process further - comprises of Dyah Paramita from Indonesian Center for Environmental Law (ICEL), Sulastio from Indonesian Parliamentary Center (IPC) and Frenky Simanjuntak from Transparency International Indonesia (TI-I). Members of the election committee were those who had openly declared that they would not run for candidacy – to avoid any conflict of interests. PWYP Indonesia understood that it would be ideal to engage other CSOs outside the coalition. With 38 CSOs in 2010, PWYP Indonesia realized that public interests regarding extractive industries revenue transparency went beyond membership boundary. Hence names proposed also included those outside PWYP Indonesia although the right to vote for CSO representatives in the MSG was restricted to members of PWYP. The committee emphasized on the willingness of the candidates to take part in the MSG as the main selection criteria. The selection committee agreed on voting mechanism to be “one member one vote”. Members were defined as “those listed in a list provided by PWYP Indonesia coordinator”. In each vote, one member puts three candidates of their choice based on criteria set out: sufficient skills and knowledge on the issue, commitment, gender and national-local representativeness. The capacity to nurture and maintained constructive engagement with stakeholders was also part of the consideration. The first stage was to pool the names of the candidates. There were a number of names proposed as candidates: independent economist Faisal Basri, Chandra Kirana Prijosusilo (Revenue Watch Institute/RWI Asia Pacific), Danang Widoyoko (Indonesian Corruption Watch/ICW) and Rezki Sri Wibowo (Transparency International Indonesia/TI-I), Ridaya Laodengkowe (PWYP Indonesia), Maryati Abdullah (PATTIRO) – all Jakarta-based – as well as the following from outside Jakarta: Ismail Amir (National Secretary of Forum Indonesia untuk Transparansi Anggaran/FITRA Tuban), Carolus Tuah (Pokja 30 Samarinda East Kalimantan), Septer Manufandu (Foker LSM Papua) and Wasingatu Zakiah (IDEA Yogyakarta). These candidates were brought forward to public consultancy forum in TI-I secretariat in Jakarta on 15 June 2010. The election committee then confirmed the candidates' willingness to run for the next step. In this process, Chandra Kirana and Rezki Sri Wibowo withdrew from this pool. Then the rest of the candidates were requested by the election committee to explain their backgrounds, visions and missions regarding their plains if they were elected to sit in the MSG - as well as their commitment to continue engaging with PWYP Indonesia as their constituents while maintaining independence at the same time. This process was to ensure candidates must have sufficient knowledge on extractive industries and its revenue streams, as well as EITI framework as a multi stakeholder mechanism focusing specifically on revenue flows. Then PWYP Indonesia began its voting process. Danang Widoyoko decided to withdraw in the middle of this stage. The election process took 5 working days. Each PWYP Indonesia member sent an email to the committee – by electing the best three out of the total candidates. The committee ensured that all votes were accounted for. The process of election was conducted online through its mailing list - as members of this coalition operated all over the country. This voting led to the final selection in June 2010: economist Faisal Basri, Maryati Abdullah from PATTIRO and Wasingatu Zakiah from IDEA to sit in the MSG from 2010 to 2013. Source : Soerjoatmodjo (2012)

However, being insiders are not easier than acting as watchdogs. At first, they had to face a lukewarm welcome from companies that questioned their credibility as well as the capacity to engage in the process (Hanafi 2013). They would soon find that being 4 inside the MSG was like “playing away from the home turf”. The representatives from government and the companies were more familiar with many technical issues on extractive industries. The civil society faced a steep learning curve to grasp all of the 5 detail while sitting at the negotiation table and advocating the process. Furthermore, due to the long - developed relationship between the government and the companies, both of parties shared similar interests and tended to dominate the forum (Soerjoatmodjo 2012). Being insiders also put constraints for the civil society representatives on how to exercise their advocacy style. They could not press their 20

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agenda too hard because it would risk alienating other stakeholders. They realized that the ongoing process of trust building, inﬂuencing as well as convincing a myriad of 6 government agencies was indeed a delicate process (Soerjoatmodjo 2012). Inside the MSG, civil society tried to include their concern into the reporting template. The civil society, as described by Hanafi (2013), wanted the report: (i) based on projects to be able to disclose disaggregate level of data; (ii) to include volume data to complement the use of monetary value in the company's reporting template; (iii) to disclose the total amount of lifting and not only partial data on the government's share of the lifting; (iv) to include cost recovery data in the oil and gas project development; (v) to disclose the data on the revenue transfer to sub-national government; and (vi) to reveal the spending on CSR (Corporate Social Responsibility) fund from each companies. At the end, after intense negotiation, most of the civil society agenda was accommodated in the template. The cost recovery and CSR data were out of the template since it faced strong resistance from the companies. Nevertheless, for rookie negotiators in the complex 7 multi stakeholder process, the result was not bad.

2.5. Lesson learned – cautions from Indonesia experience Up until the publication of the first EITI report, there are several lesson-learned from the journey, as well as the CSO engagement in the process. The Devil is in the Details. Advocating revenue transparency involve skills and knowledge in ﬁnancial and accounting terms as well as technicalities related to oil, gas and mining industries. This advocacy requires CSOs to build their capacities to have adequate mastery over the details, to exercise discipline and rigorousness in scrutinizing them and to maintain stamina in monitoring the overall process. In a nutshell, it is indeed time-consuming and it requires a high level of commitment to deal with the details. Putting Pieces of the Puzzle. High level complexity of oil, gas and mining sectors in Indonesia also translates into a myriad of agencies involved in this process. CSOs advocating extractive industries revenue transparency have to deal with a number of government ofﬁcials working for various agencies - each with its own idiosyncrasies in organization, culture and bureaucracy. To endure the delicate complexity of the giant jigsaw puzzle is a must for CSOs working in this sector. Finding Needles in the Haystack. Champions within the government, the company as well as the civil society itself are key to accelerate the overall advocacy. The ability to identify potential champions and to 'infect' them with the 'virus' of transparency and accountability would significantly speed up the trust building, negotiation, consensus as well as commitment building, as they would serve as agents of change within each of their institutions. Even though identifying champions may seem like needles in the haystack, the probability of discovering ones would increase as CSOs expand their engagement with multiple stakeholders. The more CSOs engage with various stakeholders, the possibilities of finding champions also increase. CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

Constructive Engagement. In Indonesia, most government officials and corporate representatives are 'allergic' to civil society - and vice versa. Yet advocating extractive industry revenue transparency is essentially building synergy and partnership amongst stakeholders. The experience of Indonesian CSOs advocating EITI shows that constructive engagement built and nurtured amongst stakeholders are key â&#x20AC;&#x201C; it opens up doors for further possibilities ranging from exchange of information to participating actively in the decision making process and commitment building. A Team Effort. PWYP Indonesia exemplifies how advocacy for revenue transparency is done in a team work. PWYP Indonesia represents an array of experience, expertise and concerns of its members. There are those experienced in scrutinizing the state budget, others are skillful in building relations with government officials, some are knowledgeable in building linkage this issue to the current public discourses and others is skilful in raising public awareness through media campaigns. Passing the Baton. Knowledge management plays a key part in advocating revenue transparency in extractive industries. PWYP Indonesia members were able to step in substituting each other because information is managed by key persons in the coalition. Knowledge management is important to ensure inclusiveness of the overall advocacy by ensuring updates to be passed along to all CSOs. Ensuring knowledge management to be sustainable and accessible to stakeholders is essential to strengthen the advocacy. Independence in Partnership. While working in partnership with representatives from the company and the government, CSO representatives in MSG strongly maintain their independence to advocate revenue transparency in extractive industries. For example, when the EITI Indonesia Secretariat published periodic newsletters comprising companies that have submitted their reports and those that have not, CSO representatives were able to speak to the media to raise their concerns on the failure of those non-compliant companies. This generated pressures that led to improvements of compliances of the companies.

ENDNOTE 1

The natural resource sector, which includes oil and gas, coal and metal mining, as well as forestry, fishery and agricultural production, collectively makes up 25% of the country's GDP and 44% of the country's exports in 2010. Oil, gas and mining contribute almost 3/5 of the natural resource sector's GDP and 2/3 of overall sector exports. See Duek, A. & Rusli, R. (2010) The Natural Resources Industry in Decentralized Indonesia: How Has Decentralization Impacted the Mining, Oil and Gas Industries in Center for Research in Economic Analysis Discussion Paper Faculty of Law, Economics and Finance University of Luxemburg 2

Emil Salim, considered as a key figure to the overall landscape of EITI advocacy in the country, continued to carry forward his in-depth understanding on the importance of extractive industries revenue transparency in his service in various influential positions, including in his latest post as a Member of the Advisory Council to the Indonesian President in the first term of Yudhoyono's government.

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This Transparency Team sits beneath and is responsible directly to the President for the implementation of transparency of national and local extractive industry revenues. This team, according to Article 3 of the Regulation, is authorized to ask for information, additional data, inputs and/or consultations with agencies of the central government, district governments, extractive industry companies and other stakeholders as deemed necessary. According to Article 3, 4 and 5 of the Presidential Regulation, this Transparency Team itself comprises of a Streering team and an Implementing Team. This Steering Team is responsible in setting up general policies and giving direction to the Implementing Team as well as conducting evaluation to EITI implementation. The Implementing Team comprises of 14 entities from government officials, regulatory body, state-owned enterprise, industrials association as well as CSO representatives 4

Interview with Roslita Arsyad, Revenue Watch Institute, June 13, 2013.

Interview with Maryati Abdulah, PWYP Indonesia, June 13, 2013.

Consensus building to agree on EITI template and its scope was marked with different interests of stakeholders involved. From the government side, such consensus required stages of approvals from a large number of agencies. Internal consultancy within each government agencies themselves required an elaborate process. Government officials attending MSG meetings also rotated from time to time and those who attended may neither be fully equipped nor be closely updated with the most recent progress. This translated into a substantial time needed to agree on various details to be put into EITI template and its scope. PWYP Indonesia as well as the media following the process also realized the slow process 7 On March 2011, the MSG organized a 2-day workshop in Bali. MSG, companies and related government agencies attended the workshop, all ready to pilot the proposed EITI template and its scope agreed at that time. CSO representatives from PWYP Indonesia members observed, participated and facilitated the overall process. This workshop resulted in the production of EITI Indonesia Scoping Note issued on 18 August 2011 by EITI Secretariat Indonesia. This Scoping Note jotted down the following: (i) the extractive sectors, companies, and production units to report ; (ii) the types of revenue streams to be reported and the government entities collecting these revenue streams to fill out templates ; (iii) amounts (both in physical amounts and in dollars or rupiah surrendered to the government) above which revenue streams to be reported on ; (iv) whether amounts reported by industry vs. government will be crosschecked with an effort to see whetherfigures can be brought into alignment (reconciled) with a possible limited audit of figures that do not agree or whether a full audit to take place for figures that do not match; (v) the degree of disaggregation (at the level of individual production units, at the level of companies, or at the level of total revenue streams collected by the government) at which information to be presented in the EITI Report; and (vi) the time period covered in the first reporting period

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REFERENCEs Brown, David (2013) Summary of Findings: Understanding the EITI Indonesia Reconciliation Report. Jakarta: EITI Indonesia. Brown, David and Kirana, Chandra (2009) “Facilitating Consideration of the EITI in A Large Country: The Case of Indonesia” in Advancing the EITI in the Mining Sector: A Consultation with Stakeholders accessed from http://eiti.org/files/ MINING%20Compressed.pdf on 21 May 2012. Extractive Industries Transparency Initiatives (2010) “Indonesia Accepted as EITI Candidate Country” accessed from http://eiti.org/news-events/indonesiaaccepted-eiti-candidate-country on 22 May 2012

CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

Extractive Industries Transparency Initiative (2009) “Indonesia to Implement the EITI” accessed from http://eiti.org/node/729 on 22 March 2012. Hanafi, Ahmad (2013) Pengalaman Indonesia dalam Menyusun Template Laporan EITI Putaran 1. Draft. Indonesian Parliamentary Center. Jakarta. Hardjapamekas, Erry R (2012). “EITI: Indonesia's Experience”. The presentation in the Introduction to EITI Workshop. Hanoi, July 24. Institute for Essential Services Reform (2012) The Synergy for the Future: The Role of Indonesian Civil Society Organizations on the Indonesian Extractive Industry Transparency Initiative. Unpublished monograph. Jakarta: Institute for Essential Services Reform. Inisiatif Transparansi Industri Ekstraktif (2011a) Report to EITI Indonesia Stakeholders 17 January 2011 accessed from http://www.ipa.or.id/files EITI%20 Indonesia%20report%2011%2001%2017.pdf on 22 May 2012. Inisiatif Transparansi Industri Ekstraktif (2011b) Template Pelaporan EITI Indonesia Disepakati accessed from http://www.eiti-indonesia.com/article-55-templatepelaporan-eiti-indonesia-disepakati.asp on 22 May 2012. Laksmini, Gita W (2003) Can Trans-National Advocacy Network Force Repressive State Actors to Comply with Human Rights Norms? Freedom of Information in Indonesia. Unpublished Thesis for Insitute of Commonwealth Studies School of Advanced Studies University of London. Perdanahari, Emy (2012) “The Experience of EITI Implementation in Indonesia: Successes and Challenges”. The presentation in the National Conference on The Best Practice of Extractive Industries Governance and Revenue Management. Phnom Penh, November 2. Prijosusilo, Bramantyo (2012) “Fueling the Future”. New York: Revenue Watch Institute accessed from http://www.revenuewatch.org/sites/default/files/Indonesia_ subnational_case_study.pdf on 22 May 2012. Revenue Watch institute (2012a) “Strengthening the EITI Campaign in Southeast Asia” accessed from http://www.revenuewatch.org/grants/strengthening-eiticampaign-southeast-asia on 22 May 2012. Revenue Watch institute (2012b) “The Extractive Industries Transparency Initiative (EITI)” accessed from http://www.revenuewatch.org/training/resource_center/ backgrounders/extractive -industries-transparencyinitiative-eiti on 30 May 2012 Revenue Watch institute (2012c) “Building NGO Capacity to Provide Technical Assistance to MPs in Indonesia” accessed from http://www.revenuewatch.org/ grants/building-ngo-capacity-provide-technical-assistance-mpsindonesia on 22 May 2012. Revenue Watch Institute (2009) “RWI Grantee Indonesia Corruption Watch Investigates Lack of Transparency” accessed from http://www.revenuewatch.org/news/rwigrantee-indonesia-corruption-watch-investigates-lack-transparency on 27 May 2012

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III. DISSECTING THE INVISIBLE ELEPHANT: THE CSO'S CHALLENGES AND OPPORTUNITIES TO PROMOTE better TRANSPARENCY IN CAMBODIA'S EXTRACTIVE INDUSTRIES * Darmawan Triwibowo

3.1. Background – who sees the elephant? The Cambodia's extractive industry is like an “invisible elephant” for most citizens in the country. On one hand, they are aware that the country stores (relatively) huge mineral resources and hoping that those resources can help the government to undertake development programs for sustainable growth in Cambodia (Cambodians for Resource Revenue Transparency and Economic Institute of Cambodia 2011). The general public expects that the mining and oil and gas sector will create more jobs; increase public investment in health and education as well as investment in productive sectors such as infrastructure and agriculture. On the other hand, most of them do not know how the government is managing the resources. The Cambodians for Resource Revenue Transparency (CRRT) and Economic Institute of Cambodia (EIC) survey in 2011 found a growing concern about the secrecy that surrounds the extractive industry management in the country. In general, the citizens do not have a coherent understanding of the value chain of the industry and the benefits that they can get from its development because they have limited access to information. The transparency issue in the Cambodia's extractive industry got into the international spotlight when Global Witness launched a report on its poor governance in 1 2009. The report, “Country for Sale”, accused the Royal Government of Cambodia (RGC) of mishandling the mining and oil and gas sector, especially in the licensing and allocation of concessions practice (Global Witness 2009). Global Witness claimed, among other, that “exploratory mining licenses have been quietly allocated to members of the ruling elite or their relatives” and “allocation of concessions has taken place under a blanket of secrecy”. As expected, the report sparked a strong rebuttal from the RGC officials, such as the Cambodia's U.K. ambassador, Hor Nambora, and even from the RGC 2 Prime Minister, Hun Sen, who called the NGOs' criticism of his oil policies as “crazy”. However, years after the debate, there is no significant progress on the transparency in extractive industries. The report from The NGO Forum on Cambodia in 2011 concluded that: “While Extractive Industry (EI) is expanding itself, very minimal information has been made publicly available to Cambodian citizens. The current legal framework and administration system has simply not been able to produce and share sufficient

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amount and kind of information needed to ensure transparency in EI. In addition, there has been not only limited understanding but also limited participation from the public in the management of this emerging industry”

The report found that “in addition, there has been not only limited understanding but also limited participation from the public in the management of this emerging industry”. It argued that more comprehensive and updated information on the EI operation and financial data should be published and made widely available in the public domains by relevant government institutions, including the Ministry of Economy and Finance (MEF), the Ministry of Industry, Mine and Energy (MIME) and the Cambodian National Petroleum Authority (CNPA). Therefore, the elephant while it could be huge remains invisible to the citizens.

3.2. Cambodia's Mining, Oil and Gas Resources – an upward exploitation trend Cambodia mineral resources can be classified into five types of minerals, namely: metallic minerals, non-metallic minerals/industrial minerals, gemstones and ornamental stones, solid fuel minerals, and construction materials (Vichett 2013). Preah Vihear, Mondulkiri, Battambang, and Ratanakiri provinces are endowed with vast reserves of metallic minerals, including iron, copper, bauxite, and gold. On the other hand, Stung Treng province holds all types of minerals and the only province in Cambodia that has coal reserve.

THAILAND

VIETNAM

Figure 3.1. Current mineral/mining investment in Cambodia Source: Vitchett (2013)

Cambodia's mining industry relies upon the production of industrial minerals, which included crushed stone, limestone, and sand and gravel (Soto-Viruet and FongSam 2013). The industry is composed of small scale, artisanal mining; and larger-scale 26

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operations at the exploration stage (World Bank 2009). Exploitation of minerals currently comprises of 0,3 - 0.4 percent of GDP and is dominated by traditional, smallscale mining activities (World Bank 2009; Wu 2006). The employment opportunity in mining is relatively small. According to Labor Force Survey of Cambodia estimates, the total workforce in the mining and quarrying sector was about 11,000 compared with Cambodia's total workforce of 6.3 million (International Monetary Fund in Wu 2006). However, although mining production remains a very small part of the economy and the monetary value of the sector is obscure, quarrying output is estimated to be worth US$ 60 million per annum (Thompson 2010).4 The current data shows a significant progress in the development of the mining industry. The RGC estimates that the mining industry will grow at the average rate of 8.37 percent in 2011 â&#x20AC;&#x201C; 2014 periods (Sotharith 2012). Interest in mining has seen a swift increase, from US$4 million in fixed 5 investment in 2008 to US$11 million in 2009. The number of mining license issued by the government is increasing sharply after 2006. The Ministry of Industry Mines and Energy (MIME) had issued only 11 large scale mining licenses in the preceding decade since 1993 (Cooperation Committee for Cambodia 2010). However, in 2006-2010 periods, MIME has issued 104 exploration licenses (Cooperation Committee for Cambodia 2010). As of December 2011, the country had granted mining licenses to 128 domestic and foreign companies (Soto-Viruet and Fong-Sam 2013). The total number of exploration licenses had reached 139 by early 2013 which were allocated for 91 companies from Cambodia, Australia, China, Vietnam, and Thailand (Vichett 2013). Most of the exploration were focused on metallic minerals (71 companies, 118 projects) and coal (13 companies, 14 projects). According to Vichett (2013), the preliminary results showed that about 17 of 139 exploration projects were confirmed positive. Up to now, 13 of 91 companies (five companies from China, three companies' from Thailand, and five domestic companies) have been licensed to conduct 13 mining projects in gold (4), iron (1) coal (1), limestone (5), and phosphate (1). In comparison with the mining industry, the oil and gas resource in Cambodia is relatively untapped. Exploration began in the 1950s and a number of contracts have been signed since the 1970s but yielded no significant results as blocks contracted through the first half of the 1990s have now all been relinquished (World Bank 2009). The Cambodian National Petroleum Authority (CNPA) formally granted a new offshore oil license of Block A through a Production Sharing Agreement (PSA) in 2002 to Chevron with the partnership with Mitsui and also Caltex that bought a 15 percent interest from Chevron in March 2003 (World Bank 2009; EIC 2008). In 2004, CNPA re-designated the remaining offshore area into five blocks (Block B to F) which were subject to exploration and development (Economic Institute of Cambodia 2008). Chevron announced that they had struck oil in 2004-05. This was the first significant discovery of oil reserves in the country (World Bank 2009). The size and quality of hydrocarbon reserves in block A are not yet publicly known (Chhay in The NGO Forum on Cambodia 2011; World Bank 2009; Economic Institute of Cambodia 2008). CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

The company tried to be cautious with the findings and has since indicated that Block A contains small dispersed fields rather than one core field, which potentially making it more costly and technically challenging.6 Nevertheless, the RGC and multilateral international agencies remain upbeat about the size of the reserves and the prospect of oil and gas revenue to Cambodia (Economic Institute of Cambodia 2008). As an example, CNPA estimated, based on basin level analysis that the cumulative oil and gas in the offshore area of Cambodian side could be up to 400 million barrels of crude oil and three trillion cubic feet of gas. The International Monetary Fund, on the other hand, has estimated that that under a given scenario Cambodia could presumably get US$174 million of oil and gas revenue by 2011 and maximally US$1.7 billion by 2021 before gradually declining thereafter (Economic Institute of Cambodia 2008). Furthermore, UNDP stated that the rough estimation of potential oil production of all blocks was as high as 200-250 thousand barrels per day at full production with the total oil and gas reserves at two billion barrels and 10 trillion 7 cubic feet respectively that can be lasted for 20 to 25 years.

