23148Cast cAsia EnvironIment

aod Soe'al Ogvvtopnment 7An;tEASES Discussion Paper Series

Decentralization of Natural ResourceSectors in Indonesia:Opportunities and Risks

Jean Aden

September 2001

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This publication was developed and produced by the Environment and Social Development Unit (EASES), EastAsia and Pacific Region of the World Bank. The Environment, Rural Development, and Social Development arepart of the Environmentally and Socially Sustainable Development (ESSD) Network,

Papers in the EASES Discussion Paper Series are not formal publications of the World Bank. They are publishedand circulated to encourage discussion and comment within the development community. The findings,interpretations, judgments, and conclusions expressed in this paper are those of the author(s) and should not beattributed to the World Bank, to its affiliated organizations, or to members of the Board of Executive Directors orthe governments they represent.

Copies of this paper are available fronrGiovanna DoreExt. 32934, Room MC8-214Email: gdore@worldbank.org

EASES Discussion Paper Series

Decentralization of Natural ResourceSectors in Indonesia:Opportunities and Risks

Jean Aden

September 2001

Environment and Social Development UnitEast Asia and Pacific Region

Abbreviations and Acronyms

AMDAL Environmental Impact AssessmentANDAL Detailed environmental impact reportAPBD Anggaran Pembiayaan Belanja Daerah - Regional budgetAPBN Anggaran Pembiayaan Belanja Negara - State budgetASM Artisanal and small-scale miningBAPEDAL Environmental Impact Management AgencyBAPEDAL Regional Branch Office of BAPEDALBAPEDALDA Regional Environmental Impact Management AgencyBAPPEDA Regional Development Planning BoardBAPPENAS National Development Planning BoardBPN National Land AgencyBupati Kabupaten (rural district) headDGM Directorate General of MiningDinas Provincial or district agency reporting to governor, mayor or bupatiDinas Pertambangan Regional Mining Agency reporting to governor, mayor or bupatiDPRD Regional People's AssemblyGDP Gross Domestic ProductHa HectaresINPRES Instruksi Presiden - ad hoc budget transfer by presidential decreeKabupaten DistrictKandep Kantor departamen - District office of a central line agencyKanwil Kantor wilayah - Provincial office of a central line agencyKanwil Pertambangan Provincial office of MMEKODAM Provincial AMDAL CommissionMLH Ministry of EnvironmentMME Ministry of Mines and EnergyMoA Ministry of AgricultureMoFr Ministry of ForestryMoMEx Ministry of Marine ExploitationNGO Non-Governmental OrganizationPKA Directorate General of Nature ConservationPROPER Prokasih BAPEDAL's industrial water pollution control programRKL Rencana Pengelolaan Lingkungan - Environmental Management PlanRPL Rencana Pemantauan Lingkungan - Environmental Monitoring Plan

Table of Contents

Executive Summary .............................................................................................................................

1. I ntroduction ...................................... 1

2. The Legal Framework and Safeguards ...................................... 3

3. Technical Capacity ..................................... 15

4. Environmental Constituencies and Accountability ..................................... 20

5. Regional Environmental Expenditure ..................................... 27

6. Conclusions and Recommendations ..................................... 28

Bibliography..31

Acknowledgements

This report was prepared as part of the World Bank country study, Indonesia -Environment and Natural Resource Management in a Time of Transition, under the guidance of Ms.Kristalina Georgieva, Director of the Environment Department (ENV), and Mr. Zafer Ecevit,Director of the Environment and Social Development Unit (EASES) of the East Asia & PacificRegion of the World Bank.

The report was prepared by Ms. Jean Aden (EASES). Contributions by Ms. SampritiGanguli and Mr. Michael T. Rock are gratefully acknowledged, as are valuable comments fromMr. Stephen Dice, Ms. Giovanna Dore, Mr. Bert Hofman, Ms. Jacqueline Pomeroy and Mr. TomWalton.

Executive Summary

Indonesia has embarked on a major adequate enviromnental safeguards in thedecentralization. The legal framework for regions. The core safeguards are nationaldecentralization (Laws 22 and 25 of 1999) minimum environmental standards and aauthorizes the country's districts consultative environmental assessment(municipalities and rural kabupaten) to manage (AMDAL) process. The regional environmentmost government services, and more than agencies (BAPEDALDA) and natural resourcedoubles the subnational share of public line agencies (Ministry of Forestry,expenditures to over 40 percent. This Directorate General of Nature Conservation,reallocation would make Indonesia, now Ministry of Mines and Energy) shareunusually centralized for its size and diversity, responsibility for their proper application atone of the most decentralized countries in the regional levels. Under one scenario, newlyregion. empowered local authorities would condone

or even invite more intensive local resourceIndonesia's economy will remain natural use to boost local income and revenues,

resource-dependent over the next decade. without adequate environmental safeguards.However, recent unsustainable resource use Whether due to lack of technical capacity orlevels and degradation threats raise concern sympathy for populist demands for access tothat decentralization in the natural resource local resources, this scenario would lead tosectors could lead to environmental neglect resource depletion, devastated landscapesand further undermine the sustainability of and long-term, perhaps irreversible damagenatural resource use. This report analyzes to the regional resource base. If exploitationopportunities and risks of decentralization of rates in the resource-rich regions off Javathe terrestrial natural resource sectors off remain at current unprecedented levels, theseJava, with particular attention to forestry, risks could play out quickly over the next fivemining and conservation of terrestrial to ten years, ultimately narrowing affectedbiodiversity. Its findings and recommenda- regions' economic options.tions are summarized and updated from alarger study of environmental and natural The benefits of decentralization withresource management issues and options in safeguards could include improved resourcepost-Suharto Indonesia.1 outcomes (more efficient, sustainable resource

use and conservation of protected resources)Whether Indonesia's drive to decentralize and improved governance (greater local

leads to more efficient, sustainable resource use participation in resource allocation decisions,or invites serious environmental deterioration greater accountability of regionalwill depend to a large extent on whether governments, freeing of central agencies todecentralization goes forward with or without concentrate on policy and oversight).

However, to achieve these benefits, the key1 Indonesia: Environment and Natural Resource actors - central ministries, district andManagement in a Time of Transition, February 2001. provincial governments, and localThis report updates and supplements the commurnities - must undergo substantialdecentralization chapter of the larger study, with an institutional change. Because the benefits ofanalysis of regional environmental mainstreaming sensible decentralization in the naturalissues and opportunities in the mining sector, and asummary of public environmental expenditure trends at resource sectors will accrue in the long n,regional levels. there will be substantial pressure for "quick

i

fix" decentralization, without regard to most countries that have successfuLlypotential long-term negative impacts on the pursued a decentralized approach toenviromnent. Unless these risks on the road to environmental management have devolveddecentralization receive priority attention in the authority mainly to the provincial level.short term, they could easily foreclose This is because provincial capital cities andachievement of the long-term benefits. towns are much more likely to be able to

afford highly trained environmentalThis report identifies four factors that will personnel and sophisticated equipment,

largely determine whether decentralization in and to have the institutional infrastructurethe natural resource sectors goes forward for support of essential technical capacitywith or without adequate environmental building and constituency building (luringsafeguards and, ultimately, whether its decentralization. At present, these elementsenvironmental outcomes are positive or are less developed at the district level.negative. These factors include: theincentives created by the legal framework for On the other hand, the legal frameworkdecentralization; regional technical capacity; creates several potential "checks andthe presence or absence of a regional balances" to prevent or correctenvironmental constituency and regional misallocation of functions (districts' andaccountability; and public expenditure levels. provinces' option to "upload" functions, the

Regional Autonomy Advisory Board, theThe evolving legal framework for President's authority to veto regionaL

decentralization (Law 22/1999, Law 25/1999 regulations and decisions, and the regions'and Government Regulation 25/2000) right to appeal). To support sustainableappears to create incentives for less resource use under decentralization, thesesustainable natural resource use in two mechanisms need to be substantiallysenses. First, Indonesia's approximately 350 strengthened.districts will become more dependent onnatural resource-based revenues, and the Overall, technical capacity forresulting perverse incentives to accelerate safeguards application is limited atland conversion and natural resource provincial and, to an even greater extent,exploitation in the forestry and mining sectors district levels, in both core environmentcould prove compelling for bupatis in agencies and the natural resource agencies.revenue-starved rural districts. Regional Given that their mandate and experiencerevenue sources need to be vetted, and have focused mainly on industrial and urbansafeguards need to be applied, in order to pollution to date, core environment agenciesensure that natural resource-based revenues at all levels lack knowledge and experienceunder the decentralization reforms "do no in applying safeguards in the naturalharm" to regional resource bases. resource sectors. Regional environment

agencies' technical credibility with theSecond, the decentralization strategy laid regulated community is an issue, and is

out in the legal framework largely bypasses particularly acute in regions where prioritythe country's 27 provinces and cedes greater environmental issues and employment areautonomy to the 350 districts. Indeed, strong mainly in the natural resource sectors.district level management capacity is a Although the natural resource line agenciesmedium- to long-term objective and an share responsibility for application ofindicator of a healthy and mature natural safeguards, "mainstreaming" ofresource and environmental management environmental policies and best practicessystem. It should be noted, however, that

