By requiring vessels operating in Indonesia to be locally flagged, cabotage policies have allowed Indonesia to compete with owners in the region such as those in Singapore.


in figures

Year cabotage policies were introduced2005

Total value of anchor handling tug vessels in Indonesiaabout $800 million

Change in Indonesia’s marine sector

October 9, 2015

Chairman of IPERINDO and president director of marine services provider PT Logindo Samudramakmur, Eddy Logam tells TOGY about Indonesia’s energy security, benefits of cabotage policies in the country’s offshore industry and the fiscal limitations in developing the shipbuilding sector. As an industry association, IPERINDO advocates on the side of the country’s offshore and shipbuilding industry and encourages communication between industry leaders and policy makers.

What is the status of Indonesia’s energy security?
A lot needs to be done to ensure Indonesia’s energy security. The country is producing slightly more than 800,000 barrels per day, while its daily consumption is more than 1.5 million barrels per day. The over-reliance on imports has been putting a lot of pressure on the country’s state budget and trade balance. Even after the removal of the subsidies, Indonesia remains a net importing nation without proper energy security, which affects its sovereignty.
As consumption will increase to about 2 million barrels per day by 2020, a large-scale exploration programme needs to be deployed to find new reserves offshore and onshore. Unfortunately, local players, including state-owned Pertamina, have yet to build the operational and financial capacities to develop the sector on their own.
Until then, both foreign investment and the presence of international oil companies are a requirement for the industry to keep developing. In practice, this needs to be translated into a new attractive framework.
This is something the industry expects from the upcoming oil and gas draft law, especially in terms of new profit-sharing schemes, such as production-sharing contracts. The fiscality and terms of these contracts need to be made more attractive to get upstream players to invest in Indonesia’s blocks, especially challenging ones in deepwater areas.

Have cabotage policies been detrimental to foreign investment?
The cabotage policy introduced in 2005 aimed at supporting the domestic shipping industry and increasing Indonesian tonnage. The general view that cabotage policies hinder foreign investments in Indonesia’s offshore and marine industries is not accurate.
In practice, these policies have provided a fair playing field for local and foreign investors. The latter are still able to own up to 49 percent of domestic sea carriage companies. While foreign investors used to buy and rely only on foreign-flagged vessels, the regulation has now led to foreign investments in the domestic industry as well.


How has Indonesia’s cabotage policies impacted the OSV market?
Cabotage policies have deeply transformed the oil and gas industry and benefited local vessel owners. Prior to their implementation in 2005, only a minority of OSVs were Indonesian-flagged as it was cheaper to charter foreign OSVs. By requiring vessels operating in Indonesia to be locally flagged, cabotage policies have allowed Indonesia to compete with owners in the region such as those in Singapore. These regional owners could finance their vessels at a much cheaper rate than Indonesia’s 7-8 percent interest rates.
Cabotage policies have given local owners a stronger bargaining position when approaching banks and lenders. Lending to an Indonesian owner has become much less risky and a more attractive financing option.
Indonesia’s OSV fleet has been increasing due to such policies. Furthermore, there are now about 60 anchor handling tug supply vessels that have a combined value of about $800 million.

What has hindered Indonesia’s shipbuilding industry?
As an archipelago made up of about 17,000 islands, Indonesia is designed to be a shipping nation. Unfortunately, a lot remains to be done to develop Indonesia’s maritime and shipbuilding sectors.
For instance, only 10 percent of the 1,000 Indonesian-flagged vessels added yearly to the country’s fleet since 2005 have been manufactured locally. This is due to Indonesia’s tax and duties systems. While importing vessels built in a foreign shipyard does not cost any tax and duties, building it in Indonesia requires several imports of components subject to 10 percent in value-added tax and 5-12 percent in duties.

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