Spending for Development in Papua

Social, Economic and Fiscal Trends

Presentation for the Tangguh Independent Advisory Panel (TIAP)

World Bank
Poverty Reduction and Economic Management, Jakarta
1 Jakarta, April 2009
 Spending for Development in Papua:
Key Messages
Main message
Papuas key challenge is not to generate additional resources but to use the existing
resources wisely.
Poverty and the economy
Papua and West Papua (or Papua Barat) are provinces of extremes, with high poverty,
relatively high GDP, the lowest population density and the highest fiscal resources in
Indonesia.
Since 2002, poverty declined from 46 percent to 37 percent. However, Papua and West
Papua remain Indonesias poorest regions.
The district of Teluk Bintuni, where the new Tangguh plan is located, is lagging in most social
and economic indicators, with the exception of regional GDP and child immunization.
Revenues, expenditures and fiscal projections
Since 2000, Papuas revenues have increased fivefold (in real terms). Since 2002, when
special autonomy started, revenues have increased 2.5 times (in real terms).
Spending on government administration has traditionally dominated Papuas expenditures.
However, since 2006, infrastructure spending has increased substantially and overtaken
government administration.
After modest increases in the next 5 years, Papuas overall revenues are expected to double
by 2020 but only partly due to revenues from Tangguh LNG. However, the province of Papua
Barat will substantially increase its revenues due to Tangguh.
2
1
 A note on the use of the term Papua

Papua refers to both Papua province and Papua

Barat province.

Papua province refers to the Province of Papua after

splitting with Papua Barat.

Papua Barat refers to the Province of Papua Barat

(West Papua), which was established in 2004.

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2
Poverty and the Economy

4
 Since 2002, poverty declined from 46 percent to 37
percent but Papua remains Indonesias poorest region

50
46.0 41.5 40.8
40 44.4 37.0
41.8 40.8 41.3 39.3
Poverty rate (%)

38.7 38.7
30 35.0

19.1
20

18.4 18.2 17.4 16.7 16.7 17.8 16.6 15.4

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008

Papua Papua Barat National

Source: Central
Source: CentralBureau
BureauStatistic (BPS)
of Statistics (BPS), various publications.

5
3
 Regional GDP per capita (Rp million)

0
10
20
30
40
50
60
70
80
Maluku Utara

6
NTT
Maluku
Gorontalo
Sulawesi Barat
NTB
Lampung

Source: Central Bureau of Statistics (BPS)

Bengkulu
Sulawesi Tenggara
Sulawesi Selatan
Sulawesi Tengah
Yogyakarta
Jawa Tengah
Kalimantan Barat

4
Jambi
Sulawesi Utara
Kalimantan Selatan
Banten
Bali
Sumatra Barat
Jawa Barat
Kalimantan Tengah
Sumatra Utara
Jawa Timur
Papua Barat
Sumatra Selatan
National
Bangka Belitung
Aceh
Papua
Kepulauan Riau
Riau
DKI Jakarta
Kalimantan Timur
higher than the national average, mainly due to mining
Papuas regional GDP is high; Papua province is even 50%
 Regional GDP excluding mining (Rp million)

0
10
20
30
40
50
60
Maluku Utara
NTT

7
Maluku
Gorontalo
NTB
Sulawesi Barat
Lampung

Source: Central Bureau of Statistics (BPS)

Bengkulu
Sulawesi Selatan
Sulawesi Tenggara
Papua
Jawa Tengah
Jambi
Sulawesi Tengah

5
Kalimantan Selatan
Yogyakarta
Sumatra Selatan
Kalimantan Barat
Papua Barat
Sulawesi Utara
Banten
Bali
Aceh
Sumatra Barat
Jawa Barat
Bangka Belitung
Kalimantan Tengah
National
Sumatra Utara
Jawa Timur
Kalimantan Timur
Riau
Kepulauan Riau
national average, and Papua Barat is richer than Papua

DKI Jakarta
However, excluding mining, both provinces are below the
 Mining dominates the economy of Papua province

Government
administration*, 5%
Transportation and Others**, 3%
communication, 4%
Agriculture, 11%
Trade, restaurant, and
hotel, 4%

Construction, 4%

Mining, oil, and gas,

69%

Note:
* Government administration mainly consists of salaries. Public investment, including for administration (e.g. cars offices) is part of the
other economic categories. Excluding mining, the share of core government administration would raise to above 15% of GDP, one of
the highest in Indonesia.
** Includes sectors such as manufacturing, financial services, electricity, gas, and water supply.
Source: Central Bureau of Statistics (BPS)
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6
 while Papua Barats economy is much more diversified

