Indonesia was one of the first countries in the world to implement legislation mandating businesses to undertake Corporate Social Responsibility (CSR). This research examines how CSR legislation has been implemented in three Oil and Gas companies in the Musi Banyuasin district in the South Sumatera Province. Oil and Gas is one industry that has applied CSR legislation and the district being researched is one of the richest districts in terms of mining resources, including Oil and Gas, in Indonesia. Meanwhile, the legislation cannot be separated from the decentralization process that began in 1999 where government power has been transferred to local district governments including Musi Banyuasin districts and their local community rights have been acknowledged. Adopting institutional and stakeholder perspectives, the research examines how the CSR legislation and local stakeholder pressures influence the CSR practices of three Oil and Gas companies in Musi Banyuasin District, South Sumatera province, Indonesia. The research focuses on three main questions:
(i) What are the main mandates of CSR legislation for Oil and Gas companies operating in Indonesia?
(ii) How do Oil and Gas companies operating in Indonesia practice CSR and treat local stakeholders?
(iii) What are local stakeholder expectations of mandated CSR and their perceptions of the practices of Oil and Gas companies operating in Indonesia?
An interpretive approach was adopted, using a multiple case study methodology where interviews and focus group discussions were used to collect primary qualitative data. Document analysis of the relevant CSR laws, related government regulations and ministerial decrees was also undertaken. Three Oil and Gas Companies operating who had a Production Sharing Contract (PSC) with the Indonesian government were selected: an Indonesian Owned Company (IOC), a Foreign Owned Company (FOC) and a State Owned Company (SOC). Research participants included members from each of the three companies, their local stakeholders, and other participants related to the CSR issue in the area. Interviews with managers and staff from each of these three companies provided an understanding of implementation strategies related to mandatory CSR requirements. Local stakeholders included local district government officials as well as local community members from the villages located nearby to each company’s operations. Other participants included key informants from a national business association, non-government organisations (NGOs), and the national regulatory body for Oil and Gas. Analysis reveals that mandated CSR legislation requires Oil and Gas Companies to distribute a share of their wealth to local communities. The legislation has directed that companies should allocate a portion of their profit and/or their operational cost to local communities. Whilst the legislation appears to be ‘hard’ in mandating companies to distribute wealth to local communities in actuality it is ‘soft’ as the institutional environment lack enforcement and the political environment allows companies to negotiate their compliance with the legislation.
However, mandated CSR legislation is an important institutional symbol that legitimates local stakeholders’ CSR requests from companies. The findings highlight that requests for company CSR have predominantly been made by heads of villages, some legislative members and local government officials, which are characterised by research participants as “raja-raja kecil” (little kings). These particular stakeholders have the power to control territories within the district and influence company legitimacy in the eyes of other local stakeholders. This limits the involvement of more marginalized stakeholders whom the legislation is primarily intended to benefit. The three companies have implemented the legislation differently, depending on these institutional environment and local stakeholder pressures. The IOC was owned by a national political figure, providing political connections to counter the power of local ‘little kings’. The IOC was thus able to establish and foster a direct link with the ‘marginalized’ groups of local stakeholders, which included farmers and women, without fearing the ‘little kings’ to be a threat to their legitimacy. The FOC viewed the ‘little kings’ as having power, and interacting with them as being essential, as being foreign owned they felt vulnerable to resource nationalism claims, regarding their exploitation of natural resources in the area. With limited political connections, the FOC needed to rely on economic influences, and so provided significant CSR funds for and adopted the development agendas of ‘little kings’ as the basis to gain their legitimacy. The SOC, due to their state ownership structure, primarily concerned themselves with central government interests. They experienced less pressure from local stakeholders, leading them to lack initiative and direct involvement with local stakeholders and their CSR efforts. As a result the SOC company mainly focused on projects directed by the central government such as the soft-loans program ordered by the Minister of State Owned Companies.
This thesis concludes that the implementation of CSR legislation in Indonesia has had mixed results to date in achieving its stated goal to improve the welfare of local communities. Specifying the stakeholder groups companies should focus on and providing transparent information about company CSR are necessary to improve the outcomes from legislation. This research makes a contribution to the CSR literature by illustrating how institutional and stakeholder pressures affect CSR implementation in the context of mandated CSR legislation. This research also makes a contribution to the CSR as public policy literature by showing how implementation and enforcement are often weak in developing countries like Indonesia, where weak institutional conditions, lacking transparency and susceptible to corruption frustrate the intentions of CSR legislation.