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into their operations has been slow and will require significant public and privateuneven. expenditure on preventive and mitigating

measures. However, public expenditure onRegional environmental constituencies environmental activities is extremely low in

are embryonic outside Java. A survey of Indonesia, in terms of percentage of GDP,opinion leaders in three resource-rich percentage of government expenditures, andprovinces off Java showed significant per capita expenditure level as well asvariability in their views of local resource relative to the other East Asia crisis countries.depletion, causes of environmental damage Moreover, environmental expenditures atand government's environmental regional levels have suffered especially deepperformance, with potentially important cuts since the crisis, and the share of totalimplications for decentralization. Significantly environmental budget allocated to regionalmore opinion leaders shared core pro- activities relative to activities at the centerenvironmental attitudes in some provinces has decreased. Additional funding is neededthan in others. Moreover, some provinces' to keep pace with major post-crisis increasescore environmental constituencies were more in pressure on Indonesia's forests,inclusive (that is, included government biodiversity stock and land affected byofficials and businessmen as well as civil mining operations, as well as urban andsociety, and therefore were more likely to industrial pollution. Whether regionalinfluence decision-makers) than others. budgets include environmental expendituresNevertheless, a common denominator across commensurate with increasing pressures onall three provinces was the weak link between regional resource bases will be a criticalattitudes and specific actions to support indicator of political will to support adequatesustainable natural resource use. The survey regional safeguards.results underline the fact that communitysupport for the environment is significantly Recommendations. With thesemore developed in some regions than in considerations in mind, the reportothers, and needs to be encouraged as an recommends a practical approach tointegral part of decentralization in the natural decentralization of the natural resourceresource sectors. sectors with adequate environmental

safeguards, which emphasizes:The heart of accountability is a two-way

exchange between local communities and * First, a two-track program of technicalgovernment, in which regional officials' capacity and constituency building:engrained habits of seeking higher-levelapproval and largely one-way - a technical capacity building programcommunication with local communities are including training in environmentalreplaced by two-way communication, in aspects of the natural resource sectorswhich the official is prepared to explain and should be a top priority. Strengthening ofjustify government performance and use of safeguards capacities of natural resourcepublic resources. Unless environmental agencies and BAPPEDAs (Regionalconstituencies and accountability mechanisms Planning Boards) is also needed.are functioning properly, environmental Available technical capacity andsafeguards cannot function properly. constituency-building resources - in

particular, the generally strongerAlthough a few of the measures necessary institutional base for building capacity

for improved natural resource management and constituencies at the provincial level -can be achieved at minimal cost, the majority should be used to strengthen safeguards

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capacity for the benefit of the districts, in mine reclamation bonds, establish credibleparticular, rural districts. District staff environmental databases, build technicalcould be seconded (magang) to provinces for capacity in govemment agencies, andtraining and piloting; and support constituency building programs.

Regional government officials and civil- a constituency building campaign to spread society, who are about to assume increased

environmental knowledge, build pro- authority and responsibility for naturalenvironmental attitudes, and forge links resource management for the first time,between attitudes and proactive behaviors need to be aware of the implications ofto improve environmental quality should be environmental expenditure trends andtargeted on key decision-makers in the options for their jurisdictions. Asregions. Constituency-building should be decentralization proceeds, the regionalaccompanied by "accountability pilots," in share of public environmental expenditureswhich regional officials explain and justify should increase.government performance and use of publicresources related to natural resource and * Fourth, an asymmetric approach, whichenvironmental management. recognizes that some regions will be ready

for natural resource and environmentalSecond, strengthening the "checks and management sooner than others.balances" in the legal framework to prevent or Assigning differentiated authority tocorrect misallocation of functions among levels regional governments based on politicalofgovernment. The adjudication role of the commitment, constituency strength,Regional Autonomy Advisory Board should technical capacity, population, revenuesbe strengthened, by mandating proactive and environmental expenditure levelsand systematic monitoring of regional can alleviate the pressure of having toperformance of decentralized functions implement a country-wide uniformgenerally, and relative to natural resource decentralization program.and environmental management in Decentralization support grants toparticular. A cross-sectoral Natural provinces and districts that demonstrateResources Council should be established, to commitment to capacity building,provide technical advice to the Board on constituency building, environmentalnatural resource management and expenditures and regionalenvironmental safeguards at provincial and implementation of safeguards could bedistrict levels. The Board and Council a mechanism to facilitateshould include members from all levels of decentralization, while recognizing thegovernment and civil society, and local need for an asymmetric approach.communities should have standing toappeal when regional natural resource and Table 1 summarizes the suggested rolesenvironmental management performance is of each level of government, cross-levelinadequate. bodies and local communities in

decentralization of the natural resource* Third, additional funding to keep pace with the sectors.

major increases in pressure on Indonesia's naturalresources since the 1990s. Expenditures arerequired to rehabilitate degraded forests,expand replanting programs, improve forestfire management, protect and manage parksbetter, conduct mine inspections, manage

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Table 1. Decentralization of Natural Resource Utilizationand Environmental Safeguards Functions by Level of Govermnent

Responsible Level Functions

Center * Provide legalframework that defines clearly responsibilities and services to beprovided at central, provincial and district levels, how each level will generaterevenues, and how their performance will be evaluated. Set minimum nationalstandards. Specify a notional timeframe for transition, recognizing thatimplementation will necessarily be asymmetric.

* Set policy and get out of operations, except where functions are specifically reserved tothe center or activities cross regional boundaries (e.g. central responsibility for cross-provincial activities), and reorganize central agencies and fiscal balance accordingly.

* Deliver training (mainly training of trainers to provinces), to build knowledge ofminimum standards and service delivery capacity.

* Monitor compliance with national minimum standards (mainly provincial complianceduring early decentralization), and be prepared to recentralize functions wherecompliance is lacking.

* Perform provincial natural resource utilization and safeguardfunctions, if "uploaded"from provinces and/or recommended by Regional Autonomy Advisory Board.

Cross-level Regional * Evaluate regional service delivery and performance, to determine readiness forManagement Autonomy decentralization, and needfor recentralization in case of regional failure to meetMechanisms Advisory national minimum standards.

BoardNatural * Conduct consultation with all levels of government and civil society regarding naturalResource resource utilization permitting, environmental safeguards and monitoring.Council * Advise Regional Autonomy Board on permitting, environmental safeguards and

monitoring.Province * Develop and implement integrated regional planning, permitting, environmental safeguards

and monitoring of natural resource utilization, for cross-district and mid-sizeactivities.

* Deliver transitional on-the-job training to district officials, temporarily seconded toprovincial agencies, to prepare for eventual full district autonomy. Working withdistrict officials, assist pilots of integrated regional planning, permitting,environmental safeguards and monitoring of natural resource utilization to within-district and small-scale activities at district level.

* Self compliance monitoring and reporting to community organizations and center.* Build accountability to provincial community and upward.* Asymmetric transfers of authority and sharing of responsibility, based on different

natural resource endowments, population, capacity and constituencies.* Perform district natural resource utilization and safeguardfunctions, if "uploaded" from

districts and/or recommended by Regional Autonomy Advisory Board.

District * Build capacity to deliver natural resource utilization and environmental managementservices.

* Build accountability to local community and upward.* Pilot integrated regional planning, permitting, environmental safeguards and monitoring

of natural resource utilization for within-district and small-scale activities.* Self compliance monitoring and reporting to local community and upward to province

and center.* Asymmetric transfers of authority and sharing of responsibility at district level, based

on different natural resource endowments, population, capacity and level ofconstituency development.

