Final Report

NEAT Working Group Meeting on the Governance of Extractive
Industries in East Asia
Depok, Indonesia, 19 August 2014
Hosted by NEAT Indonesia

IPreamble

1.

The future of the East Asian Community is shaped by collective action torespond and manage common challenges, including the need forsustainable management of mineral and energy resources. The highgrowth in East Asian countries consumes a lot of mineral and energy.
Since petroleum and mineral resources is non-renewable, the economic
development can only be maintained by putting in a balance between thepressure for natural resources extraction and the need for theirsustainability.

2.

For some countries in East Asia, natural resources have become the main
pillar of economic development. However, economic problems in theextractive industries are also varied, ranging from unequal distribution to
black market. In addition, extractive industries can create severe socialand environmental problems. Therefore, countries with abundant natural
resources are not always benefited from the sectors. All these problems
need to be addressed in national as well as regional level.

3.

East Asian countries can work together to address the extractive industry
problems based on the spirit of equality and mutual benefit as stated in
the Treaty of Amity and Cooperation (TAC, Article 5). The APT
Cooperation Work Plan 2013-2017 has included the enhancing of energy
cooperation (2.7) and mineral cooperation (2.8). In addition, under thecooperation to deepen political and security cooperation, APT leaders
have agreed to promote good governance (1.1.5). The promotion of good1

governance can also be included
industries.
4.

in the cooperation onextractive

In line with this thrust, the NEAT Working Group Meeting on
Governance of Extractive Industries in East Asia was held in the J.W.
Marriot Hotel, Jakarta, 19 August 2014.The objectives of the meeting isto share individual country experiences on the governance of extractive
industries including the problems and success stories, and then to discuss
ideas of regional framework to govern mining sectors in order to promote
regional economic cooperation. A set of recommendation to promote
such cooperation can be found in the final section of this report. The WG
comprised representatives from the APT countries plus the ASEANSecretariat. A list of the representatives is at Annex.

II. Governance of Extractive Industries: Experiences of ASEAN plus ThreeCountries
5.

For APT countries, extractive industry is an important segment of theireconomy. Most APT countries are producers or exporters of oil and gas
and economically important minerals, such as tin, copper, gold, and otherprecious stones and metals. Some others are advanced industrial countries
with limited possessions of energy and mineral resources and thus depend
on imports of such resources to sustain their industries. In this context, allAPT countries share a common interest to embrace good governance ofextractive industries.

6.

Poised to be the center of global growth, the region’s demand for energy
and minerals is increasing rapidly. The process of regional integration(“common market and single production base” as in the ASEAN
Economic Community) and the trend of liberalization (the establishmentof various free trade agreements in the region) have eased the movementof commodities and capital, including in the sectors of extractiveindustries.

7.

Because of the importance of the extractive industries to their economy,
most countries have already established domestic regulations related tothe oil and gas and mining sectors. It is also important to note that thedifferent levels of economic development and economic structures, as
2well as different political systems, have created different systems ofgovernance. For example, some countries put the authority to govern thelicense to local authorities while some others prefer centralizedgovernance.
8.

Understanding the importance of promoting transparency in managing
the extractive industries, some of the APT countries, such as Philippines,
Indonesia and Myanmar, complement their domestic initiatives withinvolvement in EITI (Extractive Industries Transparencey Initiative).
EITI is a voluntary based standard to promote transparency in extractive
sector which has been acknowledged internationally as a tool to improve
good governance and manage the extractive sector in many countries.
The EITI requires its implementing countries to publicly open his
information on the revenue derived from the extractive companies to thepublic, and requires the company to report his payment to the government.

9.

Recent global and regional developments lead to the increasing
importance of good governance in extractive industries in APT Countries.
The push for good governance in extractive industries are not only
coming from global and regional development. Stronger voices from thepeople are also demanding for a more accountable governance of thesectors.

10.

