COORDINATING MINISTRY FOR ECONOMIC AFFAIRS THE REPUBLIC OF INDONESIA

EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (EITI) INDONESIA SCOPING NOTE FOR OIL&GAS AND MINING REVENUES REPORTED IN 2010 AND 2011

As approved by the Implementing Team of EITI Indonesia

2014

TABLE OF CONTENTS TABLE OF CONTENTS .................................................................................................................................... i

LIST OF TABLES ............................................................................................................................................ iii 1.

ASSESSMENT OF OIL AND GAS REVENUE STREAMS ............................................................. 1

1.1. Upstream versus downstream payments in the oil and gas sector .............................. 1 1.2. Benefit streams made in the upstream sector ...................................................................... 1 1.3. Non-tax revenue streams included in the scope of the 2010 and 2011 reports ..... 2 1.4. Non-tax streams not included in the scope of the 2010 and 2011 reports ............... 4 1.5. Tax streams included in the scope of the 2010 and 2011 reports ............................... 6 1.6. Tax streams not included in the scope of the 2010 and 2011 reports........................ 6 1.7. Government entities who will report revenues in the oil and gas sector .................. 7 1.8. Materiality threshold for oil and gas companies for the 2010 and 2011 reports... 9

2.

1.9. Level of disaggregation for companies and revenue streams ........................................ 9

ASSESSMENT OF MINERAL AND COAL MINING REVENUE STREAMS .......................... 10

2.1. Upstream payments made in the mining sector ................................................................ 10

2.2. Non-tax streams included in the scope of the 2010 and 2011 reports ..................... 11 2.3. Non-taxes streams not included in the scope of the 2010 and 2011 reports ........ 12 2.4. Taxes included in the scope of the 2010 and 2011 reports .......................................... 12 2.5. Taxes not included in the scope of the 2010 and 2011 reports................................... 13 2.6. Government entities who will report revenues in the mining sector ....................... 15 2.7. Materiality thresholds for mining companies for the 2010 and 2011 reports ...... 15 3. 4.

2.8. Level of disaggregation for companies and revenue streams ...................................... 17

DATA ASSURANCE .............................................................................................................................. 17 ADDITIONAL ISSUES .......................................................................................................................... 18

ANNEX 1 – A. OIL AND GAS REPORTING TEMPLATE FOR OPERATOR .................................... v ANNEX 1 – B. OIL AND GAS REPORTING TEMPLATE FOR PARTNERS .................................. xii ANNEX 2 – A. OIL AND GAS REPORTING TEMPLATE FOR SKK MIGAS ................................. xvi

ANNEX 2 – B. OIL AND GAS REPORTING TEMPLATE FOR DIRECTORATE GENERAL OF BUDGET………………………………………………………………………………………………………………….xix

ANNEX 2 – C. OIL AND GAS REPORTING TEMPLATE, DIRECTORATE GENERAL OF OIL AND GAS, MINISTRY OF ENERGY AND MINERAL RESOURCES ............................................. xxiv

ANNEX 3 – A. MINERAL REPORTING TEMPLATE FOR OPERATOR....................................... xxv i

ANNEX 3 – B. COAL COMPANY REPORTING TEMPLATE .......................................................... xxxi

ANNEX 4 – A. MINERAL AND COAL REPORTING TEMPLATE FOR DG OF MINERALS AND COAL, MINISTRY OF ENERGY AND MINERAL RESOURCES...................................... xxxvii

ANNEX 4 – B. MINERAL AND COAL REPORTING TEMPLATE FOR DIRECTORATE GENERAL OF TAX, MINISTRY OF FINANCE ....................................................................................... xli ANNEX 4 – C. MINERAL AND COAL REPORTING TEMPLATE FOR DIRECTORATE GENERAL OF BUDGET, MINISTRY OF FINANCE ............................................................................. xlv ANNEX 5 - LIST OF PRODUCTION SHARING CONTRACTS (PSC), OPERATORS AND (WHERE APPLICABLE) PARTNERS .................................................................................................... xlvi

ANNEX 6 - LIST OF MINING COMPANIES THAT WILL PROVIDE REPORTS ......................... liv A. List of mining companies who will report for 2010 and 2011 .......................................... liv B. List of mining companies who will report only for 2011 ................................................. lviii

