Indonesia’s richest district
Kutai Kartanegara, in the northern part of East Kalimantan, is a district rich in deposits of oil, gas and coal and with an abundant supply of timber. In 2006 the district generated Rp.66.5 trillion (A$7.5 billion) in Gross Domestic Regional Product (GDRP), equal to 40 per cent of provincial wealth and 2 per cent of the national GDP. Its 2007 budget was Rp.3.73 trillion (A$431 million), the highest among all local areas in Indonesia.
If decentralisation was going to work anywhere in Indonesia it should have worked here. Yet despite being so rich – and having a great development plan on paper – basic infrastructure remains minimal outside the main town of Tenggarong. In fact, even with rich oil reserves and the presence of the big international companies there to exploit them, the infrastructure and living standards in the coastal sub-districts of Samboja and Sanga-Sanga has remained so limited that coastal elites have tried to secede from the district. Corruption has also had a huge impact on local politics, shaping election outcomes not only through the buying of individual votes, but by much more sophisticated strategies, like standing dummy candidates.
The power of a district head
From the advent of regional autonomy, Kutai Kartanegara was dominated by the district head,Syaukani – whose positions, both as chair of the Association of Districts in Indonesia (APKASI) and the head of the East Kalimantan Golkar Office, cemented his status as a member of the political elite and gave him access to national powerbrokers. Syaukani, a local ‘son of the soil’ (putra daerah) began his career as a school teacher and local bureaucrat. He then leveraged his position as the head of the local Golkar Office after the fall of Suharto to first become speaker of the local parliament and then the district head. He also spent a period running the finances of the local government, which gave him valuable insights into possibilities for ‘creative’ fiscal management when there was a sudden influx of funds into the district under regional autonomy.
Syaukani hijacked the decentralisation process by using New Order style co-optation, dispensing favours through infrastructure project appointments and business licensing in order to keep the bureaucracy and law enforcement agencies close. In combination with Golkar’s domination over the local legislature, this enabled him to ‘streamline’ policy-making, particularly in the drawing up of annual budget plans and local development planning codes. As a consequence, there was extensive embezzlement of funds earmarked for local development projects, involving officials from various district institutions including the local parliament and the Construction and Revenue Offices, which were deeply entangled in Syaukani’s patrimonial web. Meanwhile, despite being exploited, entrepreneurs in Kutai Kartanegara played it safe and followed the rules of the patronage game.
Big companies working in Kutai Kartanegara, mainly in oil extraction industries, contributed large sums of money to community development programs with no say regarding the projects to be funded. Without close supervision, large sums of money were embezzled, leaving the projects unfinished or of such poor quality that they were pretty much useless. In one example, one large coastal infrastructure project, which involved the construction of roads, bridges, schools and health centres, halted midway because contractors did not receive full payment for construction expenses from the regional government.
The mining sector, which produces coal primarily for export to Taiwan, Japan and China, is the largest contributor to Kutai Kartanegara’s revenue. It was also a major target for Syaukani and his cronies. Licences for large scale mining companies are issued by the central government through the Department of Energy and Natural Resources. But rights to issue permits for limited, small scale projects were granted to local governments, leaving them with no obligation to report licensing activities or revenue to provincial governments or local parliaments. In order to take advantage of this loophole, companies often split the licence applications into smaller areas in order to keep them within the district’s jurisdiction, thus remaining free from central and provincial monitoring.
After 1999, Kutai Kartanegara issued 347 licenses for various coal mining operations covering more than 328 thousand hectares of land or over one-third of East Kalimantan’s total mining area. Annual reports on mining licences issued between 2001 and 2006 show that there was a dramatic increase in the number of licences issued just before local elections in June 2005, allegedly to fund the initiatives that secured Syaukani’s election victory.
The Rp.3.14 billion (A$363 million) earned from coal mining licences in 2004 and 2005 alone is still only part of the picture. An additional production tax was imposed under Local Regulation No.2./2001. Under this regulation, $US0.50 must be paid to the local government for each ton of coal mined. As coal production in 2006 reached more than 13 million metric tons, this tax should have resulted in the contribution of approximately Rp.70 billion (A$8.1 million) to local earnings. Unexplicably, though, projected taxation revenue between 2005 and 2010 was less than Rp.10 billion(A$1.1 million).