Local community * Constituency building, moving from passive acceptance of government's actions toinsistence on consistent delivery of services tailored to local needs, andaccountability of district and provincial officials.

v

Decentralization of Natural Resource Sectors in Indonesia:Opportunities and Risks

1. INTRODUCrION would lead to resource depletion, devastatedlandscapes and long-term, perhaps

Indonesia has embarked on a major irreversible damage to the regional resourcedecentralization. The legal framework for base. If exploitation rates in the resource-richdecentralization (Laws 22 and 25 of 1999) regions off Java remain at their currentauthorizes the country's 350 districts (cities unprecedented levels,2 these risks could playand rural kabupaten) to manage most out quickly over the next five to ten years,government services, and will more than ultimately narrowing affected regions'double the subnational share of public economic options.expenditures to over 40 percent. Thisreallocation would make Indonesia, now On the opportunity side, the benefits ofunusually centralized for its size and decentralization with safeguards could includediversity, one of the most decentralized improved resource outcomes (more efficient,countries in the region. Over the next 3-5 sustainable resource use and conservation ofyears, the balance struck between the political protected resources) and improvedimperative for visible action and the need for governance (greater local participation instructured preparation will determine resource allocation decisions, greaterwhether decentralization will improve the accountability of regional governments,welfare of Indonesia's people by encouraging freeing of central agencies to concentrate onsustainable utilization of natural resources, or policy and oversight). However, achievinginvite serious environmental deterioration. these benefits will require all the key actors -Local environmental constituencies and central ministries, district and provincialimproved accountability will also be critical governments, and local communities - tofactors. undergo substantial institutional change.

Because the benefits of sensibleIndonesia's economy will remain natural decentralization in the natural resource

resource-dependent over the next decade, and sectors will accrue in the long run, there willdecentralization in the natural resource be substantial pressure for "quick fix"sectors - forestry, mining, fisheries - will decentralization, without regard to potentialcreate both risks and opportunities. Given long-term negative impacts on thethe potent mnix of the lingering economiccrisis, political uncertainty and a partial2breakdown of law and order, decentralization At present rates of forest conversion (1.7 milion haof natural resource utilization and annual forest cover loss off Java from 1988-2000),envirounmental management could accelerate Sumatra will lose essentialy al its dry lowland

forests soon after 2005, and Kalimantan will haveenvironmental degradation. Under this very little lowland forest left by 2010. Small-scalescenario, newly empowered local authorities mining operations, which increased significantlywould condone or even invite more intensive following the economic crisis, have substantiallocal resource use to boost local income and environmental impacts (sedimentation of water

bodies, mercury poUlution, total lack of landrevenues, without adequate environmental reclamation after mine closure), but are unregulatedsafeguards. Whether due to lack of technical and use no environmental precautions. See Indonesiacapacity or sympathy for populist demands - Environment and Natural Resource Management in afor access to local resources, this scenario Time of Transition, 2001, pp. 7-13,67-70.

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environment. Unless these risks on the road population provinces that are our focusto decentralization receive priority attention include most provinces in Kalimantan,in the short term, they could easily foreclose several provinces in Sumatra, and Irian.achievement of the long-term benefits. These provinces send far more revenues to

the center than they get back.4 Given thatThis report focuses on present many environmental problems found in

knowledge of the problems and prospects densely populated areas, such as lack offor decentralization of natural resource sanitation, solid waste, noise and odors, areutilization and environmental management fundamentally local, and hence bestin Indonesia, the critical issues to be addressed at the local level, decentralizationdecided, and decentralization support of environmental management in urban andstrategies for donors and for the resource-rich, high population regions offersGovernment of Indonesia. Decentralization substantial, visible benefits to local residents.is inherently complex. One size fits neither However, environmental issues in the naturalall sectors nor all locales. This chapter resource sectors, such as destructive loggingtherefore emphasizes the sectoral and practices, mining waste disposal and effluentgeographic variations that must be from oil palm processing, generally occur inconfronted when the theory of less densely populated areas, where naturaldecentralization moves to the reality of the resources may be virtually the sole source ofdiverse Outer Islands. The concerned employment. Environment differs from othergovernment agencies are the Ministry of service sectors in developing countries, suchForestry (MoFr), including the Directorate- as health, education or road-building, in thatGeneral of Nature Conservation; the it ordinarily lacks a ready-made constituency,Ministry of Mines and Energy (MME) and and this is particularly true in resource-rich,their regional counterparts; BAPPENAS and low population regions. The problem ofthe BAPPEDAs (Regional Planning Boards); building pro-environmental constituenciesand the Ministry of Environment, the receives substantial attention in the analysisEnvironmental Impact Management that follows.Agency (BAPEDAL) and their local andregional counterparts (BAPEDALDA and Given district governments' relative lackBAPEDAL Regional). The greatest short- to of technical and managerial capacity, even onmedium-term opportunity of the Java, it is unlikely that district governmentsdecentralization process lies in improved off Java currently possess adequate resources,accountability and coordination among such as well trained officials, universitythese agencies, leading to integratedplanning, permitting, environmental high population in absolute terms but resource-poorsafeguards, and monitoring and reporting relative to population (ava, Bali, South Sulawesi, someof compliance with national miniimum regions in Sumatra, which have abundant water and

coastal zones, some forests, and national parks); and c)standards at district and provincial levels. resource poor, low population (the Nusatenggara

provinces). Personal communication from Guy Alaerts.The geographic focus of this report is one 4Many other provinces break roughly even, and a few

category of Indonesian province, defined by would be even poorer without the transfers they receivenatural resource endowment relative to from the center. Although many findings of this studymay also apply to the other two categories, the fieldpopulation.3 The resource-rich, low studies conducted for this report did not extend to those

areas. Further research is needed to assess whetherdecentralization prospects for environmental and

3There are three basic types of province: a) resource- natural resource management differ from the resource-rich, low population (e.g. Kalimantan); b) resource- rich, rich, low population areas targeted in this report

2

faculties, accredited laboratories, and political The report is organized in five sections.leaders of sufficient stature to sustain the Section 2 outlines the legal framework fornatural resource base for use by future decentralization of natural resource andgenerations. Capacity building will depend environmental management, and identifieson resources such as these, which are practical implementation issues and options.generally more likely to be found in Section 3 discusses technical capacityprovincial capitals rather than smaller district requirements. Section 4 presents results oftowns. opinion leader surveys designed to assess the

strengths and weaknesses of provincialThe incentives and penalties for environmental constituencies, and

sustainable resource use to be applied by recommends accountability mechanisms.newly empowered local authorities have yet Section 5 analyzes public environmentalto be determined. While recent legislation expenditures, including shares of theseprovides a formal legal framework, practical expenditures allocated to the regions, relativemanagement instruments are still lacking, to the center. The last section outlines aand once they are available, their application strategy for decentralization of naturalwill almost certainly be ad hoc and uneven. resource and environmental management

with adequate safeguards (see also Figure 1).Preliminary research on local constituency

building, described in this chapter, provides an 2. THE LEGAL FRAMEWORK ANDunderstanding of differences among potential SAFEGUARDSenvironmental constituencies in three relativelyresource-rich provinces off Java. However, Three recent pieces of legislation, Lawlittle is known about the other twenty-three 22/1999 on Regional Govemance, Lawprovinces, not to mention the approximately 25/1999 on the Fiscal Balance Between the350 districts that are supposed to be the focus of Central Government and the Regions, andpower and resources under the new laws. Government Regulation 25/2000 on

Government Authority and ProvincialThis chapter lays out the issues that will Authority as an Autonomous Region

be encountered during decentralization of comprise the main elements of the post-Newnatural resource utilization and Order legal framework for decentralization.environmental management functions to the While this framework remains to beresource-rich, low population regions off interpreted, it is useful to consider its broadJava. These issues include: outlines.

