As the introduction, Johny explained the importance of financial modeling in the extractive sector, especially for mining, oil, and gas sector. The industries are regulated by contract. However, the contract is applied in a “complex environment” and because of that, the negotiation is permanent which money always becomes the priority. Commonly found in media how the government has a tough discussion with the industries to make a deal on royalty tariff and also tax provision.
“The contract itself is like a tangled yarn, its inner part is connected each other. This critical point is frequently neglected by the policymakers. The government often argue increasing royalty will bring bigger state revenue. However, increasing royalty means decreasing tax revenue, because the royalty payment is categorized as cost and deductible from the taxable income. At the end, the state revenue does not change much,” explained Johnny.
Johnny sees that the importance of civil society involvement in the discussion and the financial model can provide solid evidence which can be used by civil society as well as freely accessed by the public. An alternative perspective which does not necessarily put economic aspect first is clearly needed in the discussion.
Following the introduction of financial modeling is the demonstration of the financial model of copper and gold mining of Batu Hijau site in West Sumbawa District by Rizky Ananda, the researcher at PWYP Indonesia. “Through this financial model, the public can identify how much volume of copper and gold has been extracted. The public can learn the state revenue obtained from this project. Although many parameters and assumptions are used, the financial model accuracy is relatively high, considering the gap between benchmark price and realization is low. Therefore, the analysis of this financial model is quite valid,” said Rizky.
Rizky added that the finding on potential lost also revealed through this financial modeling. As an impact from hedging policy imposed by the company from 2004-2006, the government of Indonesia is indicated suffer losses around USD 388 million. “Not only able to provide a solid number which has been among private discussion between the government and industries, but financial modeling also encourages the government to use data as a basis for policy-making process, especially in the extractive sector.” underlined Rizky.