Subnational ‘Sovereign Wealth Fund’: Bojonegoro District’s initiative in managing oil and gas revenue sharing

Abstraksi

This paper argues that local policy innovation requires good coordination among local government agencies and solid arrangement between local, provincial and national governments. Furthermore, the leadership and capacities of the local leader in addressing local issues are more effective in determining the success of policy innovations. Bojonegoro District in East Java is one of the main producers of oil and gas in Indonesia, it contributes around 25 percent of total national oil production. From this condition, the district inevitably enjoys economic benefit from the intergovernmental transfer (Dana hasil Bagi– DBH). As part of the effort to create a mechanism for sustainability of local welfare from oil and gas revenue, in 2015 Bojonegoro District Government initiated a policy on oil and gas sovereign wealth fund (SWF). The head of Bojonegoro District promoted this idea as policy innovation in saving some revenues from oil and gas to avoid dysfunctional effects of fluctuating revenue from the oil and gas industries, as well as for intergenerational purposes. Research finding shows that this innovation has been challenged due to several reasons; first is the absence of sufficient legal framework at the national level, and second is that there are debates on the urgency of using the oil and gas revenue for current local development, these discourses encouraged by politicians at the local parliament. This research employed qualitative methods by using depth interview to the related key actors on the policy formulation, as well as engaging in participatory observation on the policy-making process.