* interpretation of the legal framework for Nevertheless, a caveat is important here.regional governance and finance as it Legal institutions have never been strong inapplies to the natural resource sectors and post-independence Indonesia. Legal rightsenvironmental management; and were repeatedly abrogated under the New

Order, and courts have seldom been decisive.* the balance to be struck between the While laws may set overall parameters,

political imperative for action and the need informal exchanges of favors amongfor regional capacity and constituency government officials, businesspersons andbuilding, so as to optimize the political, local communities often have greater forceeconomic and technical outcomes of than law in a particular matter. What happensdecentralization. to the environment will probably be

determined mainly by businesspersons,

3

administrators, police and community the kantor departamen or kandep and therepresentatives, acting informally, rather than district executive (bupati or mayor) wereby lawyers arguing in court. Moreover, when likewise charged with implementing centralpractical outcomes of decentralization, such policies. The other parallel structure, theas effects on environmental quality or local "regional government," had its ownservice delivery, are evaluated, variation by bureaucratic departments (dinas), which weresector and locality will frequently be as largely a mirror image of the kanwil orimportant, if not more important, than laws kandep, plus a legislature (a Level I or Level IIwhose system-wide applicability may be DPRD) and a regional executive called a level Imore apparent than real. or level II regional head.5 Under this

bifurcated organization, fiscal resources andPrevious regional governance framework. executive authority were concentrated on the

Except for two brief interludes in the 1950s, admninistrative side, and legislative authorityweak regional authority has been the norm in was confined to the "autonomous" regionalIndonesia. However, both interludes continue government side, with the Ministry of Hometo serve as benchmarks in public debate over Affairs exercising close oversight of the DPRD.decentralization. The first benchmark was thecountry's brief, reluctant adoption of a federal In practice, implementation of Law 5/1974system as a condition of Dutch recognition of emphasized mobilization of the regions in theIndonesian sovereignty in 1949, which ended national development effort, throughwith the adoption of a unitary system the establishment of a hierarchical administrativefollowing year. A lasting effect of the federal structure reaching from the center to villagesinterlude has been the taboo on any mention of across the archipelago.6 Despite variousfederalism as a regional governance option for ministerial decrees ceding administrativeIndonesia. The second interlude of functions to the regions and periodic pilotstrengthened regional authority was the decentralization initiatives such as theattempted secession of several provinces in Regional Autonomy Program in the forestrySumatra and Sulawesi in 1956-57, which was sector, sectoral agencies in the regionssettled by military force. remained essentially central "outposts,"

hobbled by many restrictions and stil largelyUnder the New Order, a centralized dependent on "assistance" budget allocations

system of governance was created, in manycases over the objections of regional elites inthe Outer Islands. The legal cornerstone of theNew Order's approach to regional governance S This separation of administration and politics waswas Law 5/1974, which confirmed regional breached in one key respect - that the same person, theexecutives' appointment by and accountability governor or bupati, served simultaneously as head ofto the national government, in particular, the regional administration and regional government In

some regions, the same official served as both kanwilDepartment of Home Affairs. Law 5/1974 head and head of the corresponding dinas, andcreated two parallel structures of regional reporting both to the governor and the line agency atgovernance. One, the "regional the center. However, this practice was uneven acrossadministration," was comprised of branch sectors and regions. See Michael Malley, "Regions:

Centralization and Resistance," in Donald Koffices of central government departments Emmerson, ed., Indonesia Beyond Suharto: Polity,(kantor wilayah or kanwil) and the governor at Economy, Society, Transition (M.E. Sharpe), 1999.the provincial level, and was an extension of 6 Terence H. Hull, "Striking a Most Delicate Balance:central authority, charged with implementing The Implications of Otonorni Daerah for the Planningcentral policies in the regions. In the districts, and Implementation of Development Cooperation

Projects," December 1999.

4

from the center.7 In the mining sector, MME no longer subject to higher-level approval, andallocated resource use rights, while local new responsibility for a broader menu of localgovemrnments and local communities often services, as well as oversight of village-levelleamed of new mining concessions after the govemment (see Box 1).9 In theory at least,fact. Concession boundaries were drawn Law 22 nurtures democratic accountability atwithout regard for existing land uses or local the district level.communities' customary rights to resources In contrast, the autonomy of the 27withiin those boundaries, provinces is sharply bounded under Law 22.

As Law 5/1974 did not address fiscal Governors remain primarily accountable to thematters, a large share of central funding to the President and the central ministries. Theregions during the New Order was via provinces become residual service providers,

responsible only for cross-district matters andINPRES (Instruksi Presiden) - ad hoc transfers whtvrsvieaedcoenaedbteby presidential decree, in the form of general Agrants to provinces and districts and funds for center or uploaded by the districts. As

bystanders in the decentralization process, thevarious specffic purposes, such as education or provinces do not gain improved capacity toroad building.8 Jakarta appropriated natural provesy to emerging democrticresource revenues from oil and gas, forestry constitue ctivesn La 22.and mining, income taxes and the value addedtax, and returned only residual shares of While the district is the default level to whichresource revenues to producing regions. regional authority is assigned under Law 22,Inferior sources of revenue, such as motor the law explicitly allocates responsibilities forvehicle registration, were left to the regions. natural resource utilization, conservation andThrough the 1990s, the regions' capacity to environent across all levels of governent.raise own revenues remained severely limited, In fact, the natural resource sectors,with provinces raising only about one-quarter conservation and environment are the onlyand districts about one-fifth of their total sectors with functions assigned to more thanbudgets. one level of government under Law 22.

While natural resource utilization is reserved

on Regional Govemance, enacted in May 1999 to the center, the "regions" (presumably bothon Rgionl Goernace, nactd inMay 999 districts and provinces) are also authorized tounder President Habibie and effective in 2001,abolishes the hierarchical relationship between manage natural resources located in theirprovinces and districts/cities and treats the area. Similarly, conservation is reserved to

the center, but "environment conservation" istwo levels quite differently. The country's dsgae adtr ucino happroximately 350 districts gain greater deigatd__ mndtoy_ untin_f_hautonomy, with local elections of district heads 9 Law 22/1999 also provides a foundation for

democratic accountability at the village level, which7 See Hariadi Kartodihardjo, "Policies on Decentralized could have important implications for natural resourceForest Administration in Indonesia and Their utilization, but full examination of village levelImplementation," 1999. Dinas, of course, had lesser governance of natural resource use is beyond the scopefunctions and resources than the kanwil all along. of this chapter. Articles 93-111 provide two bases for8 The two natural resource and environment INPRES, recognition of adat or long-established systems offor Regreening and Replanting, date from the 1970s; the resource utilization, which could support delineation ofProtected Areas and Environmental Impact community resource use rights under subsequentManagement INPRES, date from 1997. See Indonesia - legislation. The two bases are genuine elections ofEnvironment and Natural Resource Management in a village heads and a village council, and regional powersTime of Transition, Ch. 5, "Environmental over natural resource management, which districtsExpenditure." could devolve to villages.

5

f

Box 1: Provincial versus District Goverance Under Law 221999Provinces Districts

* Retain both administrative and autonomous * Expand autonomous functions, while sheddingfunctions; administrative ones;

* Governors are nominated and elected by the * Mayor/bupati are nominated and elected by theprovincial DPRD, subject to President's district DPRD, without outside approval;approval; * District services are expanded to include 11

* The only mandatory provincial functions are mandatory functionsa and all other functions notcross-district matters, plus whatever functions reserved to the centerb or uploaded to theare "uploaded" by districts or deconcentrated provinces.by the center.

aThe 11 mandatory functions for districts are public works, health, education and culture, agriculture,communication, industry and trade, capital investment, environment, land, cooperatives and manpoweraffairs. gee Law 22/1999, Article 11.2.b The 12 central functions are international policies, defense and security, judicature, monetary and fiscalauthority, and religion, as well as national planning and macro national development control, financial balancefund, state administration and state economic institutional systems, human resources development, naturalresources utilization, strategic high technology, conservation and national standardization. See Law 22/1999,Articles 7.1, 7.2.

districts, and maintenance of environmental event of failure by district or provincialconservation is assigned to the "regions" authorities to maintain national minimum(again presumably both districts and standards, but these provisions requireprovinces).' 0 For an overview of the strengthening; andallocation of functions across levels ofgovernment under the main implementing * that the new framework lacks transitionregulation to date, Government Regulation arrangements, particularly with regard to(PP) 25/2000 on Government Authority and the role of the provinces.Provincial Authority as an AutonomousRegion, see Table 2. Safeguards and integrated natural

resource management. The core elements ofThis evolving framework for regional environmental safeguards are a set ofgovernance of natural resource utilization national minimum standards and aand environmental management raises transparent, consultative environmentalthree practical implementation issues: assessment (AMDAL) process. Under

national minimum standards, no province* that uncertain and/or uneven application or district can legislate standards that are

of Law 22 and Law 25 of 1999 could result less demanding than the national standards,in a de facto abandonment of though they may enact stricter standards.environmental safeguards; Government Regulation (PP) 25/2000

reserves national environmental standard-* that the new legal framework provides for setting for pollution, conservation and

adjudication and recentralization in the natural resource utilization to the center,and provides that provincial standardsmust be based on national standards.

10 See Law 22/1999, Articles 7.1, 7.2, 10.1 and 11.2.

6

Table 2. Allocation of Natural Resource and Environmental Management FunctionsUnder Government Regulation 25/2000, by Sector

Sector Government Authority"1 Autonomous Regional Authority Comments/Issues(province as 'autonomous"region) ...22

Forestry > determines forest areas, and > oversees cross-district forests, Under PP 25/2000, MoFrchanges of status and including: remains the most centralizedfunction; * granting cross-district permits for of the natural resource sectors.