Figure 3.2. Sites of Cambodia's Off-shore Oil and Gas Reserve Source: EIC (2008)

3.3. Bad Reporting and Limited Access to Information - challenges for better transparency It is obvious that the RGC keens to capitalize the current upward trend in the extractive industry development. The Deputy Prime Minister, Sok An, in his speech on November 2007 stated that increased revenues from the oil, gas, and mineral sectors would support the government's social and economic development objectives. It would help â&#x20AC;&#x153;diminishing reliance upon donor aid and upon burdensome loans; more money for education, health, infrastructure and social programs; and the increased employment opportunities for young Cambodians, both skilled and unskilledâ&#x20AC;? (Cooperation Committee 28

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for Cambodia 2010). Nevertheless, the intention is clouded with the existing low level of transparency in the extractive industries. The secrecy creates distrust towards the government. As example, the survey by CRRT and EIC in 2011 with the Small and Medium Enterprises (SMEs) in Cambodia found that only 38 percent of the interviewed SMEs believed that the government would be able to manage the revenue generated from these industries. One-third did not think the government could manage these revenues at all (Cambodians for Resource Revenue Transparency and Economic Institute of Cambodia 2011). The 2013 Resource Governance Index (RGI) report on Cambodia highlights the problem thoroughly. Cambodia received a “failing” grade of 29, ranking 52nd out of 58 countries as it got very low scores on the Reporting Practices and Enabling Environment components (Revenue Watch Institute 2013). The Reporting Practices component measures the actual disclosure of information by government agencies. Cambodia's “failing” score of 13 in Reporting Practices is its lowest on any component, reflecting a near-total lack of government data on the extractive sector (Revenue Watch Institute 2013). The report found that the obscure practices are rampant as stated below: “The government does not publish information on the licensing process, and contract terms are not disclosed. The Economy and Finance Ministry publish extractive revenues only in aggregated form and does not include information on current operations and indicators. The CNPA does not publish an annual report. MIME, CNPA and other government agencies recently expanded the information available on their websites to include lists of relevant laws and regulations and the names of operating companies. Cambodia's resources have not been extensively surveyed or developed, so there is little information on reserves, although estimates of potential revenues from these resources vary from millions to billions of dollars.”

The MEF publishes an annual report and TOFE (State Budget Implementation Report), which lists extractive industry's aggregated revenue. The TOFE is the MEF's monthly revenue and expenditure report. Reporting on resource/EI revenues remains at an aggregate level – all revenues from oil, gas and mining are lumped together. TOFE does not include a breakdown by line ministry (The NGO Forum on Cambodia 2011). Also, there have been inconsistencies in reporting with the Budget Law reports. The TOFE has been considerably late in publication but there is no other published information on revenue generation other than TOFE report. Moreover, Cambodian legal provisions do not encourage transparency. Quite the contrary, the Mining Law has a non-disclosure provision - and often these are part of contracts for terms up to and even beyond the term of the contract (The NGO Forum on Cambodia 2011). Specifically, Article 20 of the Mining Law provides that all "application forms, reports, plans and notices" are confidential until the termination of the license, unless the holder of the license waives disclosure. Additionally, information related to environmental and social issues can be released to the public only at the discretion of MIME. The 1991 Petroleum regulations also contain a confidentiality clause. Specifically, Article 54 provides that “all information, documents, data and materials acquired by a

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Contractor during Petroleum Operations shall be kept confidential in accordance with the provisions of the Petroleum Agreement” (The NGO Forum on Cambodia 2011) Furthermore, Cambodia does not presently have a Freedom of Information Act or an equivalent law/regulation (Revenue Watch Institute 2013). There are also problems in institutional and legal setting, especially in the licensing process (Revenue Watch Institute 2013). The authority in charge of awarding licenses or contracts for mineral or hydrocarbon production is technically separate, but in the Cambodian context, powerful government officials often have their hands in companies through joint ventures or other means.8 What can be unclear is whether they engage in these activities in their personal capacity or official capacity. 9

The licensing procedure in Cambodia is opaque. Though MIME produces a list of licenses, the general population receives word of a license approval through the media. Very little is known about the actual negotiations and therefore very little opportunity exists for impacted communities to challenge the negotiation process while it is underway. The Mining Law and other applicable regulations provide little discretionary checks on regulatory authorities. Because negotiations are in the dark, there is a little discretionary check on the issuance of a license. Media appears to be a consistent channel of information for the public to learn about new licenses issued. The 2013 RGI report gave a “failing” score of 20 in the Enabling Environment component (Revenue Watch Institute 2013). The Enabling Environment measures the broader governance environment, based on more than 30 external measures of accountability, government effectiveness, and rule of law, corruption and democracy (Revenue Watch Institute 2013). Cambodia got very low score on corruption control and the rule of law. Cambodia ranked 164th in the 2011 Transparency International – Corruption Perceptions Index that puts the country only ahead of Myanmar in the Southeast Asia region (Transparency International 2011). The new law has been enacted but many believe it will be ineffective.10 As an example, the Article 17 of the new law requires public officials to declare their assets and liabilities to the Anti-Corruption Unit, upon taking and leaving office, regardless of whether such assets are inside or outside the country. Article 18 of the Law on Anti-Corruption sets for timing requirements for declaration, noting that officials listed in Article 17 must declare their assets and liabilities every two years. Article 33 also prohibits bribe-taking by foreign public officials or officials of public international organizations, establishing a penalty of 7 to 15 years imprisonment. Additionally, Article 35 provides penalties for “abuse of power,” though that term is loosely defined. However, in practice, it is unclear what this law will actually do. The Cambodia extractive industry, as indicated by the results of 2013 RGI report, has recently been linked to corrupt practices.

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3.4. How to make the elephant visible? – Cambodian CSO's strategy to promote transparency Civil society organizations are important actors in development and democracy building in Cambodia. Since the middle of the 1990s, the number of civil society organizations in Cambodia has grown exponentially (Bandyopadhyay and Khus 2012). They are performing a wide variety of functions and have assumed diverse roles. Peace building and reconciliation of the societies were the predominant role in the beginning of the nineties (Bandyopadhyay and Khus 2012). As the society gradually started the development process, the civil society organizations assumed the roles of service provisioning and community development, like education, health, and sanitation (Bandyopadhyay and Khus 2012). However, since early 2000s, they have assumed the roles of human rights watchdog functions as well as engage in governance reforms and 11 bottom up democracy building. Related to their role in governance reform, in the last five years civil society organizations have played an important role in promoting the transparency issues in the extractive industries. The establishment of Cambodians for Resource Revenue Transparency (CRRT) Coalition, initiated by key local NGOs such as The NGO Forum on Cambodia, DPA (Development and Partnership in Action), YRDP (Youth Resource Development Program) and API (Advocacy and Policy Institute), was a major contribution of the civil society to make the industries more transparent and accountable. CRRT has pushed the issues into the awareness of the general public through media campaign, conferences, publication of research, survey and policy review, as well as trainings to expand the civil society's capacity to understand the complexities of the extractive industries, thus allowing them to advocate more effectively and credibly 12 on the issues to key influencers within the government and the private business sector. However, the NGOs will not be able to do it alone. The existing political space for 13 them to influence the policy making process is quite narrow. The government still sees that NGOs represent only a small fraction of the Cambodian population - the urban 14 middle class group – with no resonance to the ordinary citizens' voice. On the other hand, delivering messages to and channeling voices of the citizens are not a simple task in Cambodia. Mass media, the traditional partner of civil society to carry out the task, got 15 their hands tied as the government puts strict control on the freedom of the press. In its 2013 report, the Cambodian Center for Independent Media (CCIM) stated that: “Although there are sections of the media which can be considered independent, and civil society organizations and NGOs such as CCIM work arduously to keep and increase this independence, much of the media in Cambodia today (television, radio, print and online) is controlled by the government. This control comes in the form of direct or indirect ownership, censorship and influence by way of manipulation of the law. For example, the widespread practice of self-censorship among Cambodian media professionals has been borne out of a fear of being prosecuted for criminal offenses under the country's penal code for reporting on issues which highlight any controversial activities by the government ”

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The Cambodian Center for Independent Media (2013) and LICADHO (2009) also recorded cases of intimidation by the government to independent journalists and media owner. As reported by the Club of Cambodian Journalists (CCJ), ten journalists were sued by political and business elites and the government from May 2009 to May 2010 (Roberts 2011), Unfortunately, the courts have increasingly used the penal code to prosecute journalists rather than using the Press Law (Roberts 2011). Much worse than 16 that, in extreme case, the journalists often risk their lives for their reporting works. One way to overcome the government's control of mass media and reach out in public is by developing direct communication channel with a strategic segment of the population. As an example, CRRT works with Youth Resource and Development Programme (YRDP) to involve the Cambodia's youth into the discussion on issues surrounding oil, gas and mining extraction in Cambodia. Young people are key demographic groups with potential political influence in the democratic system. In 2011, they comprised of 32.73 percent of the country's population and 54% of the registered voters (Youth Resource and Development Programme 2012). Realizing their decisive role, CRRT has participated in more than 18 youth educational forums impacting more than 3,000 youths throughout Cambodia to raise their awareness on the importance of transparency in extractive industries. 17 Therefore, the engagement with the youth is expected to raise the demand for transparency from citizen voters. Another strategy to gain public attention and support is linking the extractive industries transparency to the big issues that resonates better with the public interest. The NGOs must not define the issue narrowly as financial transparency issues. On the contrary, they must be able to demonstrate the relation between transparency with real issues face by ordinary citizens, such as land grabbing, conflict, pollution and negative environmental impact, and poor public services.18 DPA, as an example, uses the environmental impact angle to push for stronger accountability and transparency in mining activities.19 The â&#x20AC;&#x153;frame-extensionâ&#x20AC;? strategy could also help to broaden the coalition by involving other civil society organizations/NGOs that are not directly working in the extractive industries sector. Linking the issues to on going government's agenda of reform has provided another opening. The Public Financial Management Reform Program (PFMRP) that has been started from 2005 is a good example.20 The reform was initiated to revitalize the public sector in Cambodia by (i) improving resource mobilization to ensure aggregated fiscal sustainability; (ii) reduce the fiduciary risk to public funds and suppress corruption; (iii) improve the effectiveness of spending to reduce poverty; and (iv) to undertake strategic civil service reform (Taliercio 2009). The agenda is still relevant because the reform has not been fully completed. The review by PDP Australia (2010) shows that, although the credibility of the budget has strengthened in recent years through greater predictability of revenues, more improvement is still needed in the predictability of budget spending, revenue management, and budget transparency. The review finds a series of irregularities, such as significant extent of unreported extrabudgetary operations. Possible non-declaration of non-tax revenues and unauthorized 32

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opening of bank accounts (PDP Australia 2010). In the context of budget transparency the review concludes that: “The C score … indicates the public has insufficient information on budget plans and budget execution. While the public may be benefiting from the predictable provision of public services, its ability to demand accountability for the efficient use of public funds in the delivery of these services is impeded. Greater transparency and comprehensiveness of information available to the public would help to induce better financial accountability... It would also strengthen the credibility of the budget, as the public would be able to judge if the quality of the services being delivered is commensurate with the financial resources being provided to fund these services ”

Box 3.1. State of press freedom in Cambodia All of Cambodia's eight television stations are aligned with the ruling party-the CPP, therefore, all news bulletins are considered to be politically biased. The majority of radio stations in Phnom Penh are affiliated to the ruling party due to the fact that most are owned by powerful people who associate with and/or have a close relationship with CPP party members. In the provinces the majority of radio stations are relayed from Phnom Penh and are affiliated to the ruling party. However, some radio stations are neutral in content such as: Radio Khlaing Moeung and RFI in Battambang; Radio Angkor Rath (FM 95.5), Love FM (FM97.5) (apolitical) and BBC (FM99.25) in Siem Reap; and Women's Media Center (FM93.5) in Svay Rieng. Foreign radio stations which are relayed from Phnom Penh that are neutral such as ABC radio, BBC radio, RFA, RFI and VOA are popular in the provinces. However most cannot reach remote areas. In the case of newspaper, none of the major Khmer-language newspapers (Koh Santepheap, Rasmei Kampuchea and Kampuchea Thmei) is considered politically-neutral. Cambodian journalists usually divide the press into three categories: the pro-government papers, the opposition papers and the international papers. The international media (such as The Cambodia Daily, the Phnom Penh Post, and Cambodge Soir) is generally considered independent. The informal arena of the internet in Cambodia has emerged in recent years as a medium that enjoys far less regulation than tradition media forms, which allows it to be broader and more independent. There are several websites and blogs that are able to publish independent news and commentary of the political and social environment in Cambodia. The lack of interest by the government in the internet is likely due to the fact that most Cambodians do not have access to the internet. There are only an estimated 44,000 internet users in Cambodia or just 0.3 percent of the population. As high costs, poor infrastructure and limited computer literacy keep the internet from reaching the broader public, such independent media is only able to reach a fraction of the population Source: LICADHO (2009)

The findings are consistent with the result of the Open Budget Survey by the NGO Forum on Cambodia in 2010. Cambodia got a score of 15 out of 100 in the survey that indicates the government provides the public with scant information on the central government's budget and financial activities (The Open Budget Initiative 2010). Cambodia produces four of the seven key budget documents and publishes these in the public domain, including pre-budget statement, enacted budget, in-year report and year-end report. These documents are available on the Ministry of Economy and Finance (MEF)'s website while other budget management documents are available upon request from the MEF and in the Government's Official Gazette. The other three budget documents that are not available to the public are executive budget proposal, (external) audit report and mid-year review (The Open Budget Initiative 2010).

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The NGO Forum on Cambodia engages in the PFMRP process to enable more disclosure of budget information to public as well as create bigger room for civil society 21 and the citizens to influence the budgeting process. The Forum aims to push for legal review of the public finance system law to accommodate more transparency, participation, and accountability in the national budget. It was also agreed by the member of the Forum that the government must realize its commitment to adopt the principles of Extractive Industry Transparency Initiative (EITI) as part of action point in the ongoing PFMRP (The NGO Forum on Cambodia 2011).

Box 3.2. Rights to Information Law Other issue that can serve the strategy of frame extension is the right to information. Over the past year, civil society organisations notably the Advocacy and Policy Institute of Cambodia (API Institute), The Access to Information Working Group and UN agencies (UNESCO, UNDP, the OHCHR office in Cambodia) have increased pressure for an Rights to Information (RTI) law by, amongst other things, conducting a major legal and assessment of the protection of the current protection of RTI in Cambodia and stakeholder workshops focussing on access to information which have brought together the parliamentarians, government representatives, international organisations, development partners and media organisations. However, the response from the government is slow. As example, in May 2013, Secretary of State Thach Phen said there was no need for a freedom of information law in Cambodia, as citizens already have enough information through the ample number of newspapers and television channels in the country (www.cambodiadaily.com/archive/need-for-freedom-of-information-law-thrown-into-question-28165). The CPP-dominated parliament is also not keen to the idea. The parliament has rejected the proposal of Freedom of Information law from the opposition party twice. The CPP suggested that rather than drafting a new FOI law, the government should consider making the government's 2007 information policy a law. However, the government's information policy has no mechanisms to hold officials accountable for failure to disclose information (www.freedominfo.org/2013/01/cambodian-parliament-rejects-proposed-foi-bill) Source: Article 19 (2011) and various on line newspaper

On the other hand, the result of the Open Budget Survey also shows the opportunity to engage with parliament as key actors in the budgeting process. According to the Survey, budget oversight provided by the Cambodian legislature is weak because it does not: (i) have full power to amend the Executive's budget proposal prior to the start of the year; (ii) have sufficient time, as established by standards of international best practice, to discuss and approve the budget; and hold public hearings at which the public and civil society can testify on priorities in the Executive's budget proposal (The Open Budget Initiative 2010). Moreover, the Cambodian legislature was constrained by the lack of sufficient budget information to allow analytical discussion or debate on the management of public funds during the adoption of the budget laws (The Open Budget Initiative 2010). CRRT believes that creating awareness and better understanding among parliament members on the intricacy of extractive industries in Cambodia will improve 22 their capacities in budget oversight and policy making. Currently, the knowledge is centered among the government agencies. The opportunity for engagement is bigger since the opposition party in the parliament sees the transparency in extractive 23 industries as the key to curb corruption and improve good governance. The fact that 34

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the opposition thinks civil society organizations, such as CRRT, are strategic partners is an enabling factor for the engagement. The challenge will be extending the engagement beyond opposition party and reaching out to the member of parliaments from the ruling party. On the other hand, civil society organizations must strengthen their capacity to understand better the various governance aspects of the extractive industries. Without a good technical grasp on the whole value chain of the industries, civil society will not be able to lead effective advocacy work. The extractive industry development in Cambodia is complex since it involves power play and competing interests among powerful actors 24 inside and outside the government. The oil and gas sector growth, as example, is still overshadowed by the unfavorable petroleum fiscal regime and the lack of coherency between the features prescribed in the current Tax Law and Regulation and the 25 Petroleum Agreement. Therefore, work with champions inside the government that support transparency, such as the Cambodian National Petroleum Authority (CNPA), will 26 help civil society organizations in their learning.

3.5. Which way forward? Promoting transparency in extractive industries in Cambodia will always be challenging. Although the current effort shows important progress, civil society must continue to find ways to engage the government and influence their policy towards the industries. “We (the civil society) cannot override the government's role, they have to buy in (to the issue)”, one participant from DPA underlined the challenge during the discussion in CRRT secretariat. As also pointed out during the discussion, the civil society must be able to identify or even cultivate more “champions” in the government. The champions can help to facilitate dialogue, open bigger access to information and create mutual trust between the government and the civil society. Kim Natcha, the executive director of CRRT, believes that more dialogues are needed to ease any misunderstanding on transparency issues and the role of CSO in promoting it. Natacha further argues that: “EITI will provide the government and other stakeholders in Cambodia with standard to build transparency and accountability in the industries. It will open the opportunity for capacity building too. However, the civil society must change the negative impression on EITI among government officials. Most of them see it as agenda imposed to Cambodian government by external actors”

Creating stronger demand from citizens for transparency is also essential to support the engagement. On one hand, the civil society must improve the existing rudimentary partnership with the media. It is important to find effective strategies to help the media revive their civic and political education functions for the citizens. On the other hand, civil society must maintain and continue to open direct access to talk with

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citizens, especially in the rural area. Mainstreaming the transparency issues into the agenda of CSOs that work in service delivery and/or decentralization support activities can be a good strategy.27 Nevertheless, the current political upheaval post 2013 general election can influence the effectiveness of CSOs' advocacy. On one hand, the declining support for the government party reflects the rising popular demand for governance reform. It can create momentum and bigger political opportunity to push for more transparency as the government need to address the current popular pressure.28 Nevertheless, should the government and the opposition cannot reach a compromise and the conflict turns to violence, it can squeeze the existing space for CSOs' advocacy and engagement.

ENDNOTE 1

Global Witness is an International NGO based in London that work on campaigns and investigations to uncover the exploitation of natural resources and the role of this exploitation in fuelling corruption, conflicts and wars. Their first campaign in Cambodia had been in 1995 when they had gone to Cambodia to investigate illegal logging that was being used by the Khmer Rouge to fund their regime and the civil war. The investigations had uncovered the practices of illegal trade of timber between the regime and Thailand. Their published report covering the exploitation of forest resources had been immediately picked up by the international press. The report had been successful in that international pressure soon mounted on the Cambodian government to take remedial action. In 1999, Global Witness had been appointed to be an independent monitor in Cambodia by the Consultative Group of the “Forest Crime Monitoring and Reporting Project”. Their role was to monitor the process to develop Cambodian government's capacity to stop illegal logging. Global Witness had been welcomed by the Cambodian government. However, the relationship had soon soured when Global Witness published several reports alleging the patronage and corruption in the government and the government's role in illegal logging and human rights abuses. In 2003, the Cambodian government had terminated Global Witness as the independent monitor and had gone on to denounce the organisation. In 2005, members of Global Witness had been denied entry into Cambodia. See Abdullah, Fazlin and Tat, Goh Ann. 2012. The Dirty Business of Sand – The Case of Cambodia Sand Dredging. Lee Kuan Yew School of Public Policy Case Study. Singapore. 2

See “Cambodia's Coming Oil Wealth Will Likely Entrench Ruling Cabal In Corruption”, accessed from www.huffingtonpost.com/2009/03/18/cambodias-coming-oil-weal_n_176384.html and “Cambodia's oil resources - Blessing or curse?: Waiting for the oil (and money) to flow” accessed from www.economist.com/ node/13184945

Small-scale mining activities: gemstones (sapphire and ruby) have a long history, and mining for gold and silica sand for glass material has recently started. Gold artisanal mines are located mainly north-east of Phnom Penh, but there are 19 known gold deposits in Cambodia. Gold mining is becoming an increasingly important occupation and it is conservatively estimated that the sector currently employs between 5,000 and 6,000 miners during the peak mining season. In addition, artisans produce limestone and other industrial minerals. World Bank. 2009. Sustaining Rapid Growth in a Challenging Environment : Cambodia Country Economic Memorandum. Draft. January 14 4

For fiscal year 2010, based on the Ministry of Finance TOFE (State Budget Implementation Report), extractive industries revenue is listed as 118.48 billion riels (US$ 30 million), about two percent of total domestic revenue. On the other hand, Regarding the extractive sector, in 2010, MIME reported to have earned $1.52 million in non-tax revenues--an opposition lawmaker disputed this figure. See “RWI index Questionnaire- Cambodia 2012” accessed from www.indabaplatform.com/ids/widgets/ vcardDisplay4RWI.html?horseId=2093

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See “After Long Wait, Cambodia Opens to Mining”, accessed from www.voacambodia.com/content/ a-402010-03-18-voa7-90235907/1358202.html

Chevron submitted a production permit application outlining details of the first phase of development of the Apsara field in Block A in September 2010. It expects government approval, and a final investment decision, by the end of 2012. However, such production is unlikely to begin before at least mid-2013 and in recent announcements the Cambodian government has not specified any starting date for production. See “Cambodia eyes domestic oil production, refinery for energy security: official”, accessed from www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/7105582 7

Source inside in the Cambodian National Petroleum Authority (CNPA) argued that the figures from IMF and UNDP were not accurate. The estimation did not say whether such amounts were in-place or recoverable, nor did it give any level of certainty such as proven, probable or possible. 8

See “RWI index Questionnaire- Cambodia 2012” Op.Cit.

Ibid

A study conducted by CCC in 2011 suggested that currently there are 3492 registered local and international organisations of which 508 INGOs are listed with the MOFA/IC till the year 2010. The report further observed that not all the organisations, registered with Ministry of Interior (MOI) and the Ministry of Foreign Affairs (MOFA/IC), were active. An estimated one-third of the registered local CSOs and slightly more than half of the registered INGOs remained active as on 2011. See Bandyopadhyay, Khaustuv and Khus, Tida 2012. Changing Civil Society in Cambodia: In Search Of Relevance

Interview with Kim Natacha, CRRT Director, on June 25, 2013.

Interview with Emannuel Bria, CAFOD regional program manager on June 25, 2013.

Ibid

Discussion with DPA, CCIM and CRRT in CRRT Secretariat on June 26, 2013

LICADHO (2009), as example, linked the murder of Khim Sambo, journalist who worked for the oppositionaffiliated newspaper Moneakseka Khmer, on July 11, 2008 with his article that criticized high ranking members of the ruling Cambodian People's Party (CPP).

Interview with Kim Natacha, ibid, and with YRDP on June 27, 2013.

Discussion with DPA, CCIM and CRRT in CRRT Secretariat. Op.Cit.

Ibid

Interview with the NGO Forum on Cambodia on June 26, 2013.

Ibid

Interview with Kim Natacha. Op.Cit.

Interview with Hon. Son Chhay, member of parliament from the opposition party

Interview with Michael McWalter, senior consultant of CNPA, on June 27, 2013.

