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Ibrahim, B and Robey, T (2020)

Mapping corruption risk in Indonesia’s upstream oil and gas industry

Anti-Corruption Evidence (ACE) Working Paper 021.

ISSN/ISBN: Not available at this time. DOI: Not available at this time.

Abstract: In 2018 the International Energy Agency (IEA, 2018) reported that global capital spending on upstream oil and gas was worth more than US$4 trillion globally in 2012–2018. Indonesia has been active in the oil and gas industry since 1885, and at the end of 2018 the country held proven oil reserves of 3.2 billion barrels and was ranked 11th in terms of global gas production (PwC Indonesia, 2019). While oil and gas resources present huge opportunities for the economic development of most countries, poor management of these resources can have dire consequences. Furthermore, the large investment necessary in gas and oil limits business players in the sector, which heightens the risk of corruption. This research focuses on the private sector in Indonesia’s upstream oil and gas industry – which in 2016 involved 324 contractors, 6,947 suppliers/vendors and 29 traders, and is seen as having the greatest risk to corruption and subsequent loss to the state. We analyse relevant published policy in Indonesia that has been designed to mitigate the risk of corruption but which has not yet been reviewed comprehensively using scientific methods. Risk management is perceived as an indivisible part of good management and governance. But risk is extremely difficult to describe and visualise. At present, traditional frameworks use a perception-based and traditional heat map approach to identify and visualise risk with the primary input being focus group discussions with business owners. This often leads to subjective, incomplete and inaccurate risk identification, and it also fails to produce a risk overview that is easy to understand and to communicate. This research proposes a novel and innovative four-step methodology to overcome these challenges: 1 Analyse upstream oil and gas value chains using various methods. 2 Analyse the risk of financial inefficiencies and corruption in the value chain using various methods. 3 Generate a geo-spatial map of the industry’s upstream activities. 4 Combine the above three steps to produce a single value chain risk map (VCRM) that uses heat mapping to identify the risks and possibilities of corruption at discrete positions in the value chain to be prioritised for mitigating action. The proposed model is an innovation for managing both corruption risk and business risk. It has significant potential benefits not only for anti-corruption efforts in the oil and gas industry but also to the wider business environment and law enforcement efforts in Indonesia and elsewhere. The VCRM could be used collectively as a risk map by stakeholders but it could also be used as a multi-dimensional database to store and analyse evidence- based data/information that enables collaboration and synergy in risk mitigation within the sector. To further enhance the potential of this novel approach, the tool was developed in collaboration with Indonesia’s Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas), the Corruption Eradication Commission (KPK) and the Financial Transaction Reports and Analysis Centre (PPATK), along with other relevant stakeholders. While the findings of the research are based on practices and procedures in Indonesia, they could equally apply to other oil and gas-producing nations where corruption has been a disabling factor for many years. The introduction of such an approach could assist other countries to reduce or prevent opportunities for corruption in their oil and gas sector, thereby reducing exploration and operating costs and increasing state income.

@techReport{, AUTHOR = {Budi Ibrahim and Tony Robey}, TITLE = {Mapping corruption risk in Indonesia’s upstream oil and gas industry}, INSTITUTION = {Anti-Corruption Evidence (ACE) }, YEAR = {2020}, TYPE = {Working Paper}, NUMBER = {021}, URL = {}, }

Reference Type: Technical Report

Subject Area(s): Accounting, Economics