> manages and grants permits forest product use and The center retains twofor management of manufacturing; operational roles -conservation and protected * participating in Government's determination of forest areasareas; determination of cross-district and changes in status and

> sets criteria and standards for: forest areas and changes of status functions, and conservation* forest management; and function, together with and protected area* establishment of forest districts; management. Another MoFr

exploitation areas, policy initiative, Perumisasi,conservation areas; > manages setting and security of would maintain central control

* tariff of business permit- forest boundaries; and of existing forest concessionholders' contribution for areas. Perumisasi calls forforest use, reforestation > supervises forest rehabilitation, upgrading parastatal Inhutanifunds; reclamation, & choice of forest companies to state

* business licenses for use of silviculture method. enterprises (Perum), whichforest areas, forest products, would take over existing forestenvironmental services. concession leases.

Mining > sets business work area > grants core business permits Implies that district grants corecriteria; (exploration and exploitation business permits for within-

> sets general mineral permits) for cross-district general district general mining,exploration and processing mining. regardless of scale of miningstandards. activity. Issue: need to match

level of government engagedin negotiation of permit toscale of mining activity.

Environ- > sets standards/guidelines for > sets enviromnental quality Implies that district reviewsment pollution, conservation, standards based on national AMDAL of within-district

control of natural resources standards; activities. Issue: this isand preservation of > reviews AMDAL of activities inconsistent with the 1997environmental functions; covering more than one district. AMDAL Regulation, which

> reviews AMDAL of activities devolves within-provincewith potentially broad social AMDAL review to Provincialimpacts, covering more than AMDAL Commnissionsone province and having (KODAM), but not any lower

I security implications. than the provincial level.Spatial > derives national spatial plan > determines provincial spatial Issue: focus on district spatialPlanning from district spatial plans. plans based on mutual plans could conflict with

agreement between provinces forestry article under PPand districts. 25/2000 (Article 2.4c), which

vests authority to determineforest boundaries and changesof status and function withGovernment

1" Government Authority is implementable either at the center or by the province as an administrative function andextension of the center (deconcentration).12 Authority of the province as an autonomous region is distinct from administrative authority (per ft. 5), and isimplemented by the regional head, DPRD and dinas (devolution).

7

Table 2. ContinuedLand > Determines: > Local Land Office (Dinas BPN proposes to retain

a requirements for issuance of Pertanahan): provincial kanwils asland rights, land reform and * issues land tenure certificates extension of central authority.National Cadastral on demand and in "systematic" District kandeps to be mergedFramework; registration campaigns; with dinas. Major reform of

* land administration * issues land acquisition and land administration is astandards; development location permits priority of current Gol

* land service cost guidelines; in accordance with local master leadership, as land was a> manages "national lands," plans; major factor in the corrupt

including government sites * supports local spatial planning, activities of previous Gol.and facilities, national parks * coordinates with land and Proposals for new landand preserves, military building tax (PBB) office to legislation and majorlands and forests; and prepare integrated cadaster; regulatory reform are under

> develops oversight/ and active discussion. Bank hassupervision system for * coordinates with local forestry assisted in drafting policyperformance of office for uniform de... of all discussion papers and reformdecentralized land offices. lands in local govermnent area. options with the Land

Administration Project -Part C(Loan 3792-ND).

Regarding the AMDAL (environmental officials (see "Transition arrangements andassessment) process, PP 25/2000 assigns the role of the provinces" and Figure 1environmental safeguards review of below). The resources of provincial capitalactivities that have broad social impacts, cities and towns (universities, laboratories,security implications and/or cover more NGOs, constituencies for sustainablethan one province to the center. This is resource use, more developed governmentconsistent with the current AMDAL agencies) could be used as training groundsRegulation, which places national-level to develop AMDAL skills and proceduresenvironmental assessment review under a for subsequent devolution to the districts.single Central AMDAL Commissionmanaged by BAPEDAL. PP 25/2000 The variable allocation of responsibilityfurther specifies that provinces will conduct for natural resource utilization under PPAMDAL review of activities covering more 25/2000 is demonstrated by the forestry andthan one district. As the district is the mining sectors, which have proposed quitedefault level to which authority is different allocations of functions amongtransferred under Law 22, this implies that levels of government. Such variation coulddistricts will conduct AMDAL review of make cross-sectoral coordination amongactivities within their boundaries. natural resource sectors, safeguards andHowever, the current AMDAL Regulation spatial planning at district and provincialdevolves within-province environmental levels extremely difficultsafeguards review to Provincial AMDALCommissions (KODAM), but no lower. In the forestry sector, PP 25/2000 does

not devolve two primary functions -As a transitional measure, AMDAL determination of forest areas and changes in

review of within-district activities could be their status and function (includingconducted at the provincial level, as part of conversion), nor does it devolvea larger provincial training effort for district management of various conservation and

8

protected areas. It places these functions, as mining operations, often can no longerwell as policy and standard setting, under support the local population, and they leavedirect control of the center, and assigns the area. Numerous examples of suchcross-district functions, e.g. granting some dying towns can be found in the miningcross-district permits, to the provinces. This districts of West Virginia and Pennsylvania inallocation of most planning and the United States. To avoid the adverseimplementation functions to central and environmental effects of the unequalprovincial levels under PP 25/2000 appears negotiating position of a districtconsistent with the new Law 41/1999 on government relative to a medium- or large-Basic Forestry. However, while the Forestry scale company, the scale of proposed miningLaw assigns the provinces a relatively activities should be a factor in allocation ofsignificant role, Law 22/1999 casts the regulatory authority among levels ofprovinces mainly as bystanders in the government, with small-scale mriningdecentralization process. regulated at the district level, and medium-

and large-scale mining regulated at higherIn contrast, in the case of general levels. However, local government and

mining,'3 PP 25/2000 assigns standard- and communities should be consulted andcriteria-setting functions to the center and participate in government oversight ofcross-district matters to the provinces. All mining activities, regardless of which levelother operations, regardless of scale, are of government has lead responsibility.implicitly devolved to the district. WhereasMoFr's centralized approach appears to be Adjudication and recentralization. Lawbased on Article 7.2 of Law 22/1999, which 22/1999 and PP 25/2000 provide severalreserves natural resource utilization to the "checks and balances" to prevent or correctcenter, this radical decentralization of misallocation of functions. For example, ageneral mining under PP 25/2000 is pegged district that will not or cannot implement ato Artide 10.1 of Law 22, which authorizes mandatory function can seek to "upload,"regions to manage natural resources in their i.e., to transfer implementing authority toareas, regardless of scale. the province, and the province may in turn

seek to upload functions it cannot performIn transactions between rural kabupaten to the center. The President may veto

and large- and medium-scale mining regional regulations and decisions by headscompanies, the most likely outcome, given of regions. The Law establishes a Regionalthe districts' limited technical capacities and Autonomy Advisory Board, chaired and co-likely absence of environmental chaired by the Ministers of Home Affairsconstituencies, and the mining companies' and Finance respectively, to advise theresources and significance to the local President on fiscal relations and allocationeconomy, is a "company town" scenario, in of functions between levels ofwhich the district government, beholden to government.'4

the company for revenues and employment,gives little or no attention to environmental Good governance in decentralizationand social impacts of mining operations. requires adjudication and "recentralization"When local mineral deposits are depleted, mechanisms such as the Regional Autonomythe local resource base, which typically Advisory Board. Two international examplessuffers severe soil degradation during