Government
Others**, 2%
administration*, 8%

Transportation and
communication, 7% Agriculture, 27%

Trade, restaurant,
and hotel, 10%

Construction, 8%

Mining, oil, and gas,

Manufacturing 17%
( related to o il and gas ),
19%

Note:
* Government administration mainly consists of salaries. Public investment, including for administration (e.g. cars offices) is part of the
other economic categories. Excluding mining, oil, gas and related manufacturing the share of core government administration would raise
to 11% of GDP, also one of the highest in Indonesia.
** Includes sectors such as financial services, and electricity, gas, and water supply.
Source: Central Bureau of Statistics (BPS)
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 The district of Teluk Bintuni is lagging in most social
and economic indicators, with the exception of
regional GDP and child immunization.
Teluk Bintuni Value Rank in Papua Rank in Papua Barat
(out of 29) (out of 9)

Human Development Index (BPS) 2006 60.1 21 8

Population (BPS) 2006 50,766 20 6
Gross Regional Domestic Product per capita
(BPS) 2006
10,504,400 8 3

Net Enrollment Rate for Primary % (Susenas)

2007
86.7 21 8
Net Enrollment Rate for Junior % (Susenas)
2007
47.2 14 5
Net Enrollment Rate for Senior % (Susenas)
2007
23.8 20 7
Children<5 yrs with immunization % (MoH
Survey) 2008 48.4 6 2

Household with access to safe water % (MoH

Survey) 2008 20.8 19 9

Household with access to electricity %

(Susenas) 47.6
2007Central Bureau of Statistics (BPS) and Ministry 16 7
Source: of Health
Source: Susenas, BPS and Ministry of Health statistics.

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 Revenues, Expenditures
and Fiscal Projections

11
 In 2002, Papuas revenue per capita was the
second highest in Indonesia
3.5

3.0

2.5
Rp Million

2.0

1.5

1.0

0.5

0.0
Yogyakarta

NAD

Maluku

Maluku Utara
NTT
Jawa Barat

NTB
Banten

Bali

Riau
Papua
Bengkulu

Gorontalo

DKI Jakarta
Jawa Tengah

Bangka Belitung
Sumatra Barat
Kalimantan Barat
Jawa Timur

Jambi
Lampung

Sumatra Utara

Sumatra Selatan

Sulawesi Utara
Sulawesi Selatan
Sulawesi Tengah

Sulawesi Tenggara

Kalimantan Selatan

Kalimantan Tengah

Kalimantan Timur
Own Source Revenue per capita (2002) General Allocation Fund (DAU) per capita (2002)
Shared Tax Revenue per capita (2002) Shared Natural Res ource Revenue per capita (2002)
Special Autonom y Fund (Ots us ) per capita (2002)

Note: Consolidated data (province + districts) per capita.

Source: Regional Information Financial System (SIKD) Ministry of Finance and BPS.
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 and by 2009, Papua and the new Papua Barat province
have become Indonesias fiscally richest provinces

10

6
Rp Million

0
Yogyakarta

Aceh
Maluku
Maluku Utara
NTT
Jawa Barat

Papua Barat
NTB

Bali

Riau

Papua
Banten

Bengkulu
DKI Jakarta

Gorontalo
Jawa Tengah

Bangka Belitung

Kepulauan Riau
Sumatra Barat

Sulawesi Barat
Kalimantan Barat
Jawa Timur

Jambi
Lampung

Sumatra Utara

Sulawesi Utara
Sumatra Selatan
Sulawesi Selatan

Sulawesi Tengah

Sulawesi Tenggara
Kalimantan Selatan

Kalimantan Tengah

Kalimantan Timur
Ow n Source Revenue per capita (2006) General Allocation Fund (DAU) per capita (2009)
Shared Tax Revenue per capita (2006) Shared Natural Resource Revenue per capita (2006)
Special Autonomy Fund (Otsus) per capita (2009)

Note: Consolidated data (province + districts) per capita.

Source: Regional Information Financial System (SIKD) Ministry of Finance and BPS.

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10
 which is partly due to additional transfers through
the special autonomy fund, which only Papua, Papua
Barat and Aceh are receiving

Oil and Gas Revenue Special Autonomy

Province
Shares[1] allocation (Dana Otsus)

2001-2008 70% 2% of total DAU[2]

Papua
from 2009 70% 1.4% of total DAU[3]
2004-2008 70% 0[4]
Papua Barat
from 2009 70% 0.6% of total DAU
Other provinces
pre 2008 70% 0
Aceh
from 2008 70% 2% of total DAU
Rest of Indonesia Oil: 15%, Gas: 30% 0
[1] The revenues will be allocated to the provincial government, producing districts, and other districts within the province.
[2] DAU: General allocation funds
[3] Starting from 2009, the Papua and West Papua provinces got 70% and 30%, respectively, of the Otsus funds for the whole Papua Island.
[4] West Papua was established in late 2003. However, until 2008, the Otsus funds for all districts in the province were managed by the
Papua provincial government, and the West Papua provincial government did not get any Otsus funds.
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 Transfers to Papua increased significantly in 2006. Since then,
they remained stable for Papua province but continue to increase
for Papua Barats due to higher Special Autonomy allocations

Papua Papua Barat

7
16

14 6

12 5
Rp Trillion

Rp Trillion
10
4
8
3
6
2
4

2 1

0 0
2003 2004 2005 2006 2007* 2008* 2009** 2004 2005 2006 2007* 2008* 2009**

DAU Revenue sharing DAU Revenue sharing

Special autonomy funds DAK Special autonomy funds DAK
Total transfer Without burden sharing policy Total transfer Without burden sharing policy

Source: SIKD and Balancing Fund Allocation (Ministry of Finance).

