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.
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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