14 See Law 22/1999, Articles 115-116 and Government13 All mining other than oil and gas. Regulation 25/2000, Article 4.

9

of central governments retaining and using The structure of the Regional Autonomythe recentralization option are relevant. In Advisory Board established under Law 22the United States, the federal government and PP 25 - its multi-level membership,delegates environmental management including Ministries of Home Affairs, Financeresponsibility to the states, contingent on the and other concerned ministries, the Regionalstates' performance. Enforcement of national Government Association (presumably bothminimum standards may be delegated to district and provincial levels) andstates, but not below the state level. State representatives of regional legislaturesenvironment agencies must monitor and (district and provincial DPRDs) - is sound.report to the US Environmental Protection 'However, several additional provisions areAgency (USEPA), and USEPA can rescind needed, to strengthen the Board'sdelegation of functions for poor performance. adjudication and recentralization roles, bothIf delegation is rescinded, functions are in general and relative to natural resource andordinarily taken over by one of USEPA's ten environmental management in particular.regional offices, which are deconcentratedbranches of USEPA, similar to Indonesia's * First, the Board should monitor regionalBAPEDAL Regional. governments' performance of decentralized

functions systematically and proactively,In Korea, the recentralization option has instead of waiting for appeals from regional

allowed the Ministry of Environment (MoE) governments. Such appeals are likely to beto withdraw authority that was prematurely infrequent, because governments rarelydelegated to regional environmental agencies, give up functions and accompanyingthen redelegate once local capacity improved. budget voluntarily, even when theirMoE originally delegated broad air and water performance is poor.pollution control functions to six regionalenvironmental agencies, which were new and * Second, a cross-sectoral Natural Resourcelacked experience, in 1986. In 1992, a toxic Council should advise the Board on mattersspill in the Nakdong River, upstream of related to natural resource management andKorea's third largest city, drew national environmental safeguards at district andattention to the regional agencies' weak provincial levels. Given the Board's broadtechnical and coordinating capacities, and mandate across all sectors, it will requireMoE recentralized many previously specialist advice. The Natural Resourcedelegated functions. Meanwhile, regional Council, comprised of government agenciesand local environment offices worked to with natural resource mandates (Forestry,build local capacity. Two years later, when a Agriculture, Mining and Energy,second major spill occurred at the same Environment, River Basin Agencies) atlocation on the Nakdong River, MoE central and regional levels, plus NGOs anddetermined that regional capacity had other stakeholders, would assess regionalsubstantially improved, and re-delegated the performance of natural resource andfunctions that had been withdrawn at the environmental management functionstime of the first spill. An important lesson of against national minimum standards,Korea's experience is that transfer of consult with regional stakeholders, andresponsibilities should be contingent on provide technical inputs to the Board'sperformance, and recentralization pending submissions to the President. The Boardimprovement of regional capacity should and Council should include informedalways remain an option. members of civil society who are expert in

10

natural resource and environmental agencies) would be used as trainingmanagement. grounds to produce both skilled

manpower and procedures that wouldThird, local communities at both subsequently be devolved to the districts.provincial and district levels should have Provincial agencies would be responsiblestanding to submit appeals to the Board for providing safeguards training towhen regional performance of district officials. Secondment of districtdecentralized functions, including natural officials to the provinces for trainingresource utilization and environmental would be a condition for transfer ofmanagement, is inadequate. If failure to authority to the districts.comply with national minimum standardsis confirmed, recentralization should be * During the third stage, district officials,an option. assisted by provincial agencies, would

pilot integrated district planning,Transition arrangements and the role of permitting, environmental safeguards and

the provinces. While the goal of the new monitoring of within-district and small-legal framework - to devolve management scale activities at the district level. Theseof most government services to the districts temporary measures would satisfy both- is clear, implementation mechanisms and the objectives of Law 22/1999 andtransition arrangements remain to be practical requirements for successfulidentified. To reduce confusion in the early decentralization. Authority in the naturalphases of decentralization and minimize the resource and environment sectors wouldneed for recentralization, devolution could be fully decentralized when the Regionalproceed in stages. (See Figure 1 Strategy for Autonomy Advisory Board certifies that aDecentralization of National Resource district has developed adequate capacitySectors with Environmental Safeguards.) to handle full decentralization.

* During the first stage, concerned Implementing regulations could helpprovincial agencies (BAPEDALDA, clarify expectations under Law 22/1999 andBAPPEDA, forestry, mining and other PP 25/2000 by establishing a notionalnatural resource agencies) would receive schedule for staged decentralization over aintensive safeguards skills training, 3-5 year transition period. However, givenincluding training of trainers.15 inherent disparities in the regions' local

capacities, natural and human resource* During the second stage, district agencies, endowments, commitment to

anticipating eventual devolution of decentralization, and ability to generateauthority for natural resource utilization own revenues, uniform decentralizationand environmental management, would across regions and across sectors is highlysecond district environmental and natural unlikely. Assigning differentiated authorityresource staff to interim district offices at to subnational governments based onthe provincial level (magang), where the regional political will, technical capacity,resources of provincial capital cities population, resource endowment and the(universities, laboratories, NGOs, like can alleviate the pressure of having toconstituencies for sustainable resource implement a country-wide uniformuse, more developed government decentralization program for natural

resource utilization and environmental

15 See Figure 1 and Sections 3 and 6. safeguards. Under the umbrela of

11

asymmetric decentralization, the pace and resource exploitation in the forestry, miningsequencing of decentralization in the and fisheries sectors, in order to generatenatural resource and environment sectors local revenues. As the district head iscan be tailored to local capacity, elected by and financially accountable to theconstituencies and needs, while remaining DPRD, these incentives are likely to provewithin the parameters of the notional compelling for bupatis in revenue-starvedtransition schedule. rural districts. In a context of poor

implementation of current laws, incompleteRegional Finance. Law 25/1999 on the national standards, underfunding of

Fiscal Balance Between the Central environmental services and limited localGovernment and the Regions defines regional capacity, the increased pressures on localfinancing mechanisms and accountabilities resources resulting from reliance onfor the restructured regions. Provincial and resource-based balance funds are unlikelydistrict financing mechanisms differ to "rationalize" use of natural resources.significantly under Law 25. While they may fill district coffers, they are

unlikely to produce "win-win" results inAs autonomous regions with terms of sustainable use of the local

decentralized authority, districts have their resource base.own budgets (APBD). The districts' sourcesof revenue include: a) own (locally The structure and environmentalgenerated) taxes, levies and region-owned implications of regional finances under Lawenterprises; b) "balance fund" allocations 25/1999 differ significantly at the provincialfrom the State Budget (APBN), which are level. The provinces' three principal sourcesshared between districts and the center, and of revenue include: a) own revenues, chief ofinclude the General Allocation and Special which is the motor vehicle tax; b) allocationsAllocation; c) regional loans; and d) other from the APBN via the sectoral ministries,legal revenues. During the 1990s, districts which comprise a "deconcentration budget";typically generated only a fifth of their total c) shares of oil and gas revenues collected bybudgets, and depended on sectoral and the center and remitted to the provinces; andINPRES funds from the State for most of d) the General Allocation. However, oil andtheir budgets. Under Law 25, INPRES and gas revenues are significant revenue sourcessectoral allocations from the APBN will be for the four main oil and gas-producingreplaced by the General Allocation, Special provinces only (Riau, Aceh, East KalimantanAllocation and other "balance funds." Two and Irian). Most provinces will dependof the three types of balance funds are land mainly on sectoral allocations from theand natural resource revenues collected by ministries, for which the governor isthe center - that is, taxes on land, property accountable to the mninistries, and the Generaland transfer of land and property rights, Allocation. Under these circumstances, theand shares of forestry, mining, fisheries and governor's opportunities and incentives toReforestation Fund revenues (see Table 3). generate provincial revenues by acceleratingThe only balance fund not based on land or exploitation of natural resources will beresource revenues is the General Allocation. limited relative to the compelling incentives

at the district level.The introduction of resource-based balancefunds creates perverse incentives for Existing natural resource chargesdistricts to accelerate or, more passively, beyond the ones cited in Law 25 indudecondone land conversion and natural park entrance fees, which are collected by

12

the center, and irrigation water use fees, positive ways, and financing environmentalwhich are collected by provincial public services. Districts have recentlyworks agencies. The Directorate General of experimented with auctioning use rights toNature Conservation (PKA) is conducting high-value forest products, such as birds'experiments in revenue sharing with local nests, but the results of these experimentscommunities and/or local government as a have not been entirely satisfactory in termsmeans of improving the sustainability of of sustainability.protected areas located near ruralpopulations. These and other experiments Charges for BAPEDALDAs' AMDALwith revenue sharing in buffer zones and review and environmental monitoringprotected areas should be encouraged. services could help recover costs at districtPotential resource-based charges should be and provincial levels. Local environmentevaluated in terms of their effectiveness in agencies in New Zealand have had quitegenerating local employment and revenues, positive experience with such charges.influencing behavior in environmentally

Table 3. Distribution of Revenues between Center and Regions Under Law 25/1999(percentage of revenue allocated b level of government)

Type of shared fund Revenue instrument Center Regions

Region's share of natural Land & property tax 10* 90**resource-related revenues

Tax on acquisition of land & 20* 80**building rights

Natural resources: 20 80**forestry, mining, fisheries

Oil 85 15***

Gas 70 30***General allocation provinces 10

districts 90Specific allocation Reforestation 60 40****

*shared among all districts;'remitted to districts of origin***remitted to provinces;****remitted to producer area

13

Figure 1. Strategy for Decentralization of Natural Resource Sectors with Environmental Safeguards