Note: - Consolidated data (province + districts) for Papua and Papua Barat, in constant 2007=100. In 2006, shared tax data only for income tax.
- Since 2009, the central government shares the burden of energy and fertilizer subsidies with sub-national governments. Approximately
26% of the estimated subsidies will be deducted from the DAU-pool of sub-national governments.

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12
 Spending in Papua continues to be dominated by districts
which provide approximately 75% of expenditures since 2006

18

16

14

12
Rp Trillion

10

0
2004 2005 2006 2007* 2008** 2009***
Note : 2004-2006: Realization, 2007: Realization (Central) and Plan (others), 2008: Unaudited Realization
(Central) and Estimation (others), 2009: Estimation
Central Province Districts
Source : DG Budget,
Note: Consolidated dataRegional
(province +Finance Information
districts) for Papua and System (SIKD),
Papua Barat Min of
in constant Finance.
2007=100. The central government spending
does not include line ministries spending through their representative offices in the regions.
Source: SIKD, Ministry of Finance, provinces budget data.
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13
 Since 2005, infrastructure spending increased substantially
and became Papuas main expenditure; government
administration remains high in second place
12

10

8
Rp trillion

0
2002 2003 2004 2005 2006 2007*

General Government Administration Inf rastructure

Public Health Education and Culture
Housing, Labor, and Social Af f airs Agriculture, Forestry, Plantation, Fishery, and Cooperatives
Industry, Trade, and Mining

Note : - Consolidated data (province + districts) for Papua and Papua Barat province in constant 2007=100.
- * Plan budget data.
Source : SIKD, Ministry of Finance and provinces budget data.

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 Assumptions for future revenue projections, particularly consi-
dering additional revenues from Tangguh LNG (see next two slides)

General revenue projection:

Central government growth projections: 4.7% (2009), 5.6% (2010), 6.3% (2011), 6.40% (2012), 6.7% (2013),
7.0% (2014), 7.0% (2015), 7.0% (2016), 7.0% (2017), 7.0% (2018)
Revenue/GDP (for US$ 40 per barrel, for other oil prices proportionately higher): 15.9% (2010), 15.7% (2011),
16.0% (2012), 16.6% (2013), 16.8% (2014), 16.9% (2015), 16.7% (2016), 16.6% (2017), 16.3% (2018)
Ratio of Papua DAU to total national DAU: 5%
Ratio of special autonomy fund to total national DAU: 2%.
Ratio of Papua revenue sharing to total national revenue sharing: 4.4%
Ratio of Papua DAK to total national DAK: 8.4%

Revenue projection from Tangguh LNG:

Annual production: gradually increase from 2.6 in 2010 to 7.6 million ton in 2015.
Investment cost plus interest: USD 9.6 billion.
Ratio of investment credit and cost recovery to gross revenue: 80%.
Ratio of cost recovery to gross revenue: 30%.
Contractor share of equity to be split: 71% (before tax).
Effective tax rate: 44%.
Regional tax: 13.6%.
Revenue sharing to central government: 30%.
Revenue sharing to Papua: 70%.
Note: For more details on the relationship between oil prices and the Indonesian budget as well as revenue sharing with the regions see Agustina et al
Black hole or black Gold? The impact of oil and gas prices on Indonesias Public Finances, Policy Research Working Paper (4718), World Bank.
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 Based on these assumptions, Papuas revenues are expected
to double by 2018, even though revenues from Tangguh would
only add another 8-12% (Rp 3-5 trillion) in extra revenues

45
End of Tangguh
investm ent recovery
40

35

30
Start of subsidy "burden sharing"
Substantial increase in transfer
25 across Indonesia
Rp trillion

20
Start of Papua
Special Autonom y funding
15
Beginning of decentralization

10

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

40 60 80 40 (No Tangguh)

Note: Consolidated data (province + districts) for Papua and Papua Barat, in constant price 2007=100.
Source: MoF and WB staff estimation.

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 However, for Papua Barat the increase will be significant
because it would incur all of Tangguhs shared revenue:
By 2018, at US$40 per barrel, revenues would increase by almost 30% compared
to the baseline; at US$80 per barrel, revenues would increase by more than 50%

18

16

14

12
Rp trillion

10

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

40 60 80 40 (No Tangguh)

Note: Consolidated data (province + districts) for province and districts in Papua Barat, in constant price 2007=100.
Source: SIKD/MOF and WB staff estimation.

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For information please contact the Public
Finance and Regional Development team
of the World Bank in Indonesia:

Wolfgang Fengler (wfengler@worldbank.org)

Dian Agustina (cagustina@worldbank.org)
Adrianus Hendrawan (ahendrawan@worldbank.org)