Environmental and social impacts of the extractive industries in APTCountries also lead to stronger demands for more responsible businesspractices, as illustrated in the case of lead contamination in Thailand
which has led to several governance reforms. Environmental problems
are acknowledged as one of the major critical issues in governing theextractive industries. Vietnam, for instance, has suffered significant
revenue losses because the management of mineral resource and as well
as of the extractive industry has been poor throughout the years. Illegal
exploitation, mineral smuggling, and tax evasion also commonly occur inmany areas. On the other hand, the management and use of revenues has
many constraints and lacks transparency. Some APT countries such as
Indonesia and Philippines face the commonality in dealing withindigenous protection issue.

3

11.

Despite general recognition of the importance of the governance of theextractive industries, APT Countries face various problems andchallenges.

12.

List of key challenges at domestic level includes:• Complexity of the issue. The management of extractive industries
is strongly connected to various important and pressing issues,
including relations between different ethnic groups, welfare
distribution between various groups in the country, land use
policies, and environmental sustainability. It is also connected toexternal factors such as demand from global market or diplomatic
relationship between different countries. Thus, the success ofreform in the governance of extractive industries is also depends on
the progress in various other related aspects.
• Administrative problems. Different administrative problems
persist, such as overlapping authorities and the push and pull
between local and central governments.
• Problem of data availability and reliability. Data issues for
instance are common challenge in most Southeast Asian countries.
Many delegate acknowledge that information regarding somecritical information in mining industries remains missing due tolack of publicly available data and report. The Department ofFinance of Philippines noted that both the regional and local
governments impose fees that are not reflected in the national data
maintained by the regulating bodies.
• Lack of transparency and the pervasiveness of corruption. It is
generally acknowledged that lack of transparency and thepervasiveness of corruption in the governance are commonproblems in many APT countries. Not only hindering good
governance in extractive industries, these problems have lead tovarious other problems such as illegal mining, environmental
degradation, and social impacts.

13.

To tackle the problems, APT countries, mainly the producing countries,
initiated various initiatives for governance reform, such as by developing
new revenue sharing scheme, creating more public participation, creating4

more transparency for revenue reporting and revenue sharing, as well as
legal reforms.
14.

Most of the initiatives for governance reform are established within thedomestic system. In this light, a regional cooperation in the governance ofextractive industries will create opportunities for APT countries tostrengthen their national efforts in reforming the governance of extractive
industries in their respective countries.

III. Regional Framework in Extractive Industries to Help Governance
Reform in APT Countries: Challenges and Opportunities
15.

At ASEAN, currently there is no specific regional framework in thecooperation on the governance of extractive industries in the region.
However, various aspects related to the governance of extractive
industries could be found in different ASEAN mechanisms.

16.

In this context, there are important opportunities for establishingextractive industries at regional level in East Asia:• Most developing APT countries will continue to depend on
resources to develop their economy. New sectors are just started tobe explored in many ASEAN countries and will be growing inimportance.
• Energy is an important part in the establishment of ASEAN
Economic Community. The existing ASEAN energy cooperation is
aimed at increasing production and exports of energy resources. To
ensure that the increasing production and exports will optimallybenefit the people, good governance in extractive industries is anindisposible requirement.
• APT countries are having different levels of development and roles
in extractive industries (producers, brokers, governments) and thus
having different perspectives on the governance of extractive
industries. However, despite different roles, all of them sharecommon interest to embrace good governance in these sectors. A
regional framework will help align different interests of APT
countries and consolidate their common interests.

5

17.

List of key challenges to develop a regional cooperation on thegovernance of extractive industries includes:• Willingness of the governments to take the issue of the governanceof extractive industries to regional level. This is challenging
because most APT countries (mainly the producing countries)
consider extractive industries as an important part of their economy
and even their sovereignty.
• To convince the governments that all countries, including theproducers, brokers and consumers, will benefit from a regional
cooperation on the governance of extractive industries.
• Willingness of foreign or global companies to participate andcomply to the regional governance.
• To solve the problem of capacity and resource availability to
conduct the initiatives to establish good governance in extractive
industries, both at national and regional levels.

18.

The discussions highlight the ‘unique’ role of more developed countries
in APT, namely Singapore, Republic of Korea, Japan and China. Therehas been a discussion to seek a bigger role of those countries inpromoting governance improvement agenda at the regional level.