ANNEX 7 – THE IMPLEMENTING TEAM’S OPINION ON COST RECOVERY ............................lx

ANNEX 8 – LIST OF PROPOSED PILOT REGIONS TO REPORT & REVENUE SHARING FUNDS RECEIVED BY PARTICULAR DISTRICS ................................................................................ lxii

ii

LIST OF TABLES Table 1 Oil and gas sector benefit streams in 2011 .......................................................................... 1 Table 2 Government take, by date of initiation of PSC .................................................................... 3 Table 3 Reconciliation and reporting entities .................................................................................... 9 Table 4 Mining Benefit Streams 2011 .................................................................................................. 10 Table 5 Revenue streams to be reconciled and the reporting entities for the mining sector ................................................................................................................................................................ 15 Table 6 Mining Company Materiality Thresholds for 2010 Report ......................................... 16 Table 7 Mining Company Materiality Thresholds for 2011 Report ......................................... 17

iii

Description of this document: This scoping note is the key technical guidance document underpinning the EITI Indonesia reports for calendar and fiscal years 2010 and 2011. After some revisions, it received final approval from the EITI Indonesia Implementation Team on December 23, 2013 and again on January 28, 2014. The scoping note: - Describes all known oil, gas, mineral and coal revenues conveyed by oil, gas, mineral and coal producers to the government of Indonesia in 2010 and 2011. - Where relevant, describes how these revenues are calculated. - Specifies how much each revenue stream amounted to in 2011, and what percentage that each represented out of the total of all oil and gas, and minerals and coal revenues paid and received nationally. - Specifies which revenues will be reported by companies as having been paid by, and which will be reported by government as having been received, and of those, which will be reconciled. - Specifies which companies are included, which are excluded, and how that determination was made. - Specifies the level of disaggregation at which individual payments made by or received from individual companies will be published by EITI Indonesia. - Describes how the quality of reported data is assured.

Attached to this scoping note are a number of Annexes which are integral to the document. Annex 1 contains reporting templates to be filled out by oil and gas operators and partners. Annex 2 contains reporting templates to be filled out by government agencies which receive or record receipt of oil and gas revenues. Annex 3 contains reporting templates to be filled out by mineral and coal production units. Annex 4 contains reporting templates to be filled out by government agencies which receive or record receipt of mineral and coal revenues. Annex 5 lists the oil and gas operators and partners that will report Annex 6 lists the mineral and coal production units that will report The scoping note is intended not only to provide guidance to EITI Indonesia reporting parties, but is also intended to serve as a document to help the Indonesia public understand major and minor extractive industry revenue streams, and the identities of the individual companies that pay them.

iv

1. ASSESSMENT OF OIL AND GAS REVENUE STREAMS 1.1. Upstream versus downstream payments in the oil and gas sector The oil and gas industry can be conceptually divided between the upstream sector of the oil and gas industry (the exploration and production of crude oil and natural gas), and the downstream sector of the oil and gas industry (refining/processing, storage, transportation and marketing of oil products and natural gas). The 2010 and 2011 EITI reports consider only the upstream portion of the sector, and primarily material revenue streams from production. 1.2. Benefit streams made in the upstream sector Operators are required to pay state revenues from the upstream oil and gas sector in the form of taxes and non-tax revenues:

1. Non-tax revenues: These consist of government production share of oil and gas, bonuses and fees. The government’s share of production includes Domestic Market Obligation (DMO) oil. The contractor is required to pay a range of bonuses including a signing and production bonus, and a range of fees and charges some of which may be cost recoverable. Cost recovery is a process whereby oil and gas operators are entitled to recover costs of oil and gas operating activities, either in physical volumes of oil and gas, or in shares of the financial proceeds resulting from the sale of oil and gas.

2. Taxes: These include Corporate Income Tax and Branch Profits Tax, Land and Building Tax, Withholding Taxes on foreign and domestic payments of dividends and interest, on services and rental equipment, on salaries to employees, and on imported goods, the Value Added Tax, Import Duties, and some minor local taxes. Table 1 Oil and gas sector benefit streams in 2011 Benefit streams

Non-tax revenue Revenue from oil production (government share of equity oil) Revenue from gas production (government share of equity gas) Revenue from crude oil (difference between the value of the DMO oil conveyed by the operator to the state and the DMO fee paid by the state to the operator) Signature bonus Production bonus NOC Dividends (dividend paid to government by the national oil company derives from profits from upstream and downstream

2011 global figures (IDR trillion) 141.30 52.19 11.76

0.95 0.05 5.62

% of total oil and gas global figures

Conveyed from Contractor to Government?

Included in 2010/11 report?

47.13 17.41

Yes

3.92

Yes

Yes

Yes

Yes

0.32 0.02 1.88

Yes Yes Yes

Yes

Unilateral Yes Yes

1

Benefit streams activities, as well as non-oil and gas activities) Equipment and services bonuses Expatriate hire fees Data fees Joint studies Training of Indonesian nationals Scholarship funds Performance bond General working fund Retirement fund Taxes Oil income tax Gas income tax Land and building tax

2011 global figures (IDR trillion)

% of total oil and gas global figures

Conveyed from Contractor to Government?

Included in 2010/11 report?

-