Role of Provinces and Districts

Building Blocks Role of The Center Phase One Phase Two Phase Three

SpatialSafeguards Districts second Districts Planning

Decentralization should be Concemed natural resources training for BAPEDALDA, conductimDementedlization shouldbeagencies (MoFr, MME, MoA, provincial natural safeguards andimplemented MoMEx and BAPEDAL) BAPEDALDAs resource and integrated Monitoring &asymmetrically provide: natural BAPPEDA staff planning and enforcement

*training of trainers resource (magang) to permitting _otraining to provincial agencies and provinces for pilots, assistedcounterparts BAPPEDA safeguards by staff of AMDAL

Decentralization support *tedinical support to NRC __ training concernedgrants to provinces and '\provincialdistricts that cormmit to \TRACK ON0 agenciesi__

build: Technical Capacity/ ~~~~~~~~~~~~~~~~~~~~Adequate*technical capacity ~~~~~~~~~~~~~~~~~~~~~~~~~Environmental

senvironmental Ministry of Home AfairDistrict civil Distrcts Safeguardsconstituencies g and the Ministry of Finance BAPEDALDAs society leaders conduct

Restabllsh the survey opinion join provincial constituencyRegional Autonomyleaders on constituency building and

Advisory Board natural building accountability aldecadvises President on resources and training and pilots assisted resource

Strengthen checks & l l all sectors environmental accountabihty by provincial permittingbalances in the legal * adjudicates knowledge, pilots constituercyframework by establishing. decentralization and re- attitudes and members

proactv Regional centralization disputes actions Reporting oneproactive Regional l I\ compliance with lAutonomy Advisory Board national minimum*Natural Resources Council InrTRACK TWO tionaliniudsm

Constituency Buildin standards

Local CommunityMinistry of Home Affairs, s identify provincial environmentalMoFr, MME, MoA, and constituencyMoMEx establish the * provincial constituencies assist districts

Natural Resources Council* advises Board on regional ave standing to appeal poor regional

safeguards and natural resource and environmentalenvironmental management performanceperformance

* consults with local l_l_lcommunities and NGOs

Vesting local property rights in pollution control than do their national-resources such as forests and fisheries can level counterparts. Under thesecreate positive incentives to offset the circumstances, the strategy guidingperverse ones cited above, as well as a local technical capacity building forrevenue base, but the ongoing national decentralization of environmentalforestry and land policy dialogues are likely safeguards and natural resource utilizationto be long and difficult.'6 There is significant needs to:risk that by the time these dialogues producenew, consensus-based local property rights, * define clearly the skill requirements of thelocal resource bases may be severely safeguards services the provincial anddamaged or even exhausted. district environment agencies are expected

to deliver; andOther proposed policy instruments

currently under discussion include a * articulate the sustainability criteria thatperformance bond for production forest need to be mainstreamed into theconcessionaires and a reclamation bond for operations of the line agencies whose "biglarge-scale mining activities. However, even ticket" decisions most affect theif significant authority and oversight of sustainability of the local resource base andmining are devolved to the district level, as local pollution levels. Environmentalimplied in PP 25/2000, it is important that sustainability has to be part of thesedistrict leaders understand that the bonds agencies' decentralization calculus.must be held in trust until expiration of theconcession or mine closure, and cannot be The core environment agencies. There areconsidered sources of local revenue. three levels of regional BAPEDAL. The first,

the 27 provincial BAPEDALDA (BAPEDALIn the short to medium term, districts Daerah) are under the "regional

and provinces will probably have to rely on governmentY/"autonomous" side of thethe center to pay for regional environmental provincial organization structure.17 Like theservices, at least in part, through earmarked dinas (bureaucratic departments of thegrants. To attract higher-level financing for regional government), they report to thethese services, regional officials and governor, and are not directly orenvironmental constituencies will need to hierarchically related to MLH or BAPEDAL atlearn to track environmental expenditures, the center. In most provinces, small, low-justify them in terms of results, and lobby for level provincial Environment Bureaus (Birothem (see Section 5, Regional Environmental Lingkungan Hidup, BLH), in place since theExpenditure). 1980s, were upgraded in 1997-98 to form

BAPEDALDAs, which have higher-echelon3. TECHNICAL CAPACITY managers and more direct access to the

governor than did the BLH. Some of theAt provincial and district levels, the largest provincial BAPEDALDA have as

fledgling environmental agencies will no many as 50 staff.more control decisions on "big ticket" Second are the district BAPEDALDAs,natural resource management issues and which report directly to the mayor or bupati.

16For background on the forestry dialogue, see 17See the description of the previous regionalIndonesia - Environment and Natural Resource governance framework and organization of theManagement in a Time of Transition, Ch. 2, "Forest provinces under the new framework in Section 2, theResources." Legal Framework and Standards, above.

15

District BLH, established in the 1990s, are capacities need further strengthening at thecurrently being upgraded by the Ministry of provincial level, and safeguards skills suchHome Affairs into district BAPEDALDAs, as these should be a top capacity buildingone by one. The larger municipal priority. As noted above, safeguardsBAPEDALDAs typically have over 30 staff. experience is even more scarce at the districtRural districts, particularly in low population level, where BAPEDALDAs still lack aareas, are likely to be among the last regions formal AMDAL review mandate under theestablishing BAPEDALDAs. existing AMDAL Regulation.

The third type of regional BAPEDAL are Some regional staff have receivedthe four BAPEDAL Regional (previously training in monitoring methods, and in overknown as BAPEDAL Wilayah), which are half the provinces, BAPEDALDAs havedeconcentrated branches of BAPEDAL, gained industrial effluent monitoringlocated in Riau, Bali, South Sulawesi and experience through participation inJakarta. Like the regional offices of the BAPEDAL's PROPER Prokasih industrialUSEPA, each BAPEDAL Regional has water pollution control program. However,oversight over a set of provinces. However, training in compliance and enforcementthe nature of the BAPEDAL Regionals' skills such as inspection methods has beenoversight and technical assistance functions limited mainly to central BAPEDAL staff inremains to be defined. Jakarta.

Safeguards services the district and Establishing technical credibility withprovincial BAPEDALDA are expected to the regulated community is an issue fordeliver include an improved AMDAL regional BAPEDALs at all three levels. Inprocess, improved monitoring of Semarang, for example, industrial plantcompliance with national minimum managers surveyed in 1998 generallystandards, and enforcement services. The agreed that municipal Industry and Tradeskill requirements will need to be clearly Office staff had better technical skills anddefined, relative to level of government and were better able to advise on pollutionthe mix of environmental issues arising in prevention and mitigation than municipalspecific localities. BAPEDALDA staff. The latter, they said,

tended to visit plants in response toAt all three levels, regional BAPEDAL complaints from the community only, to

staff generally have university degrees in raise mainly legal issues and to quicklynon-technical subjects.18 Most, if not all, reach the limits of their technical knowledgestaff at all levels have received advanced in discussions with plant managers.19

AMDAL training. As provincialBAPEDALDAs have had the mandate to For BAPEDALDAs in resource-rich, lowmanage cross-sectoral Provincial AMDAL population areas and rural kabupaten,Commissions for only three years, not all where priority environmental issues areprovinces have fully operational AMDAL mainly in the natural resource sectors, theConmmissions. Hands-on AMDAL review technical credibility challenge will be evenexperience and implementation monitoring more acute. Given that BAPEDAL's

18 Regional BAPEDAL staff with biology or natural 19 See Jean Aden, "A Rapid Appraisal of Industrialresource-related training are few, and engineers are Pollution Abatement in Semarang, Indonesia: Issueseven more rare. and Opportunities," 1998.