IV

Recommendations

19.

Global, regional and domestic developments have lead to the increasing
importance of the good governance in extractive industries in APTcountries. Currently, most APT countries are resource dependent. Since
oil and gas and minerals are non-renewables, it is important to make surethat the management of the extraction of such resources are conducted insustainable manner. Without good governance in extractive industries in
APT countries, the future of economic growth in the region is severely
threatened. The management of extractive industries in the region has tobalance the need for today’s development and the need of future
generations.

20.

Currently, APT countries have pushed various initiatives at domestic
level to establish good governance in extractive industries. Some6

initiatives succesfully gain achievements, but some others are hindered byvarious problems. To push the progress forward, we need to further
support these initiatives.
21.

The Working Group agrees that actions need to be taken at national andregional level for establishing good governance in extractive industries in
the region. Below are key recommendations to promote cooperation on
extractive among the APT Countries:• Create more opportunities and initiate efforts at regional level tofacilitate exchanges of information, capacities, technology,experiences and resources in order to develop better governance inextractive industries. APT Countries should also leverage on thework of other succesful countries and international bodies bytapping the knowldege, experieces, and best practices of various
countries as well as regional and international bodies in the area ofextractive industries.
• Develop a more consolidated information based on the governanceand on the situation of the extractive industries in APT countries.
• Facilitate more quality and balanced investments that take into
account social and environmental considerations.
• Implement more corporate social responsibility projects. It is
important to promote CSR projects on a regular basis that can help
the development of local communities.
• Consider the international standard of EIA and incorporate it totheir domestic governance on extractive industries.
• Promote a new perspective in natural resource management to themulti-national companies operated in the region. It should cover
the enormous challenges in natural resource extraction both innational and regional level.
• Enhance the oversight and monitoring activity about the financial
disclosure of the company and considering enforcement as
criterion to evaluate the efficiency of the company.
• Promote more bilateral and multilateral cooperation among APTcountries on the governance of extractive industries.
• Support legal reforms on the governance of extractive industries in
APT countries.
7

22.

To ensure the optimum result of abovementioned initiatives, it isimportant to develop a regional framework for cooperation in thegovernance of extractive industries.

8AnnexPARTICIPANTS
JW Marriot, Jakarta, Indonesia, 19 August 2014
Hosted by NEAT Indonesia

Chair:

1. Evi Fitriani, PhD
Country Coordinator, NEAT Indonesia
Head of International Relations Department, FISIP, University of Indonesia

NEAT Country Representatives
NoName1Prof. Dr. Takeishi Reiji

2

Prof. Guo Yanjun

3

Prof. U Than ThunCountryJapan
China
Myanmar
Malaysia4

Dr. Hezri Adnan

5Prof. Sutthirat Chakkapan

Thailand6

Mr. Lye Liang Fook

Singapore7

Ms. Vu Thi Thanh Tu

Vietnam8

Ms. Danileen Kristel Parel

Phillippines

9Prof. Jae-Young YuSouth Korea

Institution
Tokyo International
University

China Foreign Affairs
UniversityMyanmar Institute forStrategic and International
Studies
Technology, Information,
Environment, andSustainability (TIES)Institute of Strategic andInternational Studies
Malaysia
Environmental Institute
Chulalongkorn University
East Asian InstituteNational University
Singapore

Diplomatic Academy ofVietnam
Phillipine Institute forDevelopment Studies
Kangwon National
University910

Mr. Chea Vatana

Cambodia

11Mr. Fabby Tumiwa

Indonesia

Other Participants

Ministry of Mines andEnergy Cambodia
Institute for Essential
Services Reform

ASEAN Secretariat: none
Key note Speaker : Ambassador Darmansyah Djumala
Head of the Policy Analysis and Development Agency
Ministry of Foreign Affairs, Republic of Indonesia
Opening Remarks : Dr. Arie Setiabudi Soesilo
Dean, Faculty of Social and Political Sciences,
University of Indonesia
NEAT Indonesia Contact Person:
Dr. Shofwan Al Banna Choiruzzad (University of Indonesia)10