Extractive Industry and Death of Compradors
The Fleet production, storage, and offloading facility in the Madura Strait, East Java, Wednesday (20/9).
Under President Joko “Jokowi” Widodo\'s administration, we have succeeded in state management of the extractive industry. In the last two years, the government smoothly took over management of the Mahakam Block from Total E&P (France) and Inpex Corporation (Japan) and the Rokan Block from Chevron (United States), and in successfully acquiring 51 percent of PT Freeport Indonesia\'s shares.
Besides stronger control and greater shares ownership, what else can we celebrate from the return of the state to managing the national extractive industry? The death of the compradors. What is a comprador? Who are they? What kind of sociopolitical landscape has led to their demise? Will their demise in the extractive industry lessen their hold on other sectors and strategic industries?
PEPs as compradors
Compradors are local agents who serve the interests of foreign organizations in economic exploitation (investment and business) and political activities. Compradors are usually politically exposed persons (PEPs). PEPs are individuals who have been vested with a public function (state administrators, for example) or those who have influence in policymaking. Through this role and work of the compradors many state/public assets and resources fall, are controlled, and thus enjoyed by foreign people/institutions. In fact, Article 33 Paragraph (3) of the 1945 Constitution mandates that "the earth, water, and natural resources contained therein be controlled by the state and used for the greatest prosperity of the people".
Aaron Sayne et al. mentions several times in "Twelve Red Flags: Corruption Risk in the Award of Extractive Sector Licenses and Contracts" on determining the role of PEPs in assessing the corruption risk for granting and extending licenses/contracts in the extractive industry. The report’s co-authors reviewed 100 mining, oil and gas contracts/permits in 49 resource-rich countries.
Twelve corruption risk models were extracted from these 100 contracts/permits: 1) a government allows companies to bid on/win contracts; 2) companies/individuals with bad track records compete for/win contracts/permits; 3) companies that have won contracts have shareholders that are PEPs or have other business relationships with PEPs; 4) contract-winning companies show signs of PEPs holding hidden beneficial ownership; 5) officials intervene in awarding/extending contracts that benefit certain companies; 6) companies bribe, provide gifts or special treatment to PEPs that can influence granting/extending licenses/contracts, including in the tender selection process; 7) appointed government officials have conflicts of interest; 8) the bid does not run as usual, in both awarding and extending contracts; 9) companies use intermediaries in granting licenses/contracts; 10) the contract-winning companies pay funds that are not included in the government budget; 11) the contents of the agreement are significantly distorted from industry or market norms; and 12) contract-winning companies subcontract their licenses to other parties to easily gain large profits.
In the study, Sayne et al. cited Rudi Rubiandini’s corruption case as an example of corruption risk model #6. Rudi, a former head of SKK Migas, was sentenced to seven years in prison after he was found guilty
of receiving US$1 million in bribes from WR (the chief commissioner of Kernel Oil Singapore) and SG (the commissioner of PT Kernel Oil Private Limited Indonesia). Kernel Oil bribed Rudi for interests in its parent company, Fossus Energy. Rizal Ramli’s testimony confirmed the bribery and the importance of the comprador’s role in extending Freeport’s contract. As the coordinating economic minister under President Abdurrahman Wahid, Rizal had rejected bribes from James Moffet, the CEO of PT Freeport-McMoRan. The “Papa Requesting Shares” case involving Setya Novanto also revealed the roles compradors played in extending Freeport’s contracts and permits.
A comprador is not always an individual, and can also be Institutionsor organizations. It is not wrong to call the New Order regime a comprador. Thanks to the New Order’s services, for example, Freeport was able to enter the country to do business and succeed. In another interpretation, the New Order government was able to act in this manner because it was indebted to the United States, which had helped the regime in the transition of power from the Old Order to the New Order. A number of New Order exponents played a prominent role in granting/extending Freeport’s contracts/permits, so the regime could be categorized as a comprador.
Can you recall the former mining and energy minister in the 1990s, who extended Freeport\'s contract for decades to come, long before its contract had expired?
Compradors exist in not only the extractive industry, but also the defense industry. The corruption in the procurement of AW 101 helicopters is one proof. In a rent-seeking move, an Indonesian Military (TNI) personnel insisted on procuring the AW 101 helicopters from abroad, when President Jokowi had mandated all defense equipment were to be procured from the domestic weapons industry. The President wished to strengthen the domestic weapons industry so that PT Dirgantara Indonesia, PT Pindad and PT PAL could supply domestic needs as well as export their weapons and equipment in the international market. The comprador in this case not only harmed state finances, but also sabotaged the state agenda to strengthen and expand the domestic weapons industry.
Sociopolitical landscape
The success in controlling and mitigating the role of compradors in the extractive industry is in separable from President Jokowi and his ministers. President Jokowi took four measures to accomplish this: 1) promulgating the government’s position and interests in negotiating license/contract extensions to the political and business/investment spheres as well as the public; 2) demystifying its ties with foreign companies as purely business-to-business (B2B) instead of government-to-government (G2G); 3) appointing the right person to the right position at the right time – Finance Minister Sri Mulyani Indrawati and Energy and Natural Resources Minister Ignasius Jonan are highly professional, possess integrity, and are dedicating to fulfilling national interests. And finally, 4) setting a good example: Jokowi and his family are not rent-seekers that want to control or receive shares in a foreign company. If he and his family were rent-seekers, then all ministers, deputy ministers, director generals and officials under them would also be rent-seekers. If they possessed a rent-seeking tendency, then it would have been easy for them to slip up and become compradors.
The compradors’ demise was also possible because our current sociopolitical landscape supported this in at least five ways. First, the democratic system encourages open competition among politicians and political institutions. Politicians and political institutions compete on the intention to restore state control and dignity in the extractive industry. Second, Gerindra Party, the PKS and PAN voiced their opposition to foreign control. Even though they did not offer a solid or coherent solution, exponents of the three parties – which habitually accuse the government of image-building – made the government careful in negotiating with foreign companies.
Third is the free and independent media. Despite a number of partisan media, there are still many self-reliant and independent media that acted as a control on state officials in their negotiations with foreign companies. In the past, when Freeport\'s contract was extended long before it had expired, there was almost no resistance from the media or the public. Fourth is public supervision, which is becoming increasingly strong and effective. Various elements of our society, including civil society organizations, actively monitored and voiced the public’s interests in negotiations, in addition to citing the mandate of Article 33, Paragraph 3 of the 1945 Constitution.
The public reminded the government that negotiations for contracts/permit extensions must be transparent and accountable. In addition to highlighting this issue, the public also encouraged the government to emerge the overall winner to obtain the maximum benefit through the contract/permit negotiations.
President Jokowi’s success in establishing the state’s presence and culling compradors in the extractive industry carries significant political value: it can be capitalized to raise electoral support and increase his electability in his 2019 reelection bid. (Dedi Haryadi, Chairman, Beyond Anti-Corruption)