16

mandate and experience have focused center. In MIME, the Environment andmainly on industrial and urban pollution to Technology Bureau (Biro Lingkungandate, both BAPEDAL and the regional Teknik) under the Secretary General's officeBAPEDALs at all levels lack knowledge and in Jakarta, in cooperation with donors, hasexperience in applying safeguards in the conducted environmental training, mainlynatural resource sectors. The recent for center staff, but including staff fromestablishment of BAPEDALDAs in the twelve provincial kanwil as well. MME'sresource-rich, low population provinces Mining Inspectorate under the Directorate-and rural kabupaten poses a strategic General of Mining (DGM), also in Jakarta, ishuman resource development issue for responsible for incorporatingregional BAPEDALs - to what extent environmental criteria into oversight ofshould BAPEDALDAs develop specialized mining sites and mine closure. In MoFr, theknowledge of environmental aspects of the Directorate General in which sustainablenatural resource sectors, and to what extent forest utilization practices is concentrated,should such knowledge be outsourced? If the Directorate General of Naturethe outsourcing option is chosen, without Conservation (PKA), operates separatelydeveloping sufficient in-house expertise to from other directorates general, and doesoversee natural resource safeguards, not offer enviromnental training.regional BAPEDALs' technical credibilitycould be seriously compromised. Progress in mainstreaming

environmental knowledge and goodIn the 1990s, BAPEDAL developed a practices in the line agencies has been slow

large stock of training materials, which have and uneven. A brief review ofbeen underutilized to date. Development of mainstreaming issues in the mining sectora capacity building strategy that uses these can provide a glimpse of the technicalavailable materials and develops additional challenges facing the natural resource linetraining materials in the natural resource agencies as they decentralize.sectors should be a top priority. Throughtraining of trainers, the center should Under the two parallel structures ofconsider mobilizing the BAPEDAL Regional regional governance inherited from theand provincial BAPEDALDAs to deliver New Order, regional governments have hadtraining to the districts. two distinct agencies with responsibility for

mining: Kantor Wilayah (Kanwil)Natural resource and other agencies. To Pertambangan, the representative of central

mainstream safeguards and best practices government (MME) in each province; andinto their operations, the natural resource Dinas Pertambangan, the correspondingline agencies will need sector-specific department of provincial and districtworking knowledge of national minimnum governrnents. Dinas Pertambangan reportsstandards, AMDAL preparation, types of to the governor or the district head (bupati)expected environmental impacts, and and thus is indirectly under the Ministry ofprevention and mitigation options in their Home Affairs. Each agency has differentsectors. Efforts to mainstream responsibilities. Kanwil Pertambangan hasenvironmental assessment review in the been responsible for mining in categoriesmajor development agencies date from the "A" (gold, uranium) and "B" (coal, oil, gas).1980s. Several ministries, including MME Contracts in these categories have beenand the Ministry of Industry, have managed almost entirely by MME Jakarta,established environmental units at the ordinarily with little or no consultation with

17

regional planners, mnining, or environmental communicate and coordinate regarding theservices.20 Dinas Pertambangan is results of the draft feasibility study and draftresponsible for mining in category "C", ANDAL. As a result, the final feasibilitywhich includes sand, gravel, marble, and study and the final ANDAL may contradictsmall gold mines, and has permitting each other, even to the extent that theauthority for these activities at the local ANDAL could recommend against issuancelevel. Typically, the coordination between of a permit which has already been approved.kanwil and dinas has been very poor.Whether kanwil and/or kandep and dinas A second disconnect, which foHlowswill be merged in the course of from the first, is the poor integrationdecentralization is not yet clear. What is between the ANDAL and oversight ofclear is that mainstreaming in the regions mining activities by the Directorate ofwill be subject to substantial inefficiencies, Technical Mining, and the frequent lack ofunless coordination improves. follow-up on the implementation of the

environmental management andPersistent "disconnects" in mainstreaming monitoring plans (RKL and RPL) that are

efforts at the center offer cautionary lessons attached to the approved ANDAL. Thesefor mainstreaming in the regions. The failures to communicate and coordinatedisconnect between the feasibility study and must be recognized and addressed at thethe AMDAL under MME's project approval regional level, if the regions are to grasp theprocess is a case in point. The permitting greatest short- to medium-term opportunityprocess requires preparation of a feasibility of the decentralization process, which isstudy and (depending on size and type of integration of planning, permitting, andmine) an ANDAL,21 which are to be reviewed environmental safeguards at district andtogether. However, a mining feasibility study provincial levels.is often already submitted to DGM andapproved before the related ANDAL is Another persistent cross-sectoral issuebegun. The interaction between the preparers at the national level - the endemic andof the ANDAL and the feasibility study that highly problematic conflict betweenshould lead to sound recommendations on between protection or production forestryenvironmental management does not occur. and mining as prospective uses of the sameMoreover, the two studies are not examined tract of land - is also a priority concern atby the same reviewer - the feasibility study is the regional level. Many mining locationsapproved by the Director General of Mining, are pinjam pakai (loaned for use) from thewhereas the ANDAL is approved by the Ministry of Forestry (MoFr). AgreementsSecretary General after review by the MME between the ministries specify that pinjamAMDAL Commission, with the Environment pakai land should be returned to MoFr in theand Technology Bureau providing the same state in which it was received.technical analysis. The Director General and However, a long-standing Presidentialthe Secretary General often fail to Decree gives mining priority over all other

land uses, and a recent inter-mninisterial20 decree regarding small-scale mining fails toThe single exception is small-scale gold mining,gieMFavocinteprtigpoeswhich is under jurisdiction of the Dinas give MoFr a voice m the permittig processPertambangan for small-scale mining. Citing the decree for2 1 An ANDAL is a detailed environmental impact small-scale mining, the provincial Forestryreport, which is required for larger, more complex Service of South Sulawesi recently issued 14projects, and is not to be confused with AMDAL, theenvironmental impact assessment process. rnining exploitation permits in a

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geologically unique karst area of South and uncertainties surroundingSulawesi that is under protective forest decentralization, which have given rise tostatus. Given cases such as this and the new claims by local communities overrudimentary state of reclamation plans and resource use rights and revenues from miningtheir implementation, the requirement that projects. Additional factors include powerfulland "borrowed" for mining should be interests' support for substantial ASMreturned in its original state lacks operations, and a general sympathy forcredibility. Another participant in the anyone trying to survive the crisis. Underregions' efforts to resolve cross-sectoral these conditions, it is unlikely that the end ofconflict should be the Regional Planning the crisis will bring a decline in ASM.Agencies (BAPPEDA) at provincial and Instead, ASM activities seem likely to increasedistrict levels. The BAPPEDAs have the over the medium term.mapping and overlay skills that are key todevelopment of integrated planning, While small-scale mining may increasepermitting, environmental safeguards and rural incomes in the short term, increasedmonitoring practices at both levels. The reliance on mining relative to agricultureBAPPEDAs have already conducted combined with significant environmentalprovincial joint planning exercises - called damage during the mining phase may havepaduserasi - with MoFr in the 1990s, but lasting impact on the potential for a morepending forestry reforms, paduserasi has balanced rural development in mined-overproduced limited results. To facilitate areas. Better practices and available,integrated regional planning, managed by affordable technologies can greatly reducethe BAPPEDAs, forestry reform is critical. mercury use and health impacts in the case

of artisanal gold mining, and several donorThe most urgent environmental challenge assistance initiatives are being considered to

for regional mining agencies under reduce or eliminate mercury use in golddecentralization is likely to be artisanal and processing in Indonesia.small-scale mining (ASM). Although regionalDinas Pertambangan already had permitting The recent entry of mining issues intoauthority over Category "C" mining the national environmental agenda and theactivities, including small-scale gold mining, pressing need to address the health risksprior to the current decentralization, they are associated with ASM offer an opportunityunprepared to address the exponential to make the mining sector a model forgrowth of small-scale mining that has sustainable decentralization of authorityaccompanied the economic crisis. Small-scale and responsibility in the natural resourceminers typically take no environmental sectors, with adequate environmentalprecautions. The environmental damage safeguards. Using past capacity buildingassociated with ASM, including initiatives as a foundation, MME'ssedimentation of water bodies, mercury environmental units at the center shouldpollution and total lack of land reclamation proactively train trainers in environmentalafter closure, is well known. However, with safeguards and best practices at thethe exception of approximately 400 legal provincial level. Partnerships withtraditional small-scale mining sites BAPEDAL to disseminate environmentaldesignated by DGM, ASM is essentially safeguards and with health agencies andunregulated. The inaction of the Dinas NGOs to spread knowledge of the healthPertambangan is partly due to larger issues - and occupational risks of mining to thespecifically, the sweeping political changes

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district level and below should be actively mineral deposits. And, as noted above, thepursued. new fiscal arrangements under Law 25 could

create perverse incentives for regional leaders4. ENVIRONMENTAL CONSTITUENCIES to accelerate natural resource use in order toAND ACCOUNTABILrrY generate regional revenues. On the other

hand, experience has shown that urban areas,Whether decentralization delivers positive with their institutional infrastructure

environmental outcomes or causes lasting (universities, laboratories, NGO branches,damage to regional resources will depend not relatively well-trained officials and politicalonly on the legal framework and regional leaders with a broader world view) aretechnical capacity, but on what regional ordinarily the earliest incubators ofleaders and their constituencies know, think environmental constituencies. If emergingand do to influence natural resource environmental constituencies are present atutilization in their regions. In countries all off Java, they would likely be found in thearound the world, emergence of capital cities of the largest provinces.environmental constituencies armed withknowledge of environmental cause and effect, Constituency survey. To provide anwell-articulated pro-enviromnental a