Publication Type: Working Paper
Countries: Indonesia
Authors: Budi Ibrahim, Tony Robey
Publication date: April 2020
Keywords: Extractives

This research focuses on the private sector in Indonesia’s upstream oil and gas industry which 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.