Ibid

Interview with Kim Natacha. Op.Cit and Michael McWalter. Ibid.

Decentralization process in Cambodia is a technocratic process where local authorities still rely so much on the resources and power of the central government. This encourage over-dependence of society at local level to central government in this case CPP and therefore critical space at local lvel is annihilated. Personal communication with Emanuel Bria, January 8, 2014.

International interveners and aid donors promote a politics that is confining, in that they attempt to promote the individual and individual actions rather than the public sphere and fostering of collective action. The rise of recent protest driven by the opposition including movement of labor union is relatively encouraging in breaking this international aid legacy. Personal communication with Emanuel Bria, Ibid.

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REFERENCEs Abdullah, Fazlin and Tat, Goh Ann (2012) The Dirty Business of Sand – The Case of Cambodia Sand Dredging. Singapore: Lee Kuan Yew School of Public Policy Case Study. Article 19 (2011) Cambodia: Draft Law on Access to Information. Legal Analysis. London: Article 19. Bandyopadhyay, Kaustuv K. and Khus, Thida (2012) Changing Civil Society in Cambodia: In Search Of Relevance. PRIA and Silaka. Cambodian Center for Independent Media (2013) Challenges for Independent Media Development in Cambodia. Phnom Penh: Cambodian Center for Independent Media. Cambodians for Resource Revenue Transparency and Economic Institute of Cambodia (2011) Survey With Small And Medium Enterprises: On The Perception Of Extractive Industries In Cambodia. CRRT. Phnom Penh. Cooperation Committee for Cambodia (2010) The Expansion of Mining Activities and Indigenous Peoples' Rights in Mondulkiri Province - Case Studies of Gati Village, Keo Seima District and Pou Rapeth Village, Pechreada District. Phnom Penh: Cooperation Committee for Cambodia. Economic Institute of Cambodia (2008) Managing Public Expectation Cambodia's Emerging Oil and Gas industry. Phnom Penh: Economic Institute of Cambodia . Global Witness (2009) Country for Sale: How Cambodia's elite has captured the country's extractive industries. London: Global Witness. LICADHO (2009) Restrictions on the Freedom of Expression in Cambodia's Media: A LICADHO Briefing Paper. Phnom Penh: LICHADO. PDP Australia (2010) Public Finance Management Assessment Cambodia: Final Report. PDP Australia Pty Ltd. Revenue Watch Institute (2013) The 2013 Resource Governance Index. New York : Revenue Watch Institute Roberts, Margarette (2011) The Media Map Project: Cambodia-Case Study on Donor Support to Independent Media 1990 – 2010. Internews, Media Map, The World Bank Institute, and Annenberg School for Communication-University of Pennsylvania. Sotharith, Chap (2012) “Industrial Readjustment in Cambodia” in Yasushi Ueki and Teerana Bhongmakapat (ed.) Industrial Readjustment in Mekong Basin River Countries: Towards the ABC. BRC Research Report No. 7. Bangkok: Bangkok Research Center, IDE-JETRO. Soto-Viruet, Yadira, and Fong-Sam, Yolanda (2013) “The Mineral Industry of Cambodia” in 2011 Minerals Yearbook Cambodia (Advanced Release). US Geological Surveys.

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Taliercio, Robert (2009) Unlocking Capacity and Revisiting Political Will: Cambodia's Public Financial Management Reform. Washington DC: World Bank. The NGO Forum on Cambodia (2011) A Brief Guide to Information on Extractive Industry Revenue Management in Cambodia. Phnom Penh: The NGO Forum on Cambodia. The Open Budget Initiative. 2010. Transparency Brief, No. 03.

Open Budget Index 2010: Cambodia.

Budget

Thompson, Richard (2010) Regional and International Country Experiences: Lessons learned. Transparency International (2011) Corruption Perception Index 2011. Transparency International. Berlin. Vichett, Chrea (2013) Current Situation of Mining Industry in Cambodia. Briefing of General Department of Mineral Resources of Cambodia. Wednesday, March 06 World Bank (2009) Sustaining Rapid Growth in a Challenging Environment: Cambodia Country Economic Memorandum. Draft. Poverty Reduction and Economic Management Sector Unit East Asia and Pacific Region. Washington DC: The World Bank. Wu, John C (2006) The Mineral Industries of Cambodia and Laos. Youth Resource and Development Programme (2012) “Youth Initiative on Extractive Industries Revenue Transparency: case study of Youth Resource Development program (YRDP)”, Presentation in the national conference on “The Best Practice of Extractive Industries Governance and Revenue Management”. November 2. Phnom Penh.

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IV. THE SAFE PASSAGE IN AN ACRIMONIOUS ENVIRONMENT: THE ROLE OF EITI IN STRENGTHENING MULTI-STAKEHOLDERS ENGAGEMENT TOWARDS EXTRACTIVE INDUSTRIES' TRANSPARENCY IN THE PHILIPPINES * Darmawan Triwibowo

4.1. Background – an acrimonious environment The extractive industries, especially large-scale mining, are a polarizing issue in the Philippines. The government has tried to revive the sector from its decline during the 80s and made it the key driver of the country's economic growth (Hatcher 2010; Holden and Jacobson 2007). Following the similar trend in other Southeast Asian countries, the Ramos Presidency began to reform the country's mining industries in order to attract foreign investors through the passing of the 1995 Mining Act (Hatcher 2010). The Act creates new types of production agreements that would govern the mineral deposit ownership requirements under which a foreign mining corporation would operate in 1 the Philippines (Holden and Jacobson 2007). Further push towards liberalization was introduced by Arroyo Presidency that issued Executive Order (EO) No. 207-A as the base for the National Policy Agenda on Revitalizing Mining in the Philippines (2004) and the correlated Mineral Action Plan (2004) that simplified the regulatory framework in the mining industries (Gomez 2010). Under Arroyo, the government's policy on mining has shifted from that of “mere tolerance” to “promotion for the revitalization of the minerals industry” as minerals development became the country's priority economic activity (ATM 2011a). Chamber of Mines and mining companies coalesce around the government initiative and become the proponents of the development of mining industries (Hatcher 2010; Vivoda 2009). On the other side, mining incidents, such as the Marcopper and Rapu-Rapu disasters, and the lingering issues surrounding abandoned mines have led to a growing constituency against large-scale mining in the Philippines in the past two decades (Vivoda 2009). The Catholic Church, represented through The Catholic Bishops' Conference of the Philippines (CBCP) is a major anti-mining group in the Philippines (Holden 2012; Vivoda 2009). The principal objection of the church to mining is its effect upon the environment. According to the Church, discovering, extracting and processing minerals are widely regarded as an environmentally and socially disruptive activity and environmental impacts can occur during exploration, mine development, mining operation and long after a mine has closed down (Holden 2012). Furthermore, many CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

indigenous communities joined the opposition because they believe that mining companies and their employees repeatedly violate environmental standards and human rights (Christian Aid in Vivoda 2009). Those communities and the Catholic Church are closely allied with anti-mining non-governmental organizations (NGOs) networks, such as the Alyansa Tigil Mina (ATM) and the Kalikasan People's Network for the Environment (KPNE). The opposition towards large-scale mining is also voiced by groups of local government units (LGUs), Data from ATM (2011b) showed that, by the end of March 2011, at least 22 LGUs have passed ordinances, resolutions, and executive orders opposing the entry or declaring a moratorium on mining operations in their territories. The number of LGUs that propose such regulation is increasing. The latest data from Pavlova and Hincks (2013) identifies that of the Philippines' 80 provinces, 14 had promulgated anti-mining ordinances and, as of September 2012, a further six provinces and two cities were asking for a law to ban mining in their areas. The environmental destruction from mining activities, as well as in-transparency in the licensing and exploration process, are cited the reasons behind the LGUs' opposition (Gatmaytan 2 2012, Alyansa Tigil Mina 2011a, Chaloping-March 2011). Both sides have been locked in continuous legal battle over the years. As early as 1995, the Senate had already filed a bill in order to repeal the Mining Act (Hatcher 2010). This initial legal challenge was to be but one of the many hurdles faced by the new Mining Act for the subsequent decades. In response to the Marcopper spillage in 1996, a large number of NGOs and the Catholic Church filed a petition to the Supreme Court in 1997 challenging the validity of the granted FTAAs and the 1995 Mining Act. Although the Supreme Court took side with the government in 2004, the battle continues as organization like SOS-Yamang Bayan Network still asks the Supreme Court to repeal the Mining Act in April 2013.

Box 4.1. Marcopper Incident The Marcopper incident is the corner stone of opposition against large scale mining in the Philippines. The Marcopper Mining Corporation started its mining operation in Mariduque island in 1996. On March 24, 1996, the Marcopper's open pit burst open and released 2 to 3 million cubic meters of mine tailing in to the Boac River. According to the company, the rock around the cement plug inserted into the former Tapian open pit drainage tunnel to convert it into tailing containment was fractured and the plug failed. The spillage killed marine life in the 26 â&#x20AC;&#x201C;kilo waterway and flooded farmlands and villages along its banks. Around 1200 local residents were evacuated since flash flooded isolated 5 villages. The flood inundated 6-10 hectares of cropland and damaged the local livelihood. The clean-up cost reached US$ 80 million. The Marcopper disaster ironically happened just as the Philippine government was trying to revive the industry and campaigning about the Mining Act as the vehicle to implement 'sustainable mining'. The incident reinforced the public doubts cast at the minerals industry's claims of environmental management especially in managing mine wastes and tailings. The disaster drew calls from mainly the country's Catholic clergy, church-based organisations, civic-oriented groups, conservation and environment activists for opposition to mining in general and even the outright scrapping of the Mining Act of 1995 in particular. Source: Alyansa Tigil Mina (2013), (2011b); Chaloping-March (2011)

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Nevertheless, resistance against mining can take on an extra-legal form as well. Armed groups, like the New People Army (NPA), repeatedly attack mining companies cited their opposition towards mining as the reason (Kalikasan PNE 2008; Holden and Jacobson 2007). At the same time, many NGO activists and community leaders are risking their life from their anti-mining stance. The killing of Mr. Daguil Capion, an antimining leader of the B'laan tribe in October 18, 2012, as well as the murder of Francisco Canayong, in the municipality of Salcedo, Eastern Samar province in May 1, 2012, and the death of Rolando Quijano a farmer and active member of the Alliance of Farmers Union in Zamboanga Del Sur (AFUZS) are few examples of many extra judicial killings attributed to mining opposition in the Philippines (Holden 2012; The International Federation of Human Rights 2012). As stated by the ATM (2011b), the human rights issue is an integral part of the extractive industry problem in the Philippines as it includes the use of violence and leave “trail of blood” in its development. Therefore, in the midst of this acrimonious environment, the speedy progress of the Philippines EITI candidacy offers glimmer of hope for a constructive cooperation among conflicting stakeholders. The EITI Board admitted the Philippines as an EITI Candidate country on 22 May 2013 or less than one year after President Aquino issue an unequivocal public statement of its intention to implement EITI through Executive Order 79, Section 14 (Department of Environment and Natural Resources 2013). The openness of civil society organizations to engage in the process, as reflected by the formation of Bantay Kita and its active role in the EITI advocacy, together with the new government more cautious approach in extractive industries promise a breakthrough in the current impasse. This paper aims to analyze the dynamics behind the process, especially how the civil society utilizes the changing political opportunity to advocate for their agenda.

4.2. Philippines mining, oil, and gas resources – towards revival The mining potential of the Philippines is substantial, as the country holds reserves of precious metals (gold, silver, platinum); base metals (copper, lead, zinc, mercury, cadmium); iron alloys (chromite and nickel); light metals (bauxite and manganese); and iron (Vivoda 2009). The mineral reserve is distributed widely across the country, especially in the Sierra Madre mountain range in Luzon and in the Mindanao region, as well as in the provinces of Mindoro, Benguet, Zambales, Nueva Vizcaya, Cebu and Leyte (Pavlova and Hincks 2013). Based on the density of deposits per square kilometer of land area, the country is ranked third in the world in gold deposits, fourth in copper reserves, fifth in nickel, and sixth in chromite (Vivoda 2009). Moreover, the Department of Energy and Natural Resources (DENR) estimates that the archipelago contains more than US$840 billion worth of untapped mineral wealth (Pavlova and Hincks 2013).

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Despite its huge potential, the industries experienced a significant decline in production after 1980s. As an example, the Philippines dropped from the 7th place in world production of gold (in 1988) to the 17th place (in 1997), while copper production fell by 90 per cent in the same period (Nettleton, Whitmore and Glennie in Hatcher 2010). The decline, together with the volatility of the world market price of mineral, has kept the mining industry accounts for a small share of the economy (Sunley et al 2012; 3 Gomez 2010). As an example, its contribution to total Philippine employment is small. On the average, the industry's contribution to total employment during the 2001-2010 was no more than 0.376 percent (Gomez 2010), while the mining production accounts for only about 1.5 percent of GDP (Sunley et al 2012) The most significant contribution of the industry is to Philippines exports. The portion of mineral exports has averaged 3.7 percent of total Philippines' exports since 2007 (Sunley et al 2012). Gomez (2010) shows that from 2000â&#x20AC;&#x201C;2009, mineral exports accounted for approximately three 4 percent of total Philippines exports. In comparison with its mineral reserves, Philippines have only a modest level of petroleum production (Sunley et al 2012; Gorre et al 2012). Out of 99 countries with proven oil reserves, the Philippines ranks 65th , while Indonesia and Vietnam rank 28th and 44th , respectively (Castillo 2012). Although the exploration has begun since 1896, substantial production started during the 1970s when large fields were opened by the government for exploration by the private sector and a number of oil and gas fields were discovered.

Figure 4.1. Operating mines in the Philippines Source: Department of Environment and Natural Resources (2013)

Philippines produced modest quantities of oil in the early part of 1990s. However, in 2002, the country experienced a surge in domestic oil production as the Malampaya 44

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field produced four times the amount production in the previous year to reach 1,763,431 barrels (Castillo 2012). Galoc field became the biggest oil producer from 2008 to 2010 perods as it produced 56.7 percent more barrels of oil than Malamapaya's production peak in 2002. However, by mid-2011, another corporation, Philodrill, produced almost 3.5 times more than the Galoc field from its Nido and Matinloc fields. In 2011, the daily level of production was about 6,000 barrels of crude oil, 14,000 barrels of condensate, and 70,000 barrels of oil equivalent of natural gas (Sunley et al 2012). The condensate and gas are produced primarily from the Malampaya deep water gas field west of Palawan (Gorre et al 2012).

Box 4.2. Small-scale Minings in the Philippines Small-scale mining refers to mining by individuals, groups, families or cooperatives with minimal or no mechanization, often in the informal (illegal) sector of the market. It relies heavily on the manual labor and does not use explosives. The scope of the area allowed for this activities should not exceed 20 hectares per contractor. In the Philippines, small-scale mining operators include subsistence mining (75%), individual or family business (15%), and established commercial mining firm (10%). The small-scale mining plays important role in the gold production. The Philippines Mining Almanac recorded that it contributed almost 80% of the total gold production in 2007. The Presidential Decree No.1899 “Establishing Small-Scale Mining as a new Dimension in Mineral Development” in 1984 and Republic Act No. 7606, also known as the “People's Small-Scale Mining Act of 1991” govern the small-scale mining operations in the country. The law requires the operators to register their operations and secure permit and/or contract from the government, register mining workers through organization of cooperatives, comply with the required safety, health and environmental conditions, submit production reports as well as pay taxes, royalties and government production share as provided by the law. Nevertheless, small-scale mining is still a controversial issue in the Philippines. These activities provide employment and livelihood for poor communities. However, recent landslides and accidents have been associated with these operations. Local governments are tasked to regulate small scale mining. But, there appears to be some conflict of interest as a number of local government officials are also involved in small scale mining. Other problem in small-scale mining is the abuse of the People's Small-Scale Mining Act of 1991 by largescale mining operators seeking to avoid the requirements of the Philippine mining law on capital requirements, fees and taxes. Many Chinese firms engage in small-scale mining to circumvent the expense and time required in complying with the provisions of the law on large-scale mining by bribing local officials and using the names and licenses of Filipino proxies. As a result, Chinese firms have deprived the national and local government of billions of dollars in revenues. These firms also fail to adhere to environmental and safety standards, using explosives and heavy equipment prohibited in small-scale mining, exceeding the allowable land area limits and extracted mineral volumes, and causing large-scale impacts to communities. These problems indicate the need to develop new sets of policy to govern small scale mining operations in the country. Source: Alternate Forum for Research in Mindanao (2012), Bantay Kita (2012), Gorre et al (2012)

Overall, in this last decade, the Philippines extractive industries have shown signs of revival. The government's push towards extractive industries liberalization since the Ramos era has increased the size of investment in the industries. As an example, from 1994 to 1996 the number of foreign mining companies represented in the country increased by 400 percent (US Geological Survey in Holden and Jacobson 2007). By 2005, the government had approved 180 Mineral Production Sharing Agreements, 70 Exploration Permits, 126 Industrial Sand and Gravel permits, and five Special Mineral Extraction Permits (Raymundo, Ramo and Corpuz in Hatcher 2010). As of February 2012, there are 339 MPSAs and six FTAAs in place. However, there are only 99 MPSAs in CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

the development or exploitation stages and two FTAAs in the development stage (Sunley 5 et al 2012).

Figure 4.2. Oil and Gas Reserves in the Philippines Source; Castillo (2012)

4.3. The governance problem – corruption and weak rule of law The Philippines received a “partial” score of 54, ranking 23rd out of 58 countries, or rank 3rd in Southeast Asia above Malaysia, Vietnam, Cambodia, and Myanmar in the Revenue Watch Institute's latest Resource Governance Index (Revenue Watch Institute 2013). Despite Revenue Watch Institute's remark that the government has made meaningful progress toward improved resource governance, Philippines received the lowest score in the enabling environment related to the level of corruption and the rule of law. Corruption is one of the major problems in extractive industries governance in the country. One of the reasons why the Church against large –scale mining is because they believe that corruption in the Philippines is too extensive to allow an activity with as many potential deleterious effects as mining to be beneficial for the country (Estabillo in Vivoda 2009). 46

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Effective rule of law is also a big problem. Many believe that mining regime in the Philippine is 'one of the most modern' in the Asia-Pacific region in terms of environmental and social provisions (US Geological Survey in Hatcher 2010). As an example, in addition to the Free and Prior Informed Consent (FPIC) of indigenous peoples, the 1995 Mining Act requires companies to clean up the exploited sites (Hatcher 2010). Nevertheless, their application is unacceptably poor (Goodland and Wicks in Hatcher 2010). Gorre et al (2012) highlights the ineffective implementation of law and regulation in the area of EIA, community participation, and noncompliance to FPIC. In a 2008 nationwide study involving 108 communities holding certificates of ancestral domain titles (CADT), more than 70 percent of the mining and logging operations on their lands were being conducted without their FPIC. In a majority of cases where an FPIC process had been conducted, not all the proper procedures had been undertaken to ensure a fair, unbiased outcome. In practice, indigenous peoples are far from being able to exercise FPIC meaningfully as the information provided to indigenous communities is limited and often difficult to understand. Vivoda (2009) summarizes the governance problems in the Philippines extractive industries as follow; ? ?

? ?

Weak and inefficient institutions of governance which lack regulatory capacity. Policy reversals and inconsistencies that erode the trust on the rule of law. The Fraser Institute Annual Survey of Mining Companies 2006/07 finds that 43 percent of the respondents viewed uncertainty concerning the administration, interpretation and enforcement of existing regulations as a strong deterrent to investment. Limited access to adequate mining information. The high number of relevant regulations that often unclear and contradictory and creates significant overlap and conflict of jurisdiction among various agencies and levels of government.

While public disclosure of information and dialogue between the various stakeholders may not produce a quick fix to all the problems, Vivoda believes that ensuring a higher level of communication, transparency and accountability in the mining sector would be the first step towards any improvement in stakeholder relations in the future. In the long-run, the regulatory regime requires a structural overhaul. As a first step towards the structural change, the government should engage in an independent and detailed audit of the performance of the regulatory regime governing mining investment. Vivoda states that: â&#x20AC;&#x153;Regulatory restructuring will succeed only if a detailed, independent and publicly supported audit of the current regime precedes itâ&#x20AC;?. This recommendation highlights the importance of EITI initiative in the Philippines as tool to promote transparency and accountability in the extractive industries.

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4.4. The EITI in the Philippines – Aquino administration as the game changer The EITI process in the Philippines provides breakthrough from the current impasse. It reflects the willingness of all stakeholders to progress towards transparency in the extractive industries. The unique nature of the EITI in the Philippines was the early support from private sector for the initiative. The Chamber believes that EITI can play an integral role in revitalizing the Philippine mining sector by achieving greater accountability and transparency in the industry (Halcon et al 2007). On March 27, 2005, the President of the Chamber, Mr. Benjamin Philip G. Romualdez, wrote to President Gloria Macapagal-Arroyo, asking her to “consider the adoption of the Extractive Industry Transparency Initiative (EITI) as an implementing mechanism in addressing the interest of government, industry and civil society towards the revitalization of the mining industry”. The Chamber endorsed the EITI to the Department of Foreign Affairs on January 20, 2006 and reiterated its position supporting EITI at the World Mines Ministries' Forum held in Toronto Canada in March 2006 (Halcon et al 2007). It is interesting that the Chamber also tinkering on the possibility of sub-national led EITI. During the briefing session with the Palawan Local Government Units (LGUs), the idea of adopting a Palawan EITI was proposed (Halcon et al 2007). The idea came from the fact that the province hosts a number of mining projects that can be considered to have been developed under the new Mining Act of 1995. However, after more consideration, it was decided that the option of an LGU-led EITI needed to be assessed further due to its complexity and risk of abuse. The Chamber's support for EITI reflects the general sentiment among mining companies towards EITI. They believe that EITI will help public understand better and start to appreciate the real contribution of mining companies to the state budget and 6 country's economy as a whole. It will also force the government to be transparent on the revenue from extractive industries and the way they spend for national development. Nevertheless, despite the opposition of various LGUs to mining, the Union of Local 7 Authorities of the Philippines (ULAP) is also supportive towards EITI. The ULAP believes that the negative sentiment to mining among LGUs is caused by various 8 unresolved issues on negative environmental impact and benefit sharing. The inexistence of effective forum/mechanism that can address LGUs grievance has eroded 9 the trust between LGUs and the mining companies. Therefore, EITI can provide platform for dialogue, trust-building and information-sharing among various 10 stakeholders at local and national level. Contrary to the private sector response to the EITI, the civil society's initial reaction to EITI was a bit tepid. The idea was introduced to civil society during the Publish What You Pay (PWYP) Regional Workshop in Bali, Indonesia on August 6 to 11, 2007 (Alyansa Tigil Mina 2007). This regional workshop is the result of growing interest amongst NGOs from Cambodia, Indonesia, Timor Leste, Papua New Guinea, The Philippines and Australia to engage in the PWYP coalition and to campaign for full

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accountability and transparency in the management of revenues from natural 11 resources. The Philippines had seven participants to this workshop which includes Anna Marie Quines (Alternative Forum for Research in Mindanao or AFRIM), Penelope Sanz (Mindanawon Initiatives for Cultural Dialogue or MINDANAWON), Rowena Bolinas (HARIBON Foundation), Filomeno Sta. Ana III (Action for Economic Reforms or AER), Jose Melvin Lamanilao (Paglilingkod Batas Pangkapatiran Foundation or PBPF), Jaybee 12 Garganera (PhilDHRRA / ATM) and Yasmin Hatta (Christian Aid). The civil society was skeptical on EITI. ATM, as example, believes that the toonarrow focus of EITI (on revenue transparency) does not address the environmental justice and environmental rights concerns of most Philippine NGOs engaged in the mining advocacy work, whether they are members of ATM or not. Garganera explained that “the EITI was too advanced for our advocacy work that time as the civil society groups were not consolidated yet and still had limited outreach capacity”. Therefore, it might be hard to either link or re-adjust their advocacies within the EITI Framework. Furthermore, according to Alyansa Tigil Mina's position, EITI will lend credibility to the concept of “responsible mining” promoted by president Arroyo's government that the 13 ATM rejects. So, ATM decided that “at its current form and design, EITI will not prove to 14 be a strategic arena of engagement for ATM”. However, ATM still saw the potential of EITI to promote transparency and accountability work in the extractive industries. ATM was willing to link the initiative with the existing transparency and accountability groups in the Philippines (such as Transparency and Accountability Network/TAN and the Access to Information Network/ATIN) as well as provide technical and human resource support should TAN or ATIN is interested, ready and willing to pursue advocacy in this track. The reversal of the civil society position's started in 2009 by the establishment of Bantay Kita (Bantay Kita 2012). The process began with the awareness among civil society organizations, including the ATM, that EITI is gaining popular support at the 15 international level and sooner or later will be adopted by the Philippines government. Without the engagement of civil society, the mining companies can hijack the process 16 and use EITI to serve their interest to continue liberalization in the extractive industry. Bantay Kita is the only national coalition in the Philippines working for transparency in the extractive industry. It is composed of organizations engaging the mining industry on their adverse effects on communities and the environment, governance and economic policy research and reform organizations (Bantay Kita 2012). Bantay Kita realizes that EITI will not be able to solve all problems that plague the extractive industries in the Philippines. EITI can serve as a tool to improve public access to information, provide an avenue to assess the mining's companies' contribution to national and local level development, as well as forum for civil society and local governments to hold private sector and national government accountable in the management of the country's mineral resources.17 Bantay Kita, as reflected by DR. Cielo Magno's statement, believes that :

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“civil society is optimistic that EITI will be a platform in strengthening peoples' rights to be part of the decision-making process in utilizing our natural resources. We hope that in implementing EITI, it can serve as a venue to strengthen the process of acquiring the free prior and informed consent (FPIC) of indigenous peoples. We see EITI as an important component of policy reforms that need to be implemented in managing our natural resources”

Bantay Kita has interacted with government officials by participating in technical working groups in Congress on the consent process and on the alternative mining bill (Bantay Kita 2012), in consultations organized by the national government, and in forums organized by Bantay Kita and in forums organized by its partners. Furthermore, through its members and partners, Bantay Kita works with stakeholders at the community level to ensure transparency and accountability in the mining value chain. The Transparency Initiative in Compostela Valley (TICV) is the pilot site for this initiative. TICV provides Bantay Kita with lessons on how to actualize participation, transparency and accountability in the value chain at the community level.

Box 4.3. ATM, Bantay Kita and the Mediated Engagement strategy Alyansa Tigil Mina (ATM) and Kalikasan People's Network for the Environment (KPNE) are two prominent civil society alliances against mining in the Philippines. ATM was formed in 2004 as coalition of organizations and individuals from mining-affected communities, NGOs, Pos, church-based organizations and academic institutions, that decided to disengage from the series of consultation convened by the Department of Environment and Natural Resources (DENR) regarding the revitalization of mining industry through aggressive promotion of large-scale mining in the country. Different from more radical anti-mining position of KPNE, the trem “tigil-mina” (stop mining) in ATM does not reflect the stand of totally going against (to prohibit or ban) all kinds of mining. What ATM oppose is liberalization of mining sector under the current Law that irrationally exploit mineral resources in the Philippines. This moderate position is reflected in their active involvement in the Bantay Kita, which represent civil society in the on going EITI process. Through Bantay Kita, ATM applies a “mediated engagement” strategy to promote transparency in the mining sector. On one hand, ATM can influence the EITI progress in the country without directly engage in the nitty-gritty of the process. As summarized by Jesus Vicente C. Garganera, national coordinator of ATM, “we will not talk with (mining) industry in financial transparency issue, Bantay kita will do it. Through Bantay kita, ATM will make sure that the civil society is represented by credible and legitimate networks and individuals'. On the other hand, Bantay Kita use ATM to exercise external pressure to EITI process. DR. Cielo Magno, the coordinator of Bantay Kita, explained that “Bantay Kita develop dual strategy in the EITI process. We aim to broaden our network and membership to gain more (popular) support for EITI. But, we also (strategically) keep some of our network outside the process as external control”. Source: Alyansa Tigil Mina (2013), interview with ATM and Bantay Kita coordinator

The changing attitude towards EITI among civil society cannot be separated from the election of Benigno Aquino III as the new president replacing President Arroyo in 18 2010. The rose of Aquino's regime has served as “game changer” that alters the structure of political opportunity for promoting transparency in the extractive industry in the Philippines. Since his presidential campaign, Nonoy has tried to make a stark contrast with the Arroyo regime that plagued by corruption. Aquino, as highlighted by Mendoza and Rood (2013), aims to transform the country from a regime of bad to good

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governance, to demonstrate that “Kung Walang Kurupt, Walang Mahirap” (“if there is no corruption, there will be no poverty”). He was elected on a reform platform that focuses on transparency, accountability and the pursuit of the rule of law as preconditions for national development (Gorre et al 2012). One of his first initiatives to promote good governance after seizing the presidency is the development of the Philippine Government Action Plan, entitled “Institutionalizing People Power in Governance to Ensure Direct, Immediate, and Substantial Benefits for the Poor.” (Mendoza and Rood 2013). According to Mendoza and Rood (2013) the plan combines both greater involvement of the citizenry in government affairs with internal changes in how the bureaucracy operates that: “anchored upon transparent, accountable, and participatory governance as a key ingredient to achieving poverty reduction and economic expansion. In this plan, the government is committed to undertake 19 initiatives: two in transparency (including disclosing budget information of all major departments and a roadmap for improving public access to information); five in citizen participation (including expanding participatory budgeting and bottom-up budgeting, establishing an empowerment fund and undertaking participatory audits); four in accountability (including the Results-Based Performance Management System); and eight in technology and innovation”

In reforming the extractive industry, President Aquino imposed a moratorium on the processing of all new mining agreements and cancelled over 500 existing applications in January 2011 (Pavlova and Hincks 2013). This effort was followed by broader reforms that he enacted through Executive Order (EO) No. 79 on July 2012 that aim to institutionalize and implement reforms in the Philippine mining sector, providing policies and guidelines to ensure environmental protection and responsible mining in the utilization of mineral resources (Department of Environment and Natural Resources 2013). The EO 79 outlines guiding principles in the reform that include ; (i) ensure responsible mining's contribution to the country's sustainable development; (ii) adopt international best practices to promote good governance and integrity in the sector; (iii) ensure the protection of the environment by adopting technically and scientifically sound and generally accepted methods as well as indigenous best practices; (iv) ensure consistency of national laws and local issuances, and harmonize laws, policies, and regulation ; (v) ensure a fair, adequate, and equitably shared economic benefit for the country and the people; and (vi) deliver efficient and effective management of the mining sector, both large and small scale (Department of Environment and Natural Resources 2013). President Aquino, through the EO 79, underlines the government commitment to adopt EITI in the Philippines (Department of Environment and Natural Resources 2013). Moreover, the government, through the Department of Environment and Natural Resources (DENR), is determined to achieve compliant status and become a full-fledged EITI member by 2015.19 The commitment to EITI goes hand in hand with reform in the fiscal regime and law in the mining sector. The government wants to increase the

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revenue and value added from the mining sector. President Aquino has asked legislators to pass a measure that gives the government a bigger slice of revenue from minerals. At present, the state only collects a royalty of 5 percent of the gross revenue from 11 of 35 mines operating within so-called mineral reservation sites. The government will continue to impose ban new mineral agreements with foreign and local investors until the new law takes effect, although activity related to exploration can 21 proceed. The civil society is not fully satisfied with the reform. The ATM, as example, stated that the EO 79 has failed to address the substantial issues, especially in shifting the mining policy from “earning profit from mining” to a “rational management of the country's mineral resources” by replacing the existing Mining Law, and ensuring that mining complies with sustainable development, human rights, poverty eradication and the full human potential (Alyansa Tigil Mina 2012). Nevertheless, despite those disappointments, they see that “some small steps are in the right direction”. ATM acknowledged the positive side of the reform likes: (i) the review of mining contracts and mining operations; (ii) expansion of the No Go Zones; (iii) EITI; (iv) recognizing of local autonomy; and (v) moratorium on new mining application. Therefore, the current incremental progress does not erode the trust between the civil society and the government. ATM, as an example, will continue to engage with the relevant government agencies to ensure that communities and the people are rightfully consulted and benefiting from mining, if they have decided to accept mining (Alyansa Tigil Mina 2012). On the other hand, ATM will continue to encourage their members to intensify and upscale their engagement with government and the industry to push forward the agenda for EITI.

4.5. The course ahead – sustaining the momentum The EITI is progressing well in the Philippines. The International EITI Board has approved the Philippines' application for candidacy in the EITI on 22 May 2013. In accordance with the EITI Rules, the Philippines are required to publish their first EITI Report within one year and six months of becoming a Candidate (by 22 November 2014) and to submit a final MSG endorsed-Validation Report to the Board within two years and six months of becoming a Candidate (by 22 November 2015).22 Prior to this approval, President Aquino appointed a senior government official to lead the implementation of the EITI and established the multi-stakeholder group (MSG) to oversee the implementation of the EITI fully costed work plan, in which civil society has played a pivotal role.23 In the next two and a half years, the Philippine MSG must produce a report that will contain disaggregated information on all the taxes and fees the large scale mining and oil and gas companies are paying to the national and local governments.24 The report will also include incentives provided by the government to

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the companies. Furthermore, the Philippine MSG has also agreed to disclose contract as 25 well as royalty payments of companies to indigenous peoples. The EITI has potential to reduce the tension between the LGUs and the national government regarding the ban on mining. Local governments can implement their own sub-national EITI, like the sub-national EITI that Bantay Kita is supporting in Compostela Valley, to hold the mining companies and national government accountable.26 On the other hand, in implementing the sub-national EITI, local stakeholders can include provisions on tracking how local governments are spending the revenues from the extractive industry.27 Community-based organizations and people's organizations in communities hosting mining operations can influence how money from extractive activities in their communities are actually spent by their local governments.28 Therefore, it is important for the civil society to sustain the momentum and maintain close engagement with the process. The crucial agenda will be linked EITI process with broader reform in the extractive industry, such as the enactment of new Mining Law and the creation and legislation of the national wealth fund derived from the revenues from the extractive industry.29 It is also vital to secure stronger political support for EITI from the Congress and strengthen the legal base for EITI from EO into Law before the end of President Aquino's term.30

ENDNOTE 1

RA 7942 defines three contractual arrangements for enterprises that are 60 percent owned by Filipino citizens. In Mineral Production Sharing Agreements (MPSAs), the private contractor provides funds, technology, management, and personnel and government participation is its ownership of the mineral resources. In Co-production Agreements (CA) and Joint Venture Agreements (JVAs), the government provides additional inputs and its shares from production are negotiated with the private contractor. A fourth type of agreement, the Financial and Technical Assistance Agreement (FTAA)14 is similar to the MPSA but applicable to non-Filipino owned enterprises. Basically, the MPSA is a production agreement which can last for up to 25 years, is approved by the Department of Environment and Natural Resources, and requires that no more than 40 percent of the mineral project be owned by a foreign corporation. The FTAA, on the other hand, is a production agreement that can last for up to 25 years, is approved by the President of the Philippines, allows 100 percent foreign ownership of the mining property. See also Maita Gomez. 2010. Transparency issues in the Philippines Mining Industry. Towards Tax Justice Policy Research Paper. Action for Economic Reforms. Manila. 2

Local governments seek to protect mineral lands within their area of jurisdiction. Communities support local governments to ensure they benefit from resources such as minerals within their vicinity and at the same time protect the surrounding environment that support forests and agriculture. In certain provinces within the archipelago, local government officials and constituent citizens share the need to secure a fair share of the proceeds from the development of the natural resources located within their area. See Minerva Chaloping-March. 2011. The trail of a mining law: 'resource nationalism' in the Philippines. Paper presented at the conference on Mining and Mining Policy in the Pacific: History, Challenges and Perspectives, 21-25 November 2011. Noumea, New Caledonia.

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IMF argues that the low contribution of the mining sector to government revenue is not due to the Philippine fiscal regime for mining being generous to the contractors by international standards. According to IMF, low tax revenues are due to the mining sector comprising mostly small-scale mines (with about 34 percent of total value of production) that do not pay a lot of tax, older mines that are in their twilight years, and a few new mines that are enjoying tax holidays. In addition, out of a total of 345 active large mining licenses, only 30 percent of the companies are in the development and production stages and the rest are in the exploration stage. See Emil M. Sunley et al. 2012. Philippines: Reform of the Fiscal Regimes for Mining and Petroleum. IMF. Washington DC. 4

Up to 2005, mining and quarrying accounted for less than one percent (from 0.6 percent to 0.9 percent) of GDP. From 2005 onwards, the mining industry's contribution increased to one percent and above. See Maita Gomez. Op.Cit.

Beside those large scale mining concessions, there are an estimated 400,000 small-scale mining companies in the Philippines. See Ingrid Gorre et al. 2012. Philippines: Seizing Opportunities – Increasing Transparency and accountability in extractive Industries. RWI Working Paper series. 6

Interview with Gerard H. Brimo, President and CEO of Nickel Asia Corporation on July 16, 2013.

Interview with Sonia R. Lorenzo, ULAP's Executive Director, and Michael Joseph U. Juan on July 16, 2013. ULAP is umbrella organization for all the Leagues of LGU's and local officials throughout the country. The composition of ULAP consists of member leagues (LPP, LCP, LMP, LnB, LVGP, VMLP, PBMLP, PCL, 4L, NMYL, and PPSK) and associate members (PHISTA, PLEASES, MMML, PACR, NPLGNI, LLPDCPI, PLGPMI). 8

Ibid

Interview with Jesus Vicente C. Garganera, national coordinator of ATM, on July 15, 2013. The Publish What You Pay (PWYP) coalition was established in 2002 to bring together civil society organizations from all over the world to campaign for transparent management of revenues generated by the oil, gas and mining industries in developing countries, many of which are all too often characterized by high levels of corruption, conflict, instability and poverty. To lift this “resource curse” the coalition has worked to require resource companies to publicly disclose what they pay to governments for the right to extract natural resources, and for governments to publish what they had received so as to allow citizens to hold the government accountable for the use of this important source of income. Promoting greater revenue transparency in the extractive industries is a critical part of a much wider set of reforms needed to ensure that the negative impacts of natural resource extraction are minimized and that local communities and citizens benefit through job creation, economic growth, and investment in key public services such as schools and hospitals 12

Ibid

Interview with DR. Cielo Magno, national coordinator of Bantay Kita, on July 15, 2013.

Ibid

See http://ecojesuit.com/eiti-in-the-philippines-a-step-forward-globally-but-problems-remainlocally/5288/

Interview with Teresa S. Habitan, Assistant Secretary Department of Finance, on July 16, 2013.

See “Philippine mining at policy crossroads as investment sputters” accessed from http://in.reuters.com/ article/2012/09/23/philippines-mining-idINL3E8KH1L620120923 22

See http://www.bworldonline.com/content.php?section=Opinion&title=What-EITI-means-for-thePhilippines&id=71523#sthash.Z1uAaK0y.dpu\

The MSG of the Philippines is composed of equal representation of five members each from the government, industry (mining and oil and gas) and civil society where Bantay Kita sits for the latter. Representatives from the civil society in the MSG– which represents geographical notions (NCR, North and South Luzon, Visayas as well as Mindanao) – are Cielo Magno% (Bantay Kita), Jay Batongbacal (University of

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the Philippines College of Law), Tess Tabada (Visayas State University)%, Mr. Allan Barnacha (PRRM) and Roldan Gonzales (GITIB) - with Men Sta. Ana (Action of Economic Reforms), Vince Lazatin (Transparency and Accountability Network), Merian Mani (Romblon State University/REFAM), Augustin Docena (Samar Islan Biodiversity Foundation, Eastern Visayas Network of NGOs and Pos, Eastern Samar Social Development Organization) and Stajoan Villanueva% (AFRIM) as alternates 24

Ibid

Interview with DR. Cielo Magno. Op.Cit.

Ibid

Interview with Alessandra Ordones, coordinator of The Philippines EITI Secretariat on July 16, 2013.

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REFERENCEs Alternate Forum for Research in Mindanao (2012) A Background Study on the SmallScale Gold Mining Operations in Benguet and South Cotabato and Their Impact on the Economy, the Environment and the Community. Quezon City: Bantay Kita. Alyansa Tigil Mina (2013) Alyansa Tigil Mina Primer. Quezon City: Alyansa Tigil Mina. Alyansa Tigil Mina (2012) ATM Position papers on Executive Order 79, s.2012. Quezon City: Alyansa Tigil Mina Alyansa Tigil Mina (2011a) Position Paper on the Continued Adoption of the Aquino Government of the Revitalization of the Philippine Mineral Industry Policy. Quezon City: Alyansa Tigil Mina. Alyansa Tigil Mina (2011b) A Legacy of Disasters: The Mining Situation in the Philippines 2011. Quezon City: Alyansa Tigil Mina. Alyansa Tigil Mina (2007) Back-to-Office Report by Jaybee Garganera on PWYP Regional Workshop (Bali, Indonesia – Aug. 6-11, 2007). Unpublished. Bantay Kita (2012) Operational Plans and Proposal for 2012 – RWI IKAT-US project. Unpublished. Castillo, Fatima A (2012) “Oil and Gas Production in the Philippines: Public Interest Issues”. Bantay Kita Occasional Paper Series No. 2012-01. Quezon City: Bantay Kita.. Chaloping-March, Minerva (2011) “The trail of a mining law: 'resource nationalism' in the Philippines”. Paper presented at the conference on Mining and Mining Policy in the Pacific: History, Challenges and Perspectives, 21-25 November 2011. Noumea, New Caledonia.

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Department of Environment and Natural Resources (2013) “The Philippines Experiences in improving transparency and management in mining sector”. Paper presented Hotel Borobudur, Jakarta, Indonesia on April 17. Gatmaytan, Dante (2012) “An Analysis of the Arguments Against Local Government Resistance to Mining”. Policy Note 004. Quezon City: Bantay Kita. Gomez, Maita (2010) “Transparency issues in the Philippines Mining Industry: Towards Tax Justice”. Policy Research Paper. Quezon City: Action for Economic Reforms. Gorre, Ingrid et al (2012) “Philippines: Seizing Opportunities – Increasing Transparency and accountability in extractive Industries”. Revenue Watch Institute Working Paper series. Halcon, Nelia. et al (2007) Improving Transparency of Payments and Receipts in the Mining Industry – Technical report. Manila: Chamber of Mines of the Philippines. Hatcher, Pascale (2010) “Investment-Risk in the Philippines: Multilateral Mining Regimes, National Strategies & Local Tensions”. GSIR Working Paper series. Ritsumeikan University Holden, William N (2012) “Ecclesial Opposition to Large-Scale Mining on Samar: Neoliberalism Meets the Church of the Poor in a Wounded Land”. Religions, Vol 3, 833–861. Holden, William N and Jacobson, R. Daniel. (2007) “Mining amid armed conflict: nonferrous metals mining in the Philippines”. The Canadian Geographer / Le G´eographe canadien 51, no 4, p 475–500. International Federation of Human Rights (2012) “The Philippines: Killing of three family members of an anti-mining leader”, accessed from http://www.fidh.org/en/ asia/Philippines/The-Philippines-Killing-of-three-12361 Kalikasan PNE (2008) Intensified Imperialist Mining, Growing People's Resistance: 2008 Mining Situation and Struggle in the Philippines. Kalikasan PNE. Mendoza, Jose Maria M. and Rood, Steven (2013) “Is Aquino Moving the Philippines Closer to Good Governance?”, accessed from http://asiafoundation.org/inasia/2013/05/29/is-aquino-moving-the-philippines-closer-to-good-governance Pavlova, Pavlina and Hincks, Joseph (2013) “The Philippines: An Overview – Fits and Stats and False Departs” in Global Business Report: Mining in the Philippines – Visiting the Rim. Engineering and Mining Journal. March. Revenue Watch Institute (2013) The 2013 Resource Governance Index. New York: Revenue Watch Institute Sunley, Emil M. et al (2012) Philippines: Reform of the Fiscal Regimes for Mining and Petroleum. Washington DC: International Monetary Fund. Vivoda, Vlado (2009) Assessing Governance Performance of the Regulatory Regime Governing Foreign Mining Investment in the Philippines. Adelaide: The Centre for International Risk, School of International Studies, University of South Australia.

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V. ADDRESSING THE GORILLA IN THE ROOM: COMPLEMENTARY RELATIONSHIP, VERTICAL integration AND THE POTENTIAL OF FENCE-BREAKERS * Darmawan Triwibowo

5.1. Background – the gorilla in the room Transparency has become the new buzzword in the Vietnam's system of governance and its state-society relation (Vietnam Chamber of Commerce and Industry and CODE 2011; Thayer 2008). With the adoption of doi moi (renewal) and shift towards market-oriented society in the 1980s, Vietnam government has developed policies and regulations that facilitated wider information disclosure for a well functioning market system in the country's development process (Norlund et al 2006). As an example, the Law on Anticorruption No 55/2005/QH11 of 2005 provides many rules and regulations relating to public liability and transparency (Vietnam Chamber of Commerce and Industry and CODE 2011). These reforms have grown from limited reforms made to introduce a market economy to general reforms that have spread to areas outside the strictly economic sphere, including reforms of social and political spheres (Norlund et al 2006). In 1998, The Party Central Committee issued Directive 30/CT that established the policy basis for strengthening the participation of communities at local level (commune, agency and state-owned enterprise). Under the doctrine of 'the people know, people discuss, people execute, people supervise', Decree 29/1998/ND-CP aimed to improve transparency and accountability of local government (Thayer 2008). Furthermore, Decree 79/2003 on “Grassroots Democracy” (dan chu hoa tai co so), approved the participation of communities and local organizations in development activities at the commune level (Sabharwal and Than Thi Thien Huong in Thayer 2008; Fritzen 2005). Weate (2013) has also recorded the proliferation of donor-supported transparency initiatives in Vietnam. The Public Financial Management Reform, the Construction Sector Transparency Initiative (CoST), the Provincial Governance and Public Administration Performance Index (PAPI), as well as the Integrity and Transparency in Business Initiative for Vietnam (ITBI) are few examples of those 1 initiatives. The principle of these initiatives is to enhance transparency and participation of stakeholders in the policy making process (Vietnam Chamber of Commerce and

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Industry and CODE 2011). The decision of the Vietnam government to adopt the United Nations Convention Against Corruption (UNCAC) by the Decision No. 950/QD-CTN dated 30/6/2009 of the President is another bold effort to promote transparency. In the area of extractive industries, Vietnam Chamber of Commerce and Industry (VCCI) and CODE (2011) found a promising support for greater transparency in the industries among the government officials at national and sub national level. When asked whether Vietnam should implement the EITI or not, almost all respondents, typically the most directly relevant governmental agencies such as Ministry of Industry and Trade, Ministry of Finance, the State Audit and the provincial departments, supported Vietnam to implement the EITI. Some big extractive companies like Vietnam National Coal and Mineral Groups and Vietnam National Chemical Groups also supported this initiative. In general, most large and foreign invested enterprises have supported transparency in the extractive sector.2 Regarding such backdrop, it comes as no surprise that the EITI Secretariat by May 2012 includes Vietnam as country that intend to implement EITI in their list, together with the Philippines in Southeast Asia region (David-Barrett and Okamura 2012). However, as the EITI Board admitted the Philippines as an EITI Candidate country in May 2013, the Vietnam government has not made a formal announcement of their formal commitment to adopt EITI. The initiative is struggling to overcome various institutional, political, and financial and human resources barriers as laid out by the EITI Scoping Report (Vietnam Chamber of Commerce and Industry and CODE 2011). According to the report, EITI implementation will affect some influential interest groups as corruption in Vietnam widely occurs in most sectors. Therefore, although transparency has become the big issue that no one can ignore in Vietnam, the relatively slow progress of the transparency initiative in the extractive industries shows that it is also a sensitive matter in which people are reluctant to address through real policy change. Transparency is the gorilla in the room.

5.2. The Vietnam's Extractive Industries â&#x20AC;&#x201C; the drive for expansion According to the geological survey, Vietnam has discovered over 5000 deposits with over 60 different types of minerals (The US Geological Survey 2012). In general, according to Weate (2013), the main mineral reserves in the country can be classified into 3 groups, namely energy mineral (coal, petroleum and gas, uranium), metal mineral (bauxite, rare earth, titanium, iron, copper, nickel, lead-zinc, gold, chromite, tin) and nonmineral (apatite, barite, limestone) group. The resources can also be classified based on the size of the reserve (Vietnam Chamber of Commerce and Industry and CODE 2011). Based on this categorization, the mineral can be grouped into (i) large reserve at the global level that could be exploited over a long time and satisfy both domestic consumption and export, including bauxite, titanium, rare earth, limestone, white sand, building stone; (ii) medium-sized reserve that could be exhausted in a limited time,

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including coal, iron, chromites, manganese, copper, zinc, lead, gold, kaolin, barite, ashlars paving stone; and (iii) detected but not yet discovered exploitable deposits, such as platinum and lithium. However, although bauxite and rare earth can be categorized as large scale in global terms, both minerals are currently being mined on trial at a very small scale (Weate 2013). Therefore, petroleum and gas, and coal are still dominating the extractive industry in Vietnam (Weate 2013; The US Geological Survey 2012). Minerals exploration and production take place in 61 of the 63 provinces of Vietnam (Weate 2013). Nevertheless, almost all mining areas are concentrated in the North, such as Lai Chau, Son La, Ha Giang, Cao Bang, Bac Kan, Thai Nguyen, Tuyen Quang, Quang Ninh, Hoa Binh. (Weate 2013; The US Geological Survey 2012). In the central region there are four main mining areas, namely Ha Tinh, Thanh Hoa, Nghe An, Thua Thien-Hue, while to the south of the central region are 3 key areas that include Quang Nam, Binh Dinh and Quang Ngai. In the south, especially along the continental shelf there are some big oil and natural gas deposits located in Binh Thuan and Ba Ria-Vung Tau province.

Figure 5.1. Mineral maps in Vietnam Source: Weate (2013)

Forecasted calculations have estimated at about 6 billion tons of oil reserves in Vietnam, and gas reserve at about 4,000 billion m3 (PVN in Vietnam Chamber of Commerce and Industry and CODE 2011), The southern continental shelf is the most concentrated area of oil and gas production activities in Vietnam, including three major CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

sedimentary basins, namely Cuu Long, Nam Con Son and Malay - Tho Chu. Up until now, the southern part remains as a national center of oil and gas supply. In addition, Red River and Phu Khanh basins are also identified as gas supply areas, but possibly with a modest volume. Moreover, there are potentially discovered oil and gas that mainly concentrated in deep water and offshore areas, such as in Phu Khanh, Tu Chinh, and Vung May basin, and Hoang Sa and Truong Sa Island (Vietnam Chamber of Commerce and Industry and CODE 2011). According to Vietnam Chamber of Commerce and Industry and CODE (2011) and Weate (2013), other players in the extractive industries are (i) the private owned enterprise which includes the limited and joint venture companies that operate mainly in exploiting and processing building materials and in recollecting metal minerals on a small scale; (ii) the foreign invested enterprises mostly operate in the exploiting and processing minerals for the cement industry, such as Nghi Son, Chinfon, Lask Vietnam cement company. Some foreign (and also joint venture) companies, such as Vietnam Japan Gemstone Ltd. (VIJAGEM), PT Vietmindo (Indonesia), Ban Phuc Niken Mine Ltd (Canada) are involved in other mining activities but only at a medium and small scale while some International Petroleum and Oil Companies (IOCs) as VIETSOVPETROL (VSP, a Vietnam-Russia joint venture), BP, Chevron, ConocoPhillips, Exxon Mobil and Petronas have Production Sharing Agreements (PSCs) or joint venture operations in Vietnam; and (iii) collective, individual and household enterprise that often operates in exploiting and processing normal building minerals, such as stone and sand on a tiny scale and is usually only able to serve local demand. In recent years, mining activities for coal, gold, ilmenite and construction materials are booming with most of the new mining companies are small.

Figure 5.2. Oil and gas field in Vietnam Source: Weate (2013)

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The number of mining company has been sharply increasing with an average growth of 21.7 percent per year (Vietnam Chamber of Commerce and Industry and CODE 2011). The number has increased from 427 (in 2000) to nearly 1,400 by 2012, of which about 90 percent are small enterprises (Weate 2013). The number of mining licenses has been growing vastly, particularly in the provinces. As a comparison, within the 12 years, from 1996 to 2008, Ministry of Industry and Ministry of Natural Resources and Environment (MONRE) issued 928 licenses for mineral enterprises, organizations and individuals. Meanwhile, within just over three years, from 2005 to 2008, cities and provincial people's committees have issued 3495 licenses (VGA, VUSTA, CODE 2010). The rising domestic demand for chemicals, mineral, refined oil and plastic pushes the government to expand its extractive industries (PanNature and CODE 2012). The government has developed a master plan for the production of each mineral. As an example, it projects the rise of coal production from 16-17 million MT in 2005 to reach 29-30 million MT by 2020 (The US Geological Survey 2012). In the case of iron ore, the capacity of annual iron ore exploitation is scheduled at 9 million tons in 2010, 14-15 million tons a year during the 2011-2015 period, and 15-16 million tons a year during 2016-2020. For the country's two biggest iron ore mines of Quy Xa and Thach Khe, the country will encourage foreign investors to get involved. They can establish joint ventures with local partners to exploit the two mines. However, Vietnamese partners must hold the controlling stakes in any such ventures (The US Geological Survey 2012).

Box 5.1. The role of extractive industries in the Vietnam national economy In the last fifteen years, the role of extractive industry in the national economy has been increasing. As an example, the mining and quarrying industry accounted for 4.81 percent of GDP by 1995 and increased to around 9.5-10.59 percent from 2000 to 2008. Revenue generated from crude oil only contributed 24.37 percent to state budget revenue in 2008. Meanwhile, in 2011 the extractive industry generated 279,934 billion VND, corresponding to 11.04 percent of GDP. Of this, the oil and natural gas sub-sector dominates other extractive sub-sectors, accounting for about 63,52 percent of the contribution to GDP, with coal representing around 20 percent, and non-fuel minerals 15 percent. Nonetheless, the contribution is still relatively small in comparison with other sector. The number of employees working in the extractive sector in 2011 is 279,100 people, accounting for approximately 0.6 percent of the total labor force of the country. Furthermore, of the mentioned number of employees working in the mining sector is actually, less than 50 percent are permanent. The remaining 50 percent is working as short term employees with unstable income. In terms of investment, the total investment for the mining sector in the period of 2005- 2008 is ranked 5th of 18 sectors. Moreover, the contribution to the national economy is only ranked at 8th compared to other economic sectors. Source: Weate (2013), Vietnam Chamber of Commerce and Industry and CODE (2011)

5.3. The Governance Issue – a persistent implementation gap Vietnam, despite the robust policy framework for transparency, fails to get high score in various international transparency indexes. In the Revenue Watch Institute's Resource Governance Index, Vietnam received a “weak” score of 41, ranking 43rd out of CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

58 countries in 2013 (Revenue Watch Institute 2013). A relatively high “Institutional and Legal Setting” score was offset by “failing” scores on the other components, such as reporting practices and the enabling environment. The government provides only incomplete data on the petroleum industry. As an example, the Finance Ministry publishes only aggregated information on oil revenues and exports. Furthermore, no law requires disclosure of oil and gas contracts, as the national law prohibits disclosure of information on reserves, petroleum blocks, projects, contracts, or profits. Other international indicators portray similar pictures. Vietnam shows poor performance in the 2012 Open Budget Index. Despite the adoption of transparency and disclosure of information principles in the Law on State Budget from 2002, Vietnam scores only 19 points on a 100 point scale, much lower than many other nations in the Southeast Asia region, showing a lack of transparency in the country's budget system (Open Budget Initiative 2012). The country is still far behind Indonesia with 62 points, the Philippines with 50 points, and Thailand with 36 points. As explained in detail by Vietnam Chamber of Commerce and Industry and CODE (2011), one of the main challenges for transparency in Vietnam is the persistent 3 “implementation gap” of policy and regulations. Despite restrictions on several types of classified information, the regulations on transparency, information disclosure and anticorruption have been stated in many legal documents. However, law enforcement is rather low. Moreover, many regulations when implemented at the local level have a low efficiency because of weak oversight mechanisms and sanctions. The best illustration for this gap is the government effort to curb corruption. In 2004, the government declared an active fight against corruption as one of its highest priorities, since it is increasingly acknowledged to have a negative impact on the country's development (CIVICUS 2005). In 2005, an Anti-Corruption Law was prepared and approved in the National Assembly and the anti corruption agency – Steering Committee Against Corruption (SAAC) – was established (Vietnam Chamber of Commerce and Industry and CODE 2011; CIVICUS 2005). As an additional measure, Vietnam's Prime Minister Nguyen Tan Dung in 2007 signed a decision, which assigned the Government Inspectorate to regularly organize Anti-Corruption Dialogues (ACD) in Viet Nam annually (Weate 2013). The ACDs are an on-going process, enabling development partners and stakeholder institutions in the government to discuss anticorruption issues in a frank and open manner. Nonetheless, despite all of those efforts, the corruption in Vietnam is still high. In 2012, Viet Nam was ranked 123rd out of 174 countries in the Corruption Perception Index (CPI) rank by the Transparency International, below other Southeast Asia countries except Cambodia, Laos and Myanmar (Weate 2013). The 2013 Global Corruption Barometer reveals that most of Vietnamese citizens (who participated in the survey) perceive the corruption have increased over the past two years (Towards Transparency 2013). Vietnamese citizens perceive corruption to be increasing slightly more than respondents from other countries in the region (Cambodia, Indonesia, Malaysia, the Philippines and Thailand). The survey also finds that more Vietnamese 62

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perceive government anti-corruption efforts to be ineffective or very ineffective. At the same time, the findings suggest a considerable loss of trust by urban respondents in government anti-corruption efforts over time.

Box 5.2. Key governnace and transparency issues in the extractive industries The Vietnam EITI Feasibility Study report has identified key transparency issues in the extractive industries which include: ? Corruption. It is caused by limited access to strategic information, such as geological information, and in-transparent licensing process and tax collection. According to a 2011 report from the Anti Corruption Department of the Government Inspectorate, extractive industry companies have to make unofficial payments (bribes) between VND0 to a maximum of VND5 billion for information on mining areas, mining depth, mineral reserves, requirements on documents, procedure for acquiring licences and so on. The average unofficial payment to the licensing authority is VND178 Million. Mining companies had to pay on average VND110 million, with a maximum of VND1.2 billion for decision of reserve approval. Together with the issue of smuggling highlighted above, there is strong evidence of serious and endemic corruption in the extractive sector in Vietnam Reporting requirements for companies to ensure transparency and ? Reporting procedure. accountability are not well defined in the current version of the Mineral Law, especially for small mining operations. The consequence of this is that production output can go unrecorded, providing ideal conditions for tax avoidance and smuggling. On the other hand, provincial authorities regulate prices for mineral commodities and environment protection fees, with variation between provinces. Low pricing in comparison with the market price provides an opportunity for corruption. ? Decentralization. The government has issued and continuously amended both the Mineral Law and the Petroleum Law for improvement and consolidation of the legal framework in the sector. However, the problem is in fiscal and political decentralization. While governance has been brought â&#x20AC;&#x153;closer to the peopleâ&#x20AC;?, it has resulted in a weakening of governance standards. Decentralisation empowers provincial authorities to grant small-scale exploration and mining licences, without the strict observation of the national government. This has resulted in a boom in small mines. While a popular strategy at provincial level, it has led to the waste of mineral resources and contributed to environmental pollution. Source: Weate (2013)

The persistent implementation gap, as reflected in the anti-corruption case, highlights the political barrier that hampers the mainstreaming of transparency in the Vietnam system of governance. Strong political commitment from the government is still questionable because transparency remains as a destabilizing and sensitive issue for interest group inside the government and the Party (Fritzen 2005). On the other hand, it also mirrors the lack of coordination and limited institutional capacity of related 4 government agencies.

5.4. Civil Society in Vietnam â&#x20AC;&#x201C; building complementary relationship with the state Extractive industries issue, especially mining, is not new for civil society organizations in Vietnam as they play a role of social monitoring and feedback (CODE 2011). The Consultancy on Development (CODE), as an example, works in research and

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advocacy for sustainable development in Vietnam with the focus on land, water and mineral resources (Weate 2013). CODE started work on mining issues in 2007, focusing on the issue of bauxite mining in central Vietnam and was actively involved in the drafting of the new minerals law in 2010 (Weate 2013; CODE 2011). Another example is the Center for People and Nature Reconciliation (PanNature). The organization focuses its work in assessing and disseminating information about environmental and social impacts of policies for hydropower development, mining, and forestry sector projects to 5 a wider public. The organization has experience in assessing the relationship between mining activities and poverty reduction process at the national and local level (PanNature and CODE 2012). It has also worked on capacity building for media on extractive industry issues by carrying out some field trip trainings in Vietnam extractive industry areas (PanNature and CODE 2012). Nevertheless, the way that Vietnam's CSO advancing transparency issues in the extractive industries is heavily influenced by the dynamics of state and civil society relationship in the country. Since the early 1950s, the Vietnamese Communist Party has sought to curtail the public sphere in Vietnam in order to impose a proletarian state and build socialism (Marr in Landau 2008). The government developed a network of organizations to ensure that the ruling Party penetrated every sector and level of society. All social organizations were subsumed into mass organizations {dodn thi) under the umbrella organization of the Vietnam Fatherland Front (VFF or mat trgn to quoc Viet Nam) as autonomous organizations were prohibited (Landau 2008). According to Thayer (2008), the Front is grouping twenty-nine registered mass organizations (women, workers, peasants, youth) and special interest groups (professional, religious etc.). The Vietnam Women's Union is the largest mass organization with a membership of twelve million and a staff of three hundred across the country. Other mass organizations include the Ho Chi Minh Communist Youth Union and the Vietnam Youth Federation, with 3.5 million and 2.5 million members respectively. The leaders of these mass organizations regularly serve on the party Central Committee (Thayer 2008). Therefore, civil society in Vietnam was limited and weak before the doi moi period, which put the first reforms in place with which to create a market-orientated society (Norlund 2007). The transition in Vietnam to a "socialist-oriented market economy" since doi moi has weakened the Party's grip on society (McCormick in Landau 2008) As Vietnam opened up to the outside world, foreign donors and government aid agencies, as well as International Non-Governmental Organizations (INGOs), rushed to assist Vietnam by applying their own models of development. These models incorporated the view that supporting counterpart NGOs were the best way of carving out space for civil society activity in authoritarian political systems (Salemink in Thayer 2008). In practice this meant forming partnerships with domestic NGOs and pursuing 'bottom up' approaches that stressed on participatory development. This growing social space has led, since the mid-1990s, to the proliferation of organizations concerned with a variety of issues such as welfare, education, professional advancement, the environment and revival of traditions (Landau 2008). In July 2005, it 64

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was estimated that there were 140,000 CBOs, in addition to 3,000 cooperatives (agriculture, fisheries, construction, sanitation, and health care), 1,000 locally registered 'NGOs' and 200 charities (Thayer 2008). Norlund (2007) classifies civil society organizations in Vietnam into 4 categories, namely: (i) mass organizations (Women's Union, Farmers' Association, Youth Organizations, War Veteran Association, and Workers' Organization); (ii) umbrella organization, such as VUSTA (Vietnam Union of Science and Technology Associations), and professional associations; (iii) Vietnam NGOs; and (iv) Community-based Organizations (including faith-based organization). The mass organizations and umbrella organizations are direct members of the Fatherland Front, while the NGOs are connected to the state through umbrella organization, such as VUSTA. All of these organizations are regarded as being part of Vietnamese civil society and are collectively called “civil society organizations” (Norlund 2007). However, as identified by CIVICUS (2005), legal documents, such as the 2003 Decree 88 on Associations, distinguish mass organizations under the Fatherland Front from civic organizations or NGOs. One reason is that mass organizations are considered political, whereas other organizations are seen as social organizations operating in the humanitarian sphere, with the aim of improving social welfare. The long history of state control made Vietnamese NGOs view their role quite differently from their Western/foreign counterparts (Kerkvliet et al 2008). There is a strong belief of “complementary relationship” between state and civil society. Thayer (2008) describes this relationship as follows: “First, they (civil society) see themselves as partners working on development projects in support of state policy. Second, the view themselves as advocates for improved state services. And finally, they view themselves as representative of marginalized groups and lobby the state for change in policy. In this role Vietnamese NGOs attempt to negotiate and educate state officials rather than confront them as a tactic to bring about change. In other words, their activities were in direct support of existing government programs or in support of larger state-approved policy goals (national development or poverty alleviation)”

The role of civil society is not to antagonize or oppose the state. The NGOs can provide advice the state to enable the state to get the views of and consult with citizens and organizations in society (Kerkvliet et al 2008). They can also complement and relate to the state in helping to carry out government programs, as well as doing things the state does not. Therefore, the relationship between civil society and the state is best described as pushing and pulling (giằng co) each other in a manner that is neither too warm nor too hostile so as to produce positive results for both. The complementary relationship underpins how the civil society mobilized itself to promote transparency in the mining and extractive industries issues as shown by the development of the Vietnam Mining Coalition.6 The coalition, which is led by CODE, PanNature and VCCI, is a broad alliance that involves various types of civil society organizations that engaged cosely with state agencies, like MONRE and Ministry of CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

Industry and Trade (MOIT) The aim is to integrate a horizontal (civil society to civil society) and vertical (civil society to state and business) network to raise awareness of stakeholders on the transparency and accountability in the governance of mining industries and reducing negative social and environmental impacts of mining activities 8 in Vietnam. The vertical network is expected to open more space for civil society to influence policy and policy making process as well as to gain political support for the wider reform in the extractive industries. This strategy is important as the impact of civil society to hold the state and private sector accountable is still low (CIVICUS 2005). The involvement of VCCI in the coalition, as an example, is aimed to strengthen the ownership of the private sector towards the proposed reform.9 The coalition will combine policy advocacy at the national level with research and 10 the development of model/best practice at the sub national level. The model is part of the “triangle strategy” that aims to link CSO, local government, and private companies to 11 promote transparency in the extractive industries. Coalition members will work and help local government and selected mining companies to develop a mechanism and template of yearly reporting revenue that government earned from mining companies and the payments and production volume of the each mining company. The model will also help the coalition to persuade policy makers to adopt practices and policy recommendations as add to media campaign and lobbying process at national level.

5.5. Sub-national initiative – experimenting with the fence breakers? The initiation of sub-national extractive industry transparency model has strong resonances with decentralization and other development practice in Vietnam. Although Vietnam is originally a politically centralized government, decentralization has been going on in the areas of fiscal, public administration and regulations since the 'doi moi' (Vou and Zoukri 2011).12 In this process, the central government has assigned a certain degree of decision-making authority to sub-national governments. In Vietnam, the key level of local governments is provinces as major responsibilities are devolved to the intermediate level rather than local units (communes/villages). One characteristic of the decentralization in Vietnam is the relatively high autonomy of province government to conduct their policy experimentation or innovations where regulations do not exist (Jandl 2012; Vou and Zouikri 2011). This de facto decentralization, or known as “fence breaking”, occurs when the province pushing the legal envelope as far as possible, and on not-so-rare occasions intentionally and obviously overstepping provincial legal authority to test the response from national government. Malesky (2004) identifies “fence-breaking” examples in fifteen different policy areas, such as land use rights; state housing sales; administrative policy; legal reform, micro-economic policy; trade policy; and industrial or export-processing zones. As an example, micro-economic reform includes policies aimed at improving the

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efficiency of the private sector and creating a level playing field between state and private companies. Several factors have contributed to the “fence-breaking” practices in Vietnam. Vou and Zouikri (2011) argues that the cultural factor plays a role as Vietnamese tends to prioritize local rules over national laws and regulations. This is illustrated in the wellknown sayings 'Phep vua thua le lang' (The King's laws are held back by village rules). On the other hand, the wide discretion of local officials stems from the inconsistency of the legislation. When a new law is introduced, it just provides a general framework and leaves sub-national officials with a huge freedom to work out the details. Moreover, the legal system in Vietnam is ambiguous and complex (Tenev in Vu and Zouikri 2011). Most of the existing legal documents are outdated and difficult to implement or highly costly if implemented properly. This condition creates room for reformist province officials to take a role. Therefore, local governments have different views of enforcing central laws and regulations with some provinces are more flexible than others in implementing central regulatory policies and experimenting with their provincial 13 strategies.

Box 5.3. Case study of “fence breaking” in investment incentives in local provinces Although the Government has issued a common investment policy, 33 provincial and municipal authorities, due to their local interests, continued “fence breaking” by issuing a series of specific incentives to attract investors. According to a review by the Ministry of Finance in 2005, these provinces used their local state budget to support enterprises investing in local industrial parks by re-granting corporate income tax (CIT),Value Added Tax (VAT), land rent, investment supports, etc. Eighteen provinces had unsuitable provisions on their budgets; 21 provinces had stipulations “beyond the framework” of land policy; 11 provinces had unsuitable provisions on corporate income tax incentives (many provinces had unsuitable provisions on both areas). Most of provinces had very high incentive for land tax, increasing the tax reduction period to 10–20 years. For instance, Quang Nam province applied the tax rate of 3–10 per cent lower than that of the government in three years. Ha Tinh province increased the land rent exemption period to 7–13 years; increased the land rent reduction period to five years or the whole project “life.” Phu Yen province daringly stipulated that: At the end of the exemption and reduction period stipulated by the Government, investors are entitled to 50 per cent land rent value for 8–20 years. Nghe An province increased the land rent period to ten years for projects investing in Vinh City, Cua Lo township, and exempted another 20 years of land rent for projects investing in the delta area.Vinh Phuc province exempted 100 per cent land tax for projects investing in difficult areas.” Source: Nguyet Hong et al (2009) .

The fence-breaking is a widespread practice in Vietnam. As an example, in the case of attracting foreign direct investment, the Ministry of Finance finds that 32 out of 48 surveyed provinces issued extralegal documents granting extra incentives to investment projects, mostly related to land or taxation (Tu Anh et al 2007). Nevertheless, some provinces have bigger tendency to become fence breakers than other. As outlined by Malesky (2004), provinces like Ho Chi Minh City, Binh Duong, Dong Nai, and Da Nang are reformers that pioneered the fences-breaking practices in the

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country in economic policies area. Other province like Long An, Vinh Phuc, Kien Giang, Hai Phong, Hai Duong, Bac Ninh, are also have a stronger track record of policy innovations that defy central government rules and regulations. The best practice/model development could utilize the fence-breaking practice to foster the reform at the national level. As described by Vu and Zouikri (2011), fencebreaking leads to a surge in government performance in many provinces of Vietnam and many policy experimentation and innovations at the provincial level have been legalized later on and become very successful. A number of the regulations that govern the centerprovince relationship today are legalizations of fence-breaking policies that had previously been implemented on the ground and proven successful enough to let them 14 stand (Jandl 2012). Therefore, working with the fence-breakers could potentially produce a policy break through in the long term. Still, the civil society must be cautious to select the fencebreakers for some of the fence-breaking activities are overshadowed by corruption. Some so-called 'policy innovations' undoubtedly do carry personal gain for officials and their families (Malesky 2004). It will be more appropriate to form partnership with local authorities that have good track record in promoting participation (Binh Dinh, Thai Binh, Binh Phuoc, Ha Nam and Ha Tinh), transparency (Quang Binh, Quang Tri, Thai Binh, Ha Nam and Nam Dinh), or anti-corruption measure in public sector (Tien Giang, Soc Trang, Vinh Long, Quang Tri, Da Nang, Binh Dinh and Long An) as identified from the most recent Vietnam Provincial Governance and Public Administration Performance Index (PAPI) report by CECODES, VFF-CRT and UNDP (2013).

5.6. Projecting the future â&#x20AC;&#x201C; ending the waiting game The civil society organizations, especially NGOs, in Vietnam are still in a long journey to become influential actors in the policy making process. The limited ability of civil society to hold state agencies and private sector accountable, as outlined by CIVICUS (2005), is a challenge that need to be addressed. The civil society must build their influence based on the proven successes in people's empowerment as well as informing and educating citizens about public issues. In the short term, it will be important for the civil society to protect the existing space by continuing the engagement in a complementary relationship with the state. Capacity building should become the priority in their list in order to enable them gradually craving for bigger space in the relationship. Thayer (2008) outlines five possible scenarios of future political change that could influence civil society and state in Vietnam. By overruling the possibility of status quo, authoritarian rule and replacement, Thayer believes that civil society must prepare themselves for transformation scenario.15 In the this scenario, the elite in power initiates change. The evidence suggests that Vietnam's leaders are negotiating among themselves the pace and scope of change. Develop a solid partnership with the right fence-breakers 68

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can enable the civil society to accelerate the transformation process. The civil society must not wait in the side line but proactively push for the change. On the other hand, continuous support from the international community will also be crucial. Countries like Indonesia and the Philippines have rich experience to mainstream transparency as well as leveraging local best practices to national policy making process in the extractive industries. Therefore, horizontal network with civil society in the region will help Vietnam civil society to build their capacity and broaden 16 their knowledge.

ENDNOTE 1

The Construction Sector Transparency Initiative (CoST) was launched in 2008 as a multinational effort to facilitate a more transparent and accountable public construction sector, reducing mismanagement, waste and corruption. Funded by DFID, CoST has so far been piloted in seven countries: Ethiopia, Malawi, Tanzania, Philippines, UK, Viet Nam and Zambia. In Vietnam, the Pilot phase of CoST was completed in late 2010 with positive results in terms of increasing transparency in the construction sector and building capacity for participating stakeholders. On the other hand, PAPI systematically measures and monitors the performance of governance and the public administration system at the provincial level in Vietnam. PAPI assesses three mutually reinforcing processes: policy-making, policy implementation and the monitoring of public service delivery. The dimensions are specifically tailored to Viet Nam's national and local level contexts. By capturing citizens' experiences of public administration and comparing and ranking provinces, provincial governments will have strong incentives to improve their performance. The index will also empower citizens to raise their voices about their preferences, frustrations and recommendations in terms of public services (including both public administrative as well as public services). See Jeremy Weate. 2013. Vietnam EITI Feasibility Study: Final Draft Report. Adam Smith International. 2

The study interviewed representatives of 21 key organizations, including both governmental agencies and extractive companies to support the result from secondary data analysis and expert consultation process. Moreover, the questionnaires were also sent to 16 extractive companies to gather further information and the perspectives of these companies towards the EITI

The same issue was highlighted during the interview with Trinh Le Nguyen, Executive Director of PanNature and Dao Thi Nga, Executive Director of Towards Transparency on August 13, 2013; interview with Nguyen Thi Kim Lien, Governance Adviser of UKAid on August 14, 2013, and group discussion with the Vietnam Mining Coalition on August 15, 2013.

Interview with Towards Transparency. Ibid.

Interview with PanNature. Ibid.

Prior to the build up of the coalition, CODE has worked continuously to promote EITI in Vietnam. As an example, CODE has invited the Vietnam Chamber of Commerce and Industry (VCCI) to join the EITI scoping study in 2011. On April 14, 2011, CODE and VCCI co-organized a launching report. This workshop was open to ministerial level representatives, extractive companies (especially those were interviewed), independent experts, some key CSOs, and the media. CODE and PanNature also held workshop on â&#x20AC;&#x153;Introduction to the Extractive Industry Transparency Initiative - EITIâ&#x20AC;? on 24 July 2012

Group discussion with the Vietnam Mining Coalition. Op.Cit.

Ibid

Interview with PanNature. Op.Cit.

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Proposal Coalition/ Network on Promoting the Transparency for Better Governance & Reducing Negative Social and Environmental Impacts of Mining Industry in Vietnam (CODE, MONRE, VCCI, PANATURE, CDI, CGFED, VFEJ and local authorities). Unpublished. 12

Until 2009, the country has 63 provinces, 625 districts, and 9,121 communes. The power, roles, and responsibilities of state and sub-state governments are set out in the legislation, including Law on Local Governments enacted in 1958, Law on Organization of the People's Council and the Administrative Committees at All Levels of Government in 1994, the Ordinance on Concrete Tasks in 1996, Law on the State Budget in 1998, and the Revised Law on the State Budget in 2003. See Thanh Thuy Vu and Messaoud Zouikri. 2011. Decentralization and Sub-national Governance. Preliminary draft. April. Paris X University. 13

The highly hierarchical structure of the government also creates opportunities for subnational leaders to exercise their de facto autonomy. The four-level vertical organization of the government from the central to three sub-national layers (including the provincial, district, and communal) and the fiscal autonomy of provincial governments allow a great extent of flexibility and asymmetry in implementing and enforcing central laws and regulations. Due to the distance between the central and local governments, there is less likelihood that the central legal documents are implemented as directed and the outcomes of central policies are vastly subjected to the discretion of sub-national governments. See Vou and Zouikri. Ibid. 14

One of the earliest known examples of fence-breaking reforms dates back to 1962. Local officials in Kien Thuy district in Kien An province allowed a contract system for agricultural products to improve food availability. These officials knowingly broke the law to produce better outcomes. When the provincial leadership learned about it, they first forbade it, but then decided to let the 'experiment' continue. As success became evident, the experiment was legalized by decree. Policy followed success, and doctrine took second stage to the market. See Thomas Jandl. 2012. Economic Decentralization and Central Political Control in Vietnam. Working paper series No. 117, January. City University of Hong kong. Hong Kong. 15 Five patterns of political change may provide useful frameworks for considering what may lie ahead: (i) status quo: Elements of the ruling elite fight to remain in power through repressive measures and foot dragging. Maintaining the status quo appears untenable in light of socio-economic change now underway; (ii) authoritarian rule: Economic downturn coupled with political instability could lead to a reversion of authoritarian rule. But past patterns of political and social change strongly suggest that this will be impossible. and could well result in a split within the Vietnam Communist Party; (iii) replacement: Opposition groups take the lead. This pattern appears least likely because the opposition at present is miniscule and does not have widespread public support. The opposition is also vulnerable to state repression; (iv) transformation: The elite in power initiates change. The evidence suggests that Vietnam's leaders are negotiating among themselves the pace and scope of change as Vietnam is clearly liberalizing but not democratizing; and (v) transplacement: Joint action by elements of the power elite and elements of the opposition. This pattern seems unlikely in the short-term due to the weakness of the opposition but could well be a viable pattern over the long-term. See Carlyle A. Thayer. 2008. “One Party Rule and the Challenge of Civil Society in Vietnam”. Presentation to Remaking the Vietnamese State: Implications for Viet Nam and the Region Viet Nam Workshop, City University of Hong Kong Hong Kong, August 21-22 16

Interview with PanNature and discussion with Vietnam Minng Coalition. Op.Cit.

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REFERENCEs CECODES, VFF-CRT & UNDP (2013). “The Viet Nam Governance and Public Administration Performance Index (PAPI) 2012: Measuring Citizens' Experiences”. A Joint Policy Research Paper by Centre for Community Support and Development Studies (CECODES), Centre for Research and Training of the Viet Nam Fatherland Front (VFF-CRT), and United Nations Development Programme (UNDP). Hanoi: UNDP. 70

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CIVICUS (2005) The Emerging Civil Society: An Initial Assessment of Civil Society in Vietnam. Hanoi: VIDS, UNDP Vietnam, SNV Vietnam, CIVICUS. CODE (2011) Role of NGOs in Policy Advocacy: Case study of the CODE and the Extractive Industry in Vietnam. Hanoi: CODE. David-Barrett, Liz, and Okamura, Ken (2012) Transparency as a Tool for ReputationBuilding? Evidence from the Extractive Industries Transparency Initiative. Centre for Corporate Reputation. Oxford: Said Business School, University of Oxford. Fritzen, Scott (2005) “The 'misery' of implementation: Governance, institutions and anti-corruption in Vietnam”, in Tarling, N. (ed) Corruption and good governance in Asia, New York: Routledge. Jandl., Thomas J (2012) “Economic Decentralization and Central Political Control in Vietnam”. Working paper series No. 117, January. Hong Kong: City University of Hong Kong. Kerkvliet, Ben et al (2008) Forms of Engegament between State & Civil society organizations in Vietnam: Study Report. Hanoi: NGO-RC. Landau, Ingrid (2008) “Law and Civil Society in Cambodia and Vietnam: A Gramscian Perspective”. Journal of Contemporary Asia, Vol. 38, No. 2, May , pp. 244-258. Malesky, Edmund (2004) “Leveled Mountains and Broken Fences: Measuring and Analysising De facto Decentralization in Vietnam”. EJEAS, Vol 3, No. 2. Leiden: Brill. Nguyet Hong, Vu Xuan et al (2009) Sustainable Development Impacts of Investment Incentives: A Case Study of the Mining Industry in Vietnam. Winnipeg, Manitoba: IISD. Nørlund, Irene (2007) “Civil Society in Vietnam. Social Organisations and Approaches to New Concepts”. ASIEN 105. October. p. 68-90 PanNature and CODE (2012) Vietnam national sub-project: “Promoting Transparency and Accountability for advancing EITI and Bettering Governance in Vietnam's Mineral Sector”. Proposal submitted to Revenue Watch Institute. Unpublished. Revenue Watch Institute (2013) The 2013 Resource Governance Index. New York: Revenue Watch Institute The Open Budget Initiative (2012) Open Budget Survey 2012: Vietnam. Thayer., Carlyle A (2008) “One Party Rule and the Challenge of Civil Society in Vietnam”. Presentation to Remaking the Vietnamese State: Implications for Viet Nam and the Region Viet Nam Workshop, City University of Hong Kong Hong Kong, August 2122 Towards Transparency (2013) The 2013 Global Corruption Barometer: Views and Experiences from Vietnamese Citizens. Hanoi: Towards Transparency and Transparency International. Tu Anh, Vuä Thaânh et al (2007) “Provincial Extralegal Investment Incentives in the Context of Decentralisation in Viet Nam: Mutually Beneficial or a Race to the Bottom?” UNDP Policy Dialogue Paper. November. UNDP.

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The US Geological Survey (2012) Mining 2012: Vietnam. Vietnam Chamber of Commerce and Industry and CODE (2011) The Extractive Industries Transparency Initiative and the Implementation Perspective of Vietnam. Hanoi: VCCI and CODE. VGA, VUSTA, CODE 2010. The Report of Research and Evaluation: "The situation on the management of the mineral resource exploitation and use in Vietnam". Hanoi: CODE. Vu, Thanh Thuy and Zouikri, Messaoud (2011) Decentralization and Sub-national Governance. Preliminary draft. April. Paris X University. Weate, Jeremy (2013) Vietnam EITI Feasibility Study: Final Draft Report. Adam Smith International.

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vi. RESISTING THE HONEY POT TEMPTATION: LESSON-LEARNED FROM THE MANAGEMENT of PETROLEUM FUND IN TIMOR LESTE * Darmawan Triwibowo and Nelson A. Seixas Miranda

6.1. Background – on behalf of the future generation Timor Timor Leste, in some way, can be considered as the vanguard of extractive industry transparency in the South-east Asia region. Moving ahead of its neighboring countries with richer resources, such as Indonesia and Malaysia, Timor-Leste completed a seven-year process of becoming the third EITI compliant country on July 1, 2010 as it submitted the first EITI report in 2009 (Pires 2011; Secretariat of State for Natural Resources- DRTL 2009). Adherence to EITI is aligned with the country's pursuit, from the outset, of transparency in the petroleum and mining sectors. The other transparency initiative preceding EITI is the establishment of the Petroleum Fund. Different to initiatives in other countries, the Timor Leste government launched a public consultation on the Petroleum Fund which ran for six months in the whole country to seek feedback on a Petroleum Fund Discussion Paper and the Petroleum Fund Draft Act and led to unanimous parliament approval in June 2005 (McKechnie 2013; Drysdale 2010; IMF 2009). The Petroleum Fund is the center piece of Timor Leste's resource management framework that aims to prudently manage petroleum resources "for the benefit of both current and future generations,...in a fair and equitable manner, and gives prominence to transparency in its management" (DRTL in McKechnie 2013). As explained by Stevens and Cassinadri (2008), the Fund was created to balance the drive to spur economic development with the need to ensure intergenerational equity.1 In comparison with other Sovereign Wealth Fund (SWF) scheme, the Petroleum Fund ranked well in the aspect of structure and accountability and transparency, and gained a respected over-all score of 80 in the Truman 2008 SWF scoreboard (Tsani et al 2011). It ranked better than the State Oil Fund of the Republic of Azerbaijan, the Alberta Heritage Savings Trust Fund in Canada, São Tomé and Príncipe's National Oil Account, Mexico's Oil Income Stabilization Fund, and Iran's Oil Stabilization Fund. However, the Petroleum Fund got score of 6 in the Linaburg-Maduell SWF Transparency Index below the threshold score of 8 for an adequate transparency in 2009. The mixed review on the Petroleum Fund highlights the current challenge in Timor Leste. The Truman scoreboard, for example, indicates problem in governance as it gave low score in this aspect. The latest amendment of Petroleum Fund in 2011 showed that CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

the problem is real. Various CSOs criticize the amendment since it increasing investment risks through the increased flexibility in choice of instruments and using the Fund resources as collateral for government borrowing (McKechnie 2013). The continuous trend of the government's withdrawal increased from the Fund, which exceeds the Estimated Sustainable Income (ESI) level, has become the source of concern for CSOs 2 and international donors alike (World Bank, IMF in McKechnie 2013; Scheiner 2013). In short, as the Fund grows in size, it becomes the “honey pot of temptation” (Anderson 2010). With poverty and rapidly rising population, there is popular pressure to see the instant benefits from the oil revenue and to 'discount the future value' of the Fund (McKechnie 2013; Anderson 2010; Lundahl and Sjoholm 2008).

6.2. Resource for the future - understanding the natural resource fund Revenues from oil and gas, or other exhaustible natural resource have specific characteristics that pose special problems for decision makers (Bacon and Tordo 2006). The revenues may be very large in relation to the rest of the economy, but will not be permanent as the resource is non-renewable. The size of the revenues may be so large in relation to the economy itself that it would be difficult to identify productive uses for all of it. Furthermore, the volatility of resource prices and the variability of volumes make the government's revenues fluctuate from year to year. These features can result in a desire not to spend immediately all of the resource revenues arising during the period, which in turn raises problems of where to place these revenues, how to obtain the best financial returns from these unspent revenues, and how to do so in a transparent manner. According to Bacon and Tordo (2006), many economists believe that there are four general options to deal with the problem. Those options include : ?

a net payment into the general treasury account, which is treated as an increase in financial reserves of the government held at the central bank and is not shown separately;

reduction in government debt as more debt is retired than issued;

net payment into a special line item in the treasury accounts, identified as “the oil fund” but held and managed with all other government assets as a kind of virtual fund; and

a net payment into separately held fund(s) accounted and managed separately from the government's general financial assets.

Various resource-rich countries choose to take the fourth options as their strategy by establishing a natural resource fund. The natural resource fund is an institution and a mechanism that distinguishes natural resource revenue from other revenue (Mehrara et al 2012) and separately manages from the general treasury account. The Kuwait Investment Authority in Kuwait, the Macroeconomic Stabilization Fund in Venezuela, the in National Oil Account in São Tomé and Príncipe, as well as the Oil Stabilization Fund in 74

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Iran, are examples of such institutions (Tsani et al 2011; Balin 2008). In general the fund was established to serve several purposes, such as an intergenerational transfer mechanisms, where future government pensions, asset liquidity, and fiscal revenues are guaranteed by today's export earnings, or tool to diversify the country's income so that it can respond to shocks to the country's comparative advantages (Balin 2008). The fund can also act as instrument to increase the return on assets held in their central bank reserves. Therefore, for many resource-rich and resource-dependence countries, the fund play significant role as fiscal stabilization and fiscal savings strategy (Ahmadov et al 2011). In the global context, the natural resource fund is a major component of the sovereign wealth funds (SWF). The U.S. Treasury defines SWF as “government vehicles funded by foreign exchange earnings but managed separately from foreign reserves” (Lowery in Balin 2008). The funds, according to Balin, are funded through three strategies. The natural resource rich-exporting countries typically fund their SWF through revenues on commodities owned or taxed by the government. It can also be financed through the transfer of assets from foreign exchange reserves. Non-natural resource exporting counties such as Singapore, China, and South Korea are the primary users of this second route. Lastly, all sovereign wealth funds are at least partly financed by the disbursement of sovereign debt on international markets. Typically, SWF establishment follows commodity price or large export booms (Ahmadov et al 2011; Balin 2008). The first wave of SWF was created after the oil booms in the Persian Gulf and Arab countries during 1950-1970s periods The portion of natural resources funded SWF is still dominant. At the end of 2008 SWF based on oil and gas revenues accounted for 2/3 of total SWFs; although, the proportion of non-raw material/natural resources SWF is on the rise (Ahmadov et al 2011). The SWF itself is a growing phenomenon in the financial market. The sovereign wealth funds have nearly doubled in size since 2000 from US$1.5 to US$3 trillion, and at their current rates of growth, look to surpass total foreign exchange reserve holdings in total size by 2011 (Davies in Balin 2008). Forecasts suggest that this number could approach US$10 trillion by 2015 while further estimations suggest that, despite the economic and financial crisis, SWF assets under management increased by 18 percent in 2008 as more SWF was created since 2005 (Ahmadov et al 2011).

6.3. Oil in Timor Leste – the reserves and governance challenges Though small from a global perspective, Timor Leste's petroleum resources are massive compared to its small and underdeveloped economy (International Monetary Fund 2009). Government revenue from oil and gas amounted to about three quarters of the country's total income in 2007, contributed to 73 percent of GDP in 2010, and currently provide 97 percent of Timor-Leste's state revenues and 81 percent of GDP (RDTL in Scheiner 2013; McKechnie 2013; International Monetary Fund 2009). It places

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Timor-Leste among the most petroleum dependent countries in the world because its non-petroleum economy is tiny compared with its transient oil and gas reserves (International Monetary Fund 2009). The data shows that although 19 percent of TimorLeste's economy is 'non-petroleum,' about half of this is re-circulated oil and gas money disbursed by the State. Timor-Leste's petroleum fields have been discussed in terms of three 'petroleum provinces' (onshore seeps, sovereign offshore, and Joint Petroleum Development Area/JPDA) that differ in terms of their size, development status, and the nature of their institutional and administrative arrangements (GusmĂŁo Soares in Drysdale 2010). However, all of Timor-Leste's oil and gas production presently takes place in the JPDA which is shared with Australia. Revenue from the JDPA is shared with a 90:10 split between Timor-Leste and Australia according to the Timor-Sea Treaty, ratified in April 2003 (International Monetary Fund 2009). In the JPDA Area, the production from Elang/Kakatua/Kakatua North began in 3 1998, and those fields are now almost exhausted (Drysdale 2010). Most current oil extraction is concentrated to the Bayu Undan field, where production started in April 2004 (Lundahl and Sjoholm 2008). The gas reserves at Bayu Undan are estimated to be about 400 million barrels of liquids and 3.4 trillion cubic feet of gas. These reserves are expected to last for about twenty years and they have an estimated value of US$ 6-7 billion. Kitan is another field in JPDA that started production in 2010-2011 with 30â&#x20AC;&#x201C;40 million barrels of extractable oil (International Monetary Fund 2009). However, it will end production in 2016 while the Phoenix field next to Bayu-Undan has not yet been developed although is estimated to contain about 2.3 trillion cubic feet of gas (Scheiner 2013).

Figure 6.1. Oil and gas reserves in Timor Leste Source: Drysdale (2010)

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The Sunrise field was discovered already in 1974 and is expected to be even larger than the Bayu Undan field as estimates suggest that it contains about 8.3 trillion cubic feet of gas (three times that of Bayu Undan) and another 200 million barrels of gas (International Monetary Fund 2009; Lundahl and Sjoholm 2008). The problem with the Sunrise field is that it is located both in the JPDA and in the disputed sea area. Greater Sunrise has also received the most attention because of the lengthy negotiations between Timor-Leste and Australia relating to administration of revenue from the field, and the establishment of a permanent maritime boundary. Previously, under the agreement in 2003, Australia is to receive 82 percent of the revenues from the Sunrise field and Timor Leste 18 percent (Lundahl and Sjoholm 2008). However, according to a separate treaty in 2007, it was agreed that the revenue from Greater Sunrise will be split 50:50 between Timor-Leste and Australia where the maritime negotiations are deferred for 50 years (International Monetary Fund 2009). In the context of extractive industry governance, Timor Leste leads other countries in the South-east Asia region. Timor-Leste got higher rank than Indonesia, Malaysia, and Papua New Guinea in the 2010 Revenue Watch Index, which measures government disclosure practices in the extractive sector (Revenue Watch Institute 2010). The Timor Leste government provides substantial amounts of information about natural resource revenues in the form of disaggregated data and have became the EITI compliant country. The Central Bank publishes disaggregated reports on oil and gas revenues every three months, showing the types of payments made to the Petroleum Fund. In addition, the Secretariat of State for Natural Resources reports revenues by type of payment, as well as on a company-by-company basis, in its EITI reports. This overall transparency performance is maintained during the last round of Revenue Watch Institute's measurement through the Resource Governance Index in 2013 as Timor Leste get the highest score among Southeast Asian countries. The country earns “satisfactory” score in the aspects of institutional and legal setting, reporting practice and safeguards and quality control. The scores show that the government has developed a comprehensive legal framework and independent licensing process for extractive industry, as well as released substantial data on many aspects of the industry and implemented extensive audit requirements. Nevertheless, the “satisfactory” score in these 3 aspects is overshadowed by “failing” score in the enabling environment. The index gives Timor Leste consistently low score across various democracy and good governance indicators, such as corruption, budget openness, government effectiveness, and rule of law. The corruption, as an example, remains high in the country and despite the government effort to th establish the Anti Corruption Commission (KAK), Timor Leste still ranked 143 in the 2011 Transparency International's Corruption Perception Index (Transparency International 2011). In the context of state budget openness, Timor Leste's score is 36 out of 100, which is below the average score of 43 for all the 100 countries surveyed (Open Budget Initiative 2012). It is also lower than the scores of its neighbors in the region: Indonesia, Malaysia, and the Philippines, although the score is above Cambodia,

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Myanmar, and Vietnam. Although the government has established a transparency portal in 2011, which provides budget information electronically, the survey indicates that the public still face difficulties to obtain adequate information on the national government's budget and financial activities during the course of the budget year. Furthermore, there is no specific law that protects the citizens' rights to information in Timor Leste. The Constitution prohibits censorship of any kind and ensures the right to freedom of speech and the right to inform and be informed impartially for all citizens. However, the government has yet to pass legislation providing access to public information. The Constitution also explicitly protects media and press freedom, including freedom of opinion and access to information. While the press is generally unencumbered by government regulation in Timor Leste, poor access to information and weak media capacity has hindered wide coverage or dissemination of government information. Failing to enable the environment, as highlighted by various international indexes, could hamper the effectiveness of transparency in the extractive industry in Timor Leste. High level of corruption in combination with unaccountable spending in the state budget may lead to the misuse of oil revenue for short-term political and personal interest (Lundahl and Sjoholm 2008). Weak rule of law, as another example, could make good regulation ineffective and leave the violators unpunished.

6.4. Putting the Petroleum Fund into the spotlight – will the honey pot last? The way Petroleum Fund is being managed can serve as benchmark for the governance of oil and gas resources Timor Leste. The Fund was set up with the Norwegian oil fund as a model, and integrated with a few local adaptations, such as a regulatory framework explicitly addressing transparency and accountability issues, which the Norwegian oil fund does not (Stevens and Cassinadri 2008). Therefore, it is sometimes referred to as the “Norway Plus Model”. The basic idea behind the fund is to guarantee that the expected oil revenues over the next 20-30 years are spent wisely, in the interest of the economic development of the country. To ensure intergenerational equity, the fund builds on the perpetual income concept, i.e. in the longer run the real value of petroleum wealth should be kept constant over time. As described by Lundahl and Sjoholm (2008), it means “only the interest component on the sum of current assets and expected future revenues is spent every year”. The Fund is governed by The Petroleum Fund law, which was approved by Parliament on 27 June 2005 after 6 months public consultation. The Law, together the Petroleum Act and the Petroleum Tax Law, constitute the regulatory framework for extractive industry governance in the country (Anderson 2010; Stevens and Cassinadri 2008). The Fund is essentially a government account with the Central Bank to which the country's petroleum receipts are credited and from which debits can be made to finance

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the state budget. As described by the International Monetary Fund (2009), it operates according to the following key principles: ?

Management. The fund is to be managed prudently in accordance with the principle of good governance for the benefit of current and future generations. The government is responsible for the overall management and the Central Bank is responsible for the operational management.

Income. All Timor Leste's revenue from petroleum operations is paid into the fund and the fund also retains all investment income (net of management expenses).

Investment. All assets are invested abroad in established financial markets, with at least 90 percent in U.S. dollar-denominated fixed income instruments. Initially, according to the management agreement between the Ministry of Finance and the Central Bank, the Fund was restricted to holding U.S. government securities in order to track the benchmark Merrill Lynch 0â&#x20AC;&#x201C;5 year bond index.

Withdrawals. Transfers from the fund can only be made to the single state budget account. The amount transferred in any fiscal year can only take place after the publication of the budget law and cannot exceed the appropriation specified therein. Transfers are also contingent on the government providing parliament with a report specifying the estimated sustainable income (ESI) and a certification of that amount by an independent auditor.

Savings policy. To preserve the real value of the country's petroleum wealth, withdrawals from the fund are guided by the concept of sustainable income. For each year, ESI is calculated as 3 percent of the sum of the fund balance and the present value of expected future petroleum receipts. Withdrawing more than ESI requires the government to provide parliament with a detailed explanation of why it is in the long-term interests of the country, and also a report certified by the independent auditor estimating the impact on future ESI.

Reporting. The Central Bank publishes quarterly reports on the performance and activities of the fund. The government submits an annual report with an audited financial statement. Details on revenue and composition of the investment portfolio are fully disclosed.

Oversight. An Investment Advisory Board advises the Minister of Finance on the overall investment strategy and management of the fund. An independent Consultative Council advises parliament on the performance and operation of the fund and also on budget appropriations and whether these are being used effectively to the benefit of current and future generations.

Transparency. Fund management is to be carried out with the highest standard of transparency. Quarterly and annual reports are made public, as is the advice of the Consultative Council (within 30 days of having been provided to parliament). Minutes of Investment Advisory Board meetings have routinely been posted on the Central Bank's website..

Through this arrangement, Timor Leste opted for a savings policy based on the principle of maintaining the total value of its oil and gas resources (International CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

Monetary Fund 2009). To that end, withdrawals from the fund should be guided by the real rate of return on the total petroleum wealth or the so-called estimated sustainable income (ESI). The approach had the benefit of being intuitively simple, appealing from the point of view of intergenerational equity, and offering a reasonably stable source of income to the budget. Anderson (2010) explains further the calculation of the ESI from The Act (per Article 2.1.c) as follows: â&#x20AC;&#x153;This begins by calculating the combined (a) present and (b) estimated future value of the Petroleum Fund. In 2010, as an example, this was based on production from Bayu Undan, the only currently active oil and gas field. This value is then discounted by an amount ('i') which is set as 'the estimated nominal yield on a US Government security'. This is not the quite the same as a discount for general price inflation, as it is focussed only on the value of US bonds. From this combined value an assumed 'average real rate of return' ('r') of 3% is imputedâ&#x20AC;?.

Therefore, ESI is a benchmark to guide the level of saving rather than a figure estimated as actually 'sustainable' or a legal obligation (Anderson 2010; International Monetary Fund 2009). Transferring more is admissible, but requires that the Government provides Parliament with a detailed explanation of why this is in the longterm interest of the country and also documents the resulting future reduction in ESI. The Central Bank manages revenues with the help of external Investment Managers who invest these resources abroad. Originally, 90 percent of the Fund resources were to be invested in investment-grade US dollar debt instruments (e.g. bonds) rated at least AA- by Standard & Poor's or Aa3 by Moody's, with the remaining 10 percent in instruments that the law requires to be issued abroad, liquid, transparent and traded in markets of the highest regulatory standard (DRTL in McKechnie 2013). This 10 percent was designed to build expertise in managing more risky assets and to access higher-return investments (Drysdale 2010). The Petroleum Fund Law notes that the range of qualifying instruments should be reviewed after the first five years, having regard to the size of the fund and the level of institutional capacity (International Monetary Fund 2009). In early 2007 the Investment Advisory Board recommended entering into contract negotiations with non-commercial external managers as a first step toward broadening the investment universe. Moreover, in the 2008 budget, the government announced its intention to explore possibilities for diversification and to start the process of revising the list of qualifying instruments in the Petroleum Fund Law.This was followed by the Central Bank's appointment, in June 2008, of J.P. Morgan as the fund's new custodian, replacing the Federal Reserve Bank of New York and enabling transactions in other instruments besides U.S. government securities (International Monetary Fund 2009). In June 2009, the Bank of International Settlements became the fund's first external manager, with a mandate to manage a US$1 billion portfolio of sovereign and supranational bonds, including some denominated in foreign currencies. According to DRTL in McKechnie 2013, the qualifying financial instruments were changed 80

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â&#x20AC;&#x153;to allocate 74-78 percent of the fund's assets to US Government fixed-interest instruments managed by the Central Bank; 19-21 percent managed by the Bank of International Settlements in low-risk debt instruments, with 80 percent in US dollars and 20 percent denominated in the currencies of Australia, Euro zone, Japan or UK; and the remaining 3-5 percent of the Fund in equities traded on developed markets and managed by an investment bank operating in 'an enhanced passive investment styleâ&#x20AC;?.

The Petroleum Fund adopts global transparency standard in SWF as outlined by the International Working Group on Sovereign Wealth Funds (IWG) in Generally Accepted Principles and Practices (GAPP) for sovereign wealth funds, otherwise known as the Santiago Principles, to which Timor Leste subscribes (McKechnie 2013). The Fund also performs relatively well among existing SWF in global market. As an example, from inception to December 2008, the Fund earned an average annual rate of return of 5.6 percent (International Monetary Fund 2009). In 2012, the net return on investments was 3.9 percent, and the rate of return during the life of the Fund was 4.05 percent (McKechnie 2013). The assets of the Fund amounted to US$ 11.8 billion, by December 2012, equivalent to some US$ 10,700 for every person in Timor-Leste, or around 11 years of non-oil average income. Overall, the total assets of the Fund have increased every year since it was established in 2005. Figure 6.2 shows the increasing amount of the Fund balance that reached US$11,775 million at the end of 2012 (Ministry of Finance-RDTL 2013). The latest data shows that the balance has reached US$14,558 million on September 2013.

14,000 11,775

US$ Million

12,000 10,000

9,310

8,000

6,904

6,000

5,377 4,179

4,000 2,086

2,000 370

1,012

0 2005

2006

2007

2008

2009

2010

2011

2012

Figure 6.2. The Petroleum Fund Balance Source: Ministry of Finance DRTL (2013)

However, there is a lingering question of sustainability regarding the increasing risk pose by its current investment and pace of withdrawal (McKechnie 2013; Scheiner 2013; Anderson 2010; International Monetary Fund 2009). The amendment of Petroleum Fund Law on September 2011 has opened the door for further change in the investment policies. The new policies were designed to seek higher financial returns

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through allowing greater flexibility in a more diverse portfolio, but with limits to risk exposure. In response to low investment return in 2009-2010 periods, the amended law allows up to 50 percent of the Fund to be invested in listed shares traded in regulated 4 foreign financial markets (McKechnie 2013; Anderson 2010). Up to 5 percent of the Fund would be able to be invested in other investments, including financial derivatives, with the approval of the asset class by the Finance Minister and provision of information to Parliament. Moreover, it permits up to 10 percent of Petroleum Fund assets to be used as collateral for public borrowing within the Government's debt management system, with proper accounting for resulting contingent liabilities in the Fund's financial statements (McKechnie 2013). Many CSOs and others criticized the amendments because they increase the investment risks through the increased flexibility in choice of instruments and using the Fund resources as collateral for government borrowing. La'o Hamutuk, as an example, have sent formal submission that warned government against the increase of Fund's investment in the stock market. La'o also raised concern on the encumbrance of up to 10 percent of the fund as collateral for borrowing as â&#x20AC;&#x153;an unnecessary risk which undercuts the principle of intergenerational equity which is fundamental to the Petroleum Fundâ&#x20AC;?.5 The critics have some ground as SWFs, like other financial institutions, have not been immune to the effects of the global financial crisis and to the sharp downturn in asset prices since early 2008 (Ahmadov et al 2011). A more diversified portfolio can improve the trade-off up to a point by spreading risks and exploiting the low or negative correlation between stocks and bonds. For example, based on historical performance, placing 10 percent of the current portfolio in a broad basket of equities could be expected to slightly increase the return while roughly maintaining the overall level of volatility (International Monetary Fund 2009). However, increasing the expected return eventually means accepting more outcomes that are volatile. In this context, the large size of the fund merits special attention, as a 15 percent loss (less than what happened for major stock indices in 2008) would be equivalent in value to Timor Leste's non-oil GDP. Furthermore, the increasing volume of investment could make the Fund becomes more vulnerable to financial fraud in the market without more rigorous oversight and stronger institutional capacity in managing the investment (McKechnie 2013). This threat is not new for Timor Leste. In September 2009, the Minister of Finance received a proposal from "Asian Champ Investment Ltd," (ACI) which attempted to steal US$ 1.2 billion dollars from the Petroleum Fund. Fortunately, the Investment Advisory Board 6 recommended against the proposal. Stronger criticisms were aimed to the pace of government's withdrawal on the Fund. The ESI is a safeguard to keep the saving sustainable. Unfortunately, the ESI is nonbinding. During the 2008-2012 period, the level of withdrawal had exceeded the ESI (Scheiner 2013). Figure 6.3. shows the actual and estimated excess withdrawal above ESI from the Fund. The excess transfer is possible as long as the government and the parliament can reach agreement, and the record shows that the Parliament always 82

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approves because the majority of members in the Parliament are the coalition party 7 members that form the ruling government. Furthermore, it is politically tempting for both a government and legislature to approve transfers above the absorptive capacity of the country, since munificence and expenditure may generate public support that could bring short-term political gain (McKechnie 2013). The experience in other countries, such as Oman and Venezuela, shows that the government tend to increase the withdrawal with negative consequence to the economy (International Monetary Fund in Lundahl and Sjoholm 2008).

1,600 1,400

US$ Millions

1,200 1,000 800

Excess Withdrawal ESI

600 2008-11 Actuals 2012-16 Budget Ests

400 200 0 2008

2009

2010

2011

2012

2013

2014

2015

2016

Fiscal Year

Figure 6.3. Actual and estimated excess of withdrawal from the Petroleum Fund Source: DRTL in McKechnie (2013)

On the similar tone with the CSOs, the World Bank and International Monetary Fund have cautioned against transferring money to the budget above ESI limits (McKechnie 2013). They argued that the government is unable to spend the revenue already available under the ESI formula due to limited absorptive capacity, and the unspent money may lead to inflation, waste, as well as open the opportunity of corruption while jeopardizing the future balance of the Fund. However, there are arguments that the excess of withdrawal is unavoidable due to its own design. The Fund was designed using the Norwegian petroleum sovereign wealth fund as a model. Despite the general validity of this model, economist Paul Collier and others have criticized the Norwegian rate of withdrawal as inappropriate for a lowincome country (Collier in McKechnie 2013). While withdrawals around 3 percent of petroleum wealth may be appropriate for a mature economy such as Norway, where marginal public-sector projects may have risk-adjusted rates of return around this rate,

CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

it is most likely too low for a low-income count. The appropriate ideal level of ESI, based on this argument, should probably be higher than 3 percent and is likely to fall over time, as the Timorese become richer, and returns on the marginal public investment project 8 decrease, as the current backlog of high-return projects is reduced (McKechnie 2013).

Box 6.1. Civil society and the Petroleum Fund The civil society organizations have played an active role in monitoring the governance of the Petroleum Fund in Timor Leste. La'o Hamutuk and Luta Hamutuk, as examples, closely watch the periodic report from the Central Bank as well as the withdrawal from the Fund for the annual state budget. They also sent submission to the parliament against the amendment of the Petroleum Fund Law in 2011. Luta Hamutuk undertakes a variety of initiatives that monitor the oil and gas sectors in Timor-Leste, including the creation of multi-stakeholder committees to monitor infrastructure projects and support for better monitoring of budget planning and processes. The group also conducted research on contracts, processes and the physical conditions at industry sites. At the district level, Luta Hamutuk has worked with officials to build government understanding of how best to engage citizens in decision-making. Luta and La'o Hamutuk are members of the Core Group on Transparency (CGT). The CGT is a network among 17 NGOs in Dili that aims to promote better transparency and accountability in the government budget and development policies. They were established in 2005 and closely monitor the use of Timor Leste Petroleum Fund and the implementation of rural infrastructure development project at district level. Source: Discussion with Luta Hamutuk and the Core Group on Transparency on August 2013

There are also political factors that explain the excess of withdrawal. According to Lundahl and Sjoholm (2008), the risk of such behavior increases with the rising political turbulence and the increased polarization between the government and the opposition. Humphreys and Sandbu (2007) develop model to explain the influence of political dynamics on the government's spending behaviour towards natural resources fund. The model finds that the less stable the government—in the sense that there is a higher likelihood of an imminent change in government—the stronger the incentive for spending a lot today. On the other hand, the deeper is the division among the groups—the more pronounced is the tendency of politicians to favor only their own group at the expense of others—the greater will be the incentive to spend too much while one is in power. The model also shows that these last two effects—the instability effect and the conflict effect—reinforce each other. Instability has a more adverse effect in more divided societies. Disagreement and instability, then, cause overspending and inefficient fiscal policy. Therefore, an inefficient overspending occurs because of incentives created by diverging interests and competition for power to advance those interests. The problem is likely to be worse if a sitting government faces fewer and lesser constraints on what it can do. The inefficiency can be overcome if policy makers can commit not to take full advantage of their power when they are in the government. Humphreys and Sandbu (2007) concludes that the incentives for excess in spending are greatest in societies in which there are deep social divisions and in which political instability is high. They will be exacerbated in contexts in which current spending increases the chances of retaining power; a feature that is likely to prevail when:

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? ? ? ?

a large part of the population lives in poverty and has very high discount rates; due to horizontal or vertical income in equality, small but politically pivotal groups can affect policy choices disproportionately; governments have greater freedom to use expenditure decisions to fund patronage networks that increase their support base; or finally due to low education levels or a lack of transparency about the implications of government choices, the population is less able to exert control over policy makers.

All of those features resemble the condition in Timor Leste during the excess withdrawal 9 from the Petroleum Fund in 2008-2012 period.

6.5. The road ahead â&#x20AC;&#x201C; some possible improvement The Petroleum Fund has played a considerable role in Timor Leste development. According to the International Monetary Fund (2009), aside from being a source of financial stability, the Fund has also helped cementing the public's trust in how the allimportant petroleum resources are being administered. The open consultative process in developing the Fund is a good example for other country that considers the 10 establishment of natural resource fund. Furthermore, the fact that all petroleum receipts have been properly accounted for and managed within a coherent framework is more than many other countries have accomplished. However, recent controversy regarding the current investment and pace of withdrawal has suggested that the Fund face the challenge of â&#x20AC;&#x153;honey pot temptationâ&#x20AC;?. The effort to overcome the challenge will require a combination of technical and political solution (McKechnie 2013). On the technical aspect, improving budget execution and strengthening management of public finances must become the higher priority for Timor Leste government. While the government may consider the more appropriate level of ESI, there is urgent need to tie the budget allocation to the ability of ministries to execute their budget efficiently to achieve effective outcomes. It also calls for rigorous evaluation of expenditures and institutional arrangements which ensure that only projects with high expected returns are selected. On the political aspect, it is a key requirement to have a strong parliament (Ahmadov et al 2011). Parliament as the legislative body is able not only to ensure the necessary long-term supervision over the spending of Fund assets but also to restrain the appetite of the government by putting up a legislative screen against the unrestrained spending of the assets. However, in the absence of such parliamentary control, the civil society organizations and mass media must play more active role in promoting transparency and accountability. In Timor Leste, CSOs are integral parts of the Fund's management through involvement in the Independent Consultative Council.11 However, their level of influence is till limited. So, strengthening the role of the council will help civil society to improve their oversight and control.12 On the other hand, the weak control from civil society also highlights the needs to improve the enabling

CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

condition in the country to ensure effective check and balance and the creation of a wellfunction democracy system. Nevertheless, despite all of the required improvements, we must remember that the Fund does not solve all problems. The country's dependency to the Fund could pose danger to the development process. If there were a collapse in the Fund's capacity to maintain such revenues, the current high economic 'growth' rates would revert to negative figures. This would mean recession, cuts to public finance, and serious reduction in government services and programs (Anderson 2010). No matter how long the Fund will last, it is obligatory for the government to start developing the non-oil sector

ENDNOTE 1

According to IMF, the establishment of the Petroleum Fund aims at (i) limiting the risk of Dutch Disease, i.e., the tendency for the real exchange rate to become overly appreciated, thereby causing a contraction of the non-oil tradable sector; (ii) sheltering the budget from unstable commodity prices and associated swings in government spending; and (iii) avoiding that rent seeking leads to economic and social divisions and weakened institutions. See IMF. 2009. Timor Leste's Petroleum Fund: Achievements and Challenges. IMF. Washington DC 2

Even in 2008 the Timor Leste government had tried spend more than 3% of ESI but ruled out the court. In 2009 government in fact overspent the ESI by US$ 104 million and in 2010 through rectified mid-year budget exceeded $309 million. So the attempt to spend more than required by the law already took place even before the law was amended in 2011 3

Australia received 50 percent share from Elang-Kakatua (in the JPDA) prior to May 2002, when their portion was reduced to 10 percent. Before Timor Leste independence, Australia shared the revenues from Elang Kakatua with Indonesia, through a 50:50 arrangement. 4 After the US financial melt-down in 2007-2008, the real returns on US Treasury bonds are low and the net value of the Fund was said to have “declined significantly in 2009”, when the discount was made. In the other hand, there are opportunities in some areas – for example in the new Chinese Yuan bond market, and in Australian bonds – but substantial investment in these fields is limited by The Act. The tie to US dollar denominated bonds (Article 15) restricts bond options. The nominal 'ESI' continues to provide substantial budget revenue but in the current circumstances this is not actually sustainable. With the current discount rate of 2.6%, a nominal return of 5.6% is required for earnings of a 'real' 3%, to meet the 'ESI' benchmark, and so that the Fund is not depleted. See Tim Anderson. 2010. The Petroleum Fund and Development Strategy in Timor Leste - A Report for Timor Leste's Petroleum Fund Consultative Council. Dili 5

RWI Index Questionnaire: Timor-Leste 2012. See http://www.revenuewatch.org/rgi/datatool#/?countries=TLS&state=switch

See http://www.laohamutuk.org/Oil/PetFund/05PFIndex.htm

In June and July 2008, the Government proposed and Parliament approved a mid-year Budget Rectification which increases the 2008 budget by 126 percent, to nearly US$ 788.3 million. Of this, US$ 686.8 million is to come from the Petroleum Fund, a re-estimated sustainable income of US$ 396.1 million (based on higher oil price assumptions), plus another transfer of US$ 290.7 above the sustainable level. Exceeding the ESI was strongly criticized by, among others, civil society, the IMF, the World Bank, Fretilin and the Petroleum Fund Consultative Council. In November 2008, the Timor-Leste Court of Appeals ruled that going above the Estimated Sustainable Income was illegal as it violates the principles and the letter of the Petroleum Fund Act. However, the budget was still passed in the Parliament without taking into consideration the court decision. Ibid.

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The uncertainty surrounds ESI calculation can make excess withdrawal becomes rational choice. The ESI numbers are uncertain because they depend on future international oil prices and the level of petroleum production in Timor-Leste. Long-term oil prices are particularly difficult to forecast and most forecasts in retrospect have turned out to have had large errors. At least as important as the development of new oil fields will be in Timor-Leste. So far, Timor-Leste has taken a conservative approach and not counted new reserves in the ESI until they are well proven. Nevertheless, the pattern of transfers in excess of ESI suggests that decision-makers may be including these new reserves in their calculus de facto, even if informally. See Alistair McKechnie. 2013. Managing natural resource revenues: The Timor-Leste Petroleum Fund. ODI. London 9

The recent political development in Timor Leste shows that the ruling party and the opposition begin to develop more coherent agenda and cooperation as they passed the 2013 revised budget without public scrutiny.

Discussion with Luta Hamutuk, August 29-30, 2013

See http://www.laohamutuk.org/Oil/PetFund/05PFIndex.htm

Discussion with Luta Hamutuk. Op.Cit.

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references Ahmadov, Ingilab et al (2011) “Sovereign Wealth Funds as the emerging players in the global financial arena: characteristics, risks and governance” in RWI, Public Finance Monitoring Center, and Khazar University (eds). Sovereign Wealth Funds: New challenges for the Caspian countries. Baku: Revenue Watch Institute. Anderson, Tim (2010) The Petroleum Fund and Development Strategy in Timor Leste - A Report for Timor Leste's Petroleum Fund Consultative Council. Dili. Bacon, Robert and Tordo, Silvana (2006) Experiences with Oil Funds: Institutional and Financial Aspects. Washington DC: The World Bank. Balin, Bryan J (2008) Sovereign Wealth Funds: A Critical Analysis. Washington DC: The Johns Hopkins University School of Advanced International Studies (SAIS) Central Bank RDTL. (2013) Petroleum Fund of Timor Leste. Quarterly Report, Volume IX, Issue XXVII, 30 September. Dili: Central Bank RDTL Drysdale, Jeniffer (2010) Sustainable Development or Resource Cursed? An Exploration of Timor-Leste's Institutional Choices. Chapter 4 Managing Timor-Leste's petroleum revenue. PhD Thesis Australian National University Digital Collections. Humphreys, Macartan, and Sandbu, Martin E. (2007) “The Political Economy of Natural Resource Funds” in Macartan Humphreys, Jeffrey D. Sachs, and Joseph E. Stiglit. (eds). Escaping the Resource. New York: Columbia University Press. International Monetary Fund (2009) Timor Leste's Petroleum Fund: Achievements and Challenges. Washington DC: International Monetary Fund Lundahl, Mats and Sjoholm, Fredrik. (2008) “The Oil Resources of Timor-Leste: Curse or Blessing?”. Journal Pacific Review - PAC REV , vol. 21, no. 1, pp. 67-86.

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McKechnie, Alistair (2013) Managing natural resource revenues: The Timor-Leste Petroleum Fund. London: ODI. . Mehrara, Mohsen et al (2012) “Oil Fund and the Instability of Macro-Economy in OilRich Countries”. World Applied Sciences Journal 16 (3): 331-336. Ministry of Finance RDTL. (2013) Timor Leste Petroleum Fund: A report on the management of Petroleum Fund for the year 2012. Dili: Ministry of Finance RDTL Open Budget Initiative (2012) Open Budget Survey 2012: Timor Leste. Pires, Emilia (2011) Statement by the Governor of the Bank and the Fund For the Democratic Republic of Timor Leste. Washington DC: International Monetary Fund and the World Bank Group Annual Meeting. Revenue Watch Institute (2013) The 2013 Resource Governance Index. New York: Revenue Watch Institute. Revenue Watch Institute (2010) The 2010 Revenue Watch Index: Transparency – Government and the Oil, Gas, and Mining Industries. New York: Revenue Watch Institute. Scheiner, Charles (2013) How long will the Petroleum Fund carry Timor-Leste? Dili: La'o Hamutuk Secretariat of State for Natural Resources- DRTL. (2009) Timor Leste – EITI : Deloitte Compilation Report. Dili: Secretariat of State for Natural Resources- DRTL. Stevens, Paul and Cassinadri, Elisa (2008) Resource Depletion, Dependence, and Development: Timor Leste. Working paper, November. London: Chatam House. Transparency International (2011) Corruption Perception Index 2011. Transparency International.

Berlin:

Tsani, Stela et al (2011) “Governance, transparency and accountability in Sovereign Wealth Funds: remarks on the assessment, rankings and benchmarks to date “ in Revenue Watch Institute, Public Finance Monitoring Center, and Khazar University (eds). Sovereign Wealth Funds: New challenges for the Caspian countries. Baku: Revenue Watch Institute.

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VII. POST-SCRIPT: LIBERATING THE POLITICAL IN EXTRACTIVE INDUSTRIES GOVERNANCE * Emanuel Bria

7.1. Setting the Context As a closing chapter to this report, I will take a more reflective stance, bringing into light the struggle of citizens in this region represented by five countries â&#x20AC;&#x201C; Indonesia, the Philippines, Timor Leste, Vietnam and Cambodia - through various civic organizations such as Non-Governmental Organizations (NGOs), Indigenous Peoples (IP) groups, faith based organizations and others, to re-claim their rights over their natural resources in 1 this case extractive sector. Using the lens of political economy, I will reflect further on the governance gaps of this sector in these countries as shown in this report such as weak state institutions, the existence of policies incentivizing liberalization of extractive industries, limited democratic space and absence of commitment from political leaders to implement reform 2

Apart from that, various levels of Civil Society Organizations (CSOs) capacity to strategically position themselves in the struggle to reform this sector is also an important part of the story. This highly depends on the historical and political contexts of each country. Indonesian CSOs, for instance, are still struggling to take the advantage of Extractive Industry Transparency Initiative (EITI) through their representation in multistakeholder group (MSG). This report reveals that the EITI MSG arena where negotiation to advance citizens interest take place is still dominated by representatives from oil, gas and mining companies and the government due to their higher level of technical capacity (Soerjoadmojo et al 2014). Unequal expertise creates hegemony of knowledge from the power holders and thus gives birth to the imbalance of power relations between civil society groups and those who are privileged to 'manufacture consent' (Gramsci 1971). This presents a legitimate challenge to Indonesian CSOs to further build up their technical capacity and at the same time building broader constituency to gain legitimacy when sitting at 'negotiation table' in EITI MSG. In the Philippines, CSOs take two-level approach to promote reform - diplomacy through EITI MSG and grassroots movements to exert pressure. This strategy is so far deemed effective and at the same time avoids de-politicization of EITI and other legal reform. In Cambodia, civil society groups are still finding their ways to effectively push for reform particularly in the context of long term authoritarian rule, post-war and post international aid where foreign donors strongly directed the formation of civil society CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

groups in this case NGOs thus create dependency (Hughes 2009). The political crises in 3 Cambodia after the election in July 2013 also further exacerbate the situation. In Vietnam, CSOs are playing complementary role to the state thus critical space is still missing. Working with a handful of 'fence-breakers' or reformers within the state as suggested in this report might be a short term solution but in the long run this does not change the logic of civil society engagement with the state. It will still be ad hoc and piecemeal. In Timor Leste, we are still facing with divided civil society groups as a result of long term conflict and mistrust within the society. There are a number of leading CSOs working on extractive sector governance but bringing them together as an effective 4 coalition is proven to be challenging.

7.2. Extractive Industries and 'Governmentalityâ&#x20AC;&#x2122; Natural resource wealth unlike other resources does not need to be produced. It has been endowed with the nature. Therefore its production process is independent of other economic activities that take place in a country. Extractive sector for instance can be a standalone industry, an enclave without major linkages to other industrial sector (Humphreys et al 2007). This is the fact of many poor and developing countries in the region. The global economy alienates the production process of oil, gas and mineral wealth from the local politics and economy. In general, decisions are made without meaningfully consulting and getting consent from local communities. Poverty is abject in locations where mining production takes place. Minerals, oil and gas are exploited simply to feed the demand of industrialized nations leaving behind poverty, conflicts and corruption at different levels within host communities or states. Licensing, contract and revenues from extractive industries are also often not transparent. Citizens of host countries do not have access to the information. Even there are laws in certain countries in the region such as Vietnam and Cambodia which justify the opacity of this sector (Revenue Watch Institute 2013). This gives rise to what the political scientists called 'rent seeking' behavior where individuals â&#x20AC;&#x201C; mostly those who 5 are closed to power â&#x20AC;&#x201C; take the advantage to capture the benefits of this resource rents. In country like Timor Leste, we can observe the phenomenon of state capture by politicians to advance their own business interests. Although revenues flow in this halfisland nation is transparent, governed by Petroleum Fund law and EITI, corruption of 6 state budget which more than 90 percent comes from petroleum fund is relatively high. The political economy of extractive industries shed us light that knowledge-power 7 is at the center of resource curse. The state and corporations exert certain control over management of resources either through authoritarian rule or discursive power such as neo-liberal policies and laws and other knowledge production tools including media by 8 promoting free market and deregulation. The Philippines mining act 1995, executive order no. 207-A and mineral action plan 2004 are typical examples of how neo-liberal policies were adopted by the government (Triwibowo, 2014). These in fact only benefit

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the global capitalism and at the same time protect the interest of local elites. In Indonesia, oil and gas law no 22, 2001 was considered unconstitutional by the constitutional court in 2012 and some argue that the law was issued partly to accommodate the interests of 9 international oil companies. French philosopher, Michel Foucault, describes the phenomenon above as 'governmentality'. By this term he refers to the way governments or states try to produce the citizens best suited to fulfill those governments' policies (Foucault 1991). The state therefore exercises its power through rules and other institutional arrangements including ideologies - injecting certain ways of thinking toward citizens. Governmentality, as reported in this report, can also be seen in the way the communist party in Vietnam and the Cambodians People's Party (CPP) in Cambodia control civil society space in both countries and even determine how civil society groups should engage with the state.

7.3. Multiplicity of the Self in Governable Spaces Linking governmentality to governable spaces is a particular interesting endeavor (Watts 2010). Foucault sees the state as a 'conduct of conduct', calculated and rational sets of ways of shaping conduct through formal institutions (Foucault 1978). While governable spaces is a particular politics of scale where intersections of the individual as a member of ethnic group, religion, professional affiliation, employees of government, mining companies, NGOs and citizens take place. Standing at the center of a governable space is a central contradiction. For instance, at the level of ethnic community is a tension between civil nationalism and a sort of exclusivist militant particularism (Watts 2010). It is a self-contradiction whether an individual should follow the rules of the states even how draconian it is or defending the rights of his fellow indigenous people following customary claim over a territory. Conflicts of rights between the state and customary law have become a tremendous problem across the region. Civil society groups, particularly indigenous peoples in the Philippines, as shown in this report have taken part in anti-mining movement to protest against the state power over their ancestral domains. Unfortunately this state power is derived from a mining law guided by the neo-liberal sets of thinking. In the case of Vietnam, the governable space is found between central and local governments. A number of local governments have decided to become 'fence breakers', using their fiscal space to generate more economic benefits (Triwibowo, 2014). In Indonesia, through EITI MSG Indonesian CSOs are struggling whether to follow the game of the government and corporations given the unequal expertise or resist and advance the interest of citizens. Indonesia will make a unique case if the technocratic process of governmentality is challenged by broader base support of citizens, capitalizing the knowledge on the subject matter and building constructive engagement with the state for reform. This is possible given the existing vibrant civil society in this country.

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7.4. Liberating the Political The notion of 'the political' in this context refers broadly to the concept of citizenship. As set out in this report, the efforts of citizens in this region to promote better governance of extractive sector is varied from one country to another depending on the democratic space available, state capacity, existence of reformers (game-changers) in the political office as well as capacity of civil society groups to press for reform. This reflects the dialectic between the state and the society. Social contract established through elections does not guarantee the representation of the citizens by the states in front of the pressure of global economy. Representational politics is declining in these countries due to both authoritarian rules and discursive power. The break of this social contract following the argument of Foucault is going deeper in the global governance system, market forces and state institutions which adopt neo-liberal worldview at the expense of the interest of their citizens. Local communities and indigenous people residing in mining areas suffer the most. In some other context in the region such as Vietnam and Cambodia, governmentality is exerted through authoritarian rules. Both authoritarian power and discursive power have decentered the notion of 'the political' in the governance of extractive resources. The concept of citizens as true power holder in democratic state is alienated from the center of power. These have opened up opportunity to rent seeking behavior of individuals or groups closer to power and state capture by the political elites. The struggle of Indonesian CSOs within EITI MSG can also be seen as a stagnation of technocratic approach to bring reform in extractive industries. In order to gain better legitimacy and broader base support, Indonesian CSOs need to re-consider the notion of citizenship - mobilizing citizens and bringing communities closer to the initiative. This will liberate 'the political' and inject a fresh energy in the fight against corruption in extractive industries. The Philippines CSOs experiences show the strategic importance of two level engagements â&#x20AC;&#x201C; influencing policy making and grassroots movement which will avoid the de-politicization of EITI within the hands of governments, corporations and civil society elites. Recent studies by O'Sullivan (2013) and Etter (2014) strongly suggest that transparency initiative such as EITI can only work effectively in the context of functioning civil society where the notion of citizenship becomes the central part of the discourse.

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ENDNOTE 1

Extractive sector here refers broadly to hydrocarbons and minerals

CSOs are defined as organized civil society and can come in many forms, some informal and some as formal entities such as non-governmental organizations (NGOs), CBOs, faith-based organizations (FBOs), among many others. This is when a group of individuals come together for a common purpose, as in to fulfill a particular mandate driven by need. 3

In Cambodia, since July 2013 civil society space has been further shrunk after the election where the opposition party rejected the result of national election and ever since have undertaken protests on the street. They refuse to take part in the parliament / national assembly and do not recognize the ruling party as legitimate government. This present a challenge for civil society groups in Cambodia to work with both government and national assembly otherwise they will be viewed by the opposition party as supporting the government or current national assembly 4

Core Group for Transparency (CGT) in Timor Leste was formed as civil society coalition to advance transparency in extractive industry revenue and state budget. This coalition ever since has struggled with its internal governance and at some point dormant at the moment 5

Resource rents refer to an economic rent that exists between the value of that resource and the costs of extracting it (Humphreys, et al 2007). 6

See Lao Hamutuk analysis accurately.html

http://laohamutuk.blogspot.com/2012/12/perceiving-corruption-

The resource curse can be defined as the perverse effects of a country's natural resource wealth on its economic, social, or political well-being (Ross, 2013). 8

Neo-liberalism is a political philosophy whose advocates support economic liberalization, free trade and deregulation, and enhancing the role of private sector over public sector. 9

DR. Rizal Ramli is the most outspoken person about this. See http://www.youtube.com/ watch?v=OQtewfX2jG4

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REFERENCEs Etter, Luca (2014) Can Transparency Reduce Corruption? Evidence from Firms in Peru and Mali on the Impact of Extractive Industry Transparency Initiative (EITI) on Corruption, Paper prepared for Doing Business Conference at George Town University, Washington DC. Foucault, Michel (1991) â&#x20AC;&#x153;Governmentalityâ&#x20AC;?, trans. Rosi Braidotti and revised by Colin Gordon, in Graham Burchell, Colin Gordon and Peter Miller (Eds) The Foucault Effect: Studies in Governmentality. Chicago: University of Chicago Press. Foucault, Michel (1978) Power. New York: The Press. Gramsci, Antonio (1971) Selections from the Prison Notebooks of Antonio Gramsci. New York: International Publishers. Humphreys, Macartan et al (2007) Escaping the Resource Curse. New York: Columbia University Press.

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Hughes, Caroline (2009) Dependent Communities, Aid and Politics in Cambodia and East Timor. New York: Cornell Southeast Asia Program Publication. O'Sullivan, Diarmid (2013) What's the Point of Transparency? A report supported by grant from Open Society Fellowship. Revenue Watch Institute (2013) Resource Governance Index report, New York : Revenue Watch Institute Triwibowo, Darmawan (2014) “The Safe Passage in an Acrimonious Environment” in Darmawan Triwibowo and Ahmad Hanafi (eds). Civil Society and Transparency in Extractive Industries: Tales from Southeast Asian Countries. Jakarta: Indonesian Parliamentary Center. Triwibowo, Darmawan (2014) “Addressing the Gorilla in The Room” in Darmawan Triwibowo and Ahmad Hanafi (eds). Civil Society and Transparency in Extractive Industries: Tales from Southeast Asian Countries. Jakarta: Indonesian Parliamentary Center. Ross, Michael (2013). The Politics of Resource Curse, in the Handbook of Politics of Development, Carole Lancaster and Nicholas Van de Walle (eds), Oxford : Oxford University Press Soerjoadmojo, Gita W.L. et al (2014) “A Long Walk to Transparency : The Indonesia's CSOs Experience with EITI” in Darmawan Triwibowo and Ahmad Hanafi (eds). Civil Society and Transparency in Extractive Industries: Tales from Southeast Asian Countries. Jakarta: Indonesian Parliamentary Center. Watts, Michael (2010) Resource Curse? Governmentality, Oil and Power in the Niger Delta, Nigeria. Geopolitics. London: Routledge. .

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SHORT BIOGRAPHY of

EDITORS AND AUTHORS

Darmawan Triwibowo

Ahmad Hanafi

Gita W. L. Soerjoatmodjo

Darmawan Triwibowo is Project Manager at the Indonesian Parliamentary Center for IKAT-US project led by Revenue Watch Institute. He has more than ten years experience managing development projects in the area of sustainable development, good governance and poverty reduction with various national and international organizations in Indonesia as well as in Timor Leste. He obtained his master degree in Public Policy and Administration from the University of Missouri in St. Louis in the United States. Darmawan can be reached at dartriw @yahoo.co.uk

Ahmad Hanafi is the Deputy Director for the Indonesian Parliamentary Center. He is also the project officer for IKAT-US project led by Revenue Watch Institute and was tasked to facilitate coordination with national partner. He has intensive experience in building the capacity for parliament members at national and sub-national level on issues related to parliament function, roles and responsibilities. He obtained his bachelor degree from the State Islamic University (UIN) Syarif Hidyatullah, Ciputat. Hanafi can be reached at hanafie.pati @gmail.com

Gita Widya Laksmini Soerjoatmodjo obtained her Master of Arts in Understanding and Securing Human Rights from School of Advanced Studies, Institute of Commonwealth Studies, University of London UK under British Chevening Award scholarship. Before she worked as a journalist in Tempo Weekly News Magazine and received Pantau Journalistic Award in 2002. She was then involved in the advocacy for Indonesia's Freedom of Information Act and the Agency for Reconstruction and Rehabilitation of Aceh and Nias. In Indonesian Parliamentary Center, she worked as project officer and researcher under IKAT-US project led by Reve n u e Wa tc h I n s t i t u te . G i t a c a n b e re a c h e d a t gita.soerjoatmodjo @gmail.com

CIVIL SOCIETY AND TRANSPARENCY IN THE EXTRACTIVE INDUSTRY: TALES FROM SOUTHEAST ASIAN COUNTRIES -------

Emanuel Bria

Nelson A. Seixas Miranda

Emanuel Bria is currently Senior Associate for Asia Pacific at Revenue Watch Institute. He is one of the expert reviewers for Global Integrity Report on Indonesia and Timor Leste and a panel of reviewer for Peace and Progress Journal, published by the United Nations University (UNU), Tokyo, Japan with focus on development governance. Before that he led CAFOD's Southeast Asia governance program based in Cambodia. He was a Fellow with Friedrich Ebert Stiftung (FES), Bonn, Germany, focused on global governance and climate policy. He has been working on social development, human rights and good governance for more than 10 years in Asia and East Africa with specific focus and interest in extractive industries. His formal academic background is in philosophy and social sciences and has published articles on politics and development in Southeast Asia. He can be reached at ebria@revenuewatch.org

Nelson A. Seixas Miranda is currently a researcher and the coordinator for Oil Transparency division in Luta Hamutuk Institute. He supervised the implementation of Community Score Card (CSC) and Citizen Report Cards (CRC) to evaluate social impact of the implementation Extractive Industry Transparency Initiative (EITI) in Timor-Leste after Timor-Leste becomes a compliant country. He is still studying at the National University of Timor-Leste (UNTL). Nelson can be reached at nelson.smiranda@gmail.com

Indonesian Parliamentary Center (IPC) Jl. Tebet utara III D No. 12 A, Tebet Jakarta Selatan - INDONESIA Ph : +62 (21) 8353626 e-mail: admin@ipc.or.id | www.ipc.or.id