New Shipping Law - Law No. 17/2008

INTRODUCTION

The Indonesian Government and the House of
Representatives have officially enacted the draft Shipping
Law No. 17/2008. The draft was initiated by the
Department of Transportation, and submitted to
Commission V of the House at the end of 2005.
On 8 April 2008, the long awaited bill was approved to
replace Law No. 21/1992 on Shipping. The new law will
end PT Pelindo’s monopoly in managing ports by 2011.
In the older law, the state owned company PT Pelindo
functioned as both port regulator and port operator, whilst
the new law rules that the company will no longer be the
sole port operator in Indonesia in three years time after
the passing of the law.

This is seen as a major step towards port sector reform.
The removal of monopoly on ports opens the sector to
participation by other operators, whilst the removal of
regulatory authority of PT Pelindo provides the much
needed separation between operator and regulator.
Whilst the new Shipping Law opens up the sector, the
Negative Investment List limits foreign ownership to only
49%. Are foreign investors willing to make a major long-
term commitment and have no control over their
investment? The Negative Investment List clearly states
that certain lines of business are open to foreign
involvement with a maximum ownership of 49%. They
are: loading and offloading, port facility services, and
wastes storage.

MAJOR HIGHLIGHTS

The new shipping law contains 22 chapters and 355 articles,
covering inter alia eight new chapters regulating mortgages
and loans, maritime safety and security, port administrator
and establishment of sea and coast guard agency. Other
important clauses in the law is on cabotage principle that
allows only locally registered vessels to transport domestic
passengers and cargo within Indonesian waters.
The law will be followed by a series of eight implementing
regulations next year. All prevailing regulations that are
not contrary to the new law or replaced by new ones will
remain in force.
The new law introduces a concept of National Port Master
Plan, that governs the location, construction, operation,
further development, and development of port master
plan. Every port will now be required to draw its master
plan. The Minister of Transportation will define