As these figures suggest, the regional government has been strangely relaxed when it comes to the mining tax. According to one member of the local parliament, the district administration has failed to deliver a single report on revenue from the mining tax since 2001. According to this and other local sources, funds that should have been collected through this mechanism have instead been diverted to ‘extra’ incentives paid by mining entrepreneurs to officials who have helped them to avoid meeting their obligations.
Syaukani was well on his way to competing in the 2008 East Kalimantan gubernatorial elections – possibly uncontested – when Indonesia’s anti-corruption commission launched an investigation into allegations of corruption. At the end of 2006, Syaukani was formally named in an investigation launched by the Jakarta-based Corruption Eradication Commission (KPK).
In what is the largest local corruption case so far, allegations were made against Syaukani in regard to four separate matters. The first two of these pertained to the purchase of land and the feasibility study for the Loa Kulu airport project while the other two pertained to the misuse of a social assistance fund and the distribution of resources from the Oil and Gas Shared Revenue Fund, generated from oil and gas extraction and divided between Jakarta, the province and local areas under the 1999 laws on regional autonomy.
Only one of many infrastructure projects, the airport project was singled out in the court case because of the scale and visibility of the district head’s corrupt practices. Syaukani was accused of nepotism, as his three children purchased the 256 hectares of land designated to accommodate the airport for a song in 2002 and then sold it to the district for Rp.15.2 billion (A$1.7 million) in 2004. He also allegedly appointed a contracting company owned by Panumbunan, the district head of Northern Minahasa – who was later also convicted – to conduct the airport feasibility study without calling for tenders. Panambunan, who previously owned a coal mine in Kutai Kartanegara, sliced Rp.4 billion (A$463,000) off the project’s total value of Rp.6.2 billion (A$718,000) before sub-contracting it to another more qualified firm.
Under the Oil and Gas Shared Revenue Fund agreement, Kutai Kartanegara, as the producing area, received 6 per cent of oil revenue and 12 per cent of gas revenue generated in the district – income that contributes between half and two-thirds of its annual budget. Indonesia’s Corruption Eradication Commission noted that between 2001 and 2005 embezzlement resulted in a loss of Rp.93 billion (A$10.7 million) in local revenue in the district.
It is an open secret in Kutai Kartanegara that the revenue has been siphoned off by members of the bureaucracy and regional and central governments
It is an open secret in Kutai Kartanegara that the revenue has been siphoned off by members of the bureaucracy and regional and central governments. The list of recipients, which ranges from regional MPs and officials from regional law enforcement and treasury officers, suggests that the funds were used to enrich Syaukani’s supporters within the regional parliament and the bureaucracy. This has undoubtedly smoothed his path to power, not least by assisting him in the 2005 and 2008 district elections when Syaukani's campaign coffer was so large that he allegedly was even able to fund another candidate, Noor-Bukran, to split the anti-Syaukani vote.
Has the party ended?
As the KPK’s investigation intensified in 2007, there was a purge of officials in Tenggarong netting an ever-wider circle involved in the massive corruption case, among them the deputy district head, Syamsuri Aspar, and several members of the district bureaucracy and parliament. The ad-hoc court for corruption crimes found Syaukani guilty in early 2008 and sentenced him to six years imprisonment. This verdict was upheld on appeal and was imposed despite his attempt to return the embezzled money.
Prior to the release of the court’s verdict, mass demonstrations were staged by community groups known to be part of Syaukani’s circle of supporters. But others – particularly within the regional parliament and Golkar’s Eastern Kalimantan Office, who had stood firmly behind Syaukani’s candidacy for governor right up until 2007 – ran scared, attempting to sever all ties to the accused. Syamsuri Aspar and several local MPs tried to return the ‘extra’ money they had received to cover up their involvement in embezzlement.
With Syaukani off the political stage, there was also growing fragmentation among local political elites until the victory of one of his opponents, Awang Faroek, in East Kalimantan’s gubernatorial elections later in 2008 provided a potential new patron. Fierce competition has ensued, since – despite the KPK’s best efforts – greedy, power-hungry local leaders believe that whoever holds power will continue to have unfettered access to Kutai Kartanegara’s enormous wealth.
Rosa Evaquarta (email@example.com) is a PhD candidate at the Department of Government and International Relations at the University of Sydney.