ANNOUNCED AS TEMPORARYNo
The Law on Shipping (No.17/2008), approved on 8 April 2008 and subject to implementing regulations issued in 2009, contains the so-called cabotage principle. This principle requires (i) that coal, oil and gas commodities must be shipped by Indonesian flag vessels by 1 January 2010 at the latest and (ii) that from 1 January 2011 only locally registered vessels can transport domestic passengers and cargo among Indonesian ports.
Although domestic sea transportation will continue to be open to foreign investment, it is required that operators must have a 5'000 GT Indonesian flag-carrying vessel manned by Indonesian crews. Moreover, there is a criminal sanction for violating this principle, specifically, 5-year imprisonment and a fine up to IDR 600 million penalty.
Several officials of the Directorate of Sea Transportation at the Department of Transportation were cited in a Bisnis article on 21 July 2009 as having asked the upstream gas regulatory agency BP Migras to revise the contracts of nine foreign shipping partners whose expiry dates fall beyond 1 January 2010. According to the Bisnis article the foreign shipping lines involved are Pacific Lion III, CNOOC-114 Tanker, FSO Federal I, Shanghai, Seagood 101, Neon, Searex IV, Parameswara, and Amber ships. Moreover, the officials are said to have insisted that foreign-flagged light ships, such as tugs and barges, have to change to Indonesian flags. After having been reluctant at first, BP Migras now seems to be willing to revise the contracts with foreign ship companies.
Strong cabotage principle implementation was also lobbied by the head of the Mare Forum (Indonesian Shipowners Association), Oentoro Surya in his speech at the Maritime Indonesia conference in November 2008.
Our assessment of the measure is that its application is discriminatory as it prevents foreign ships from entering the Indonesian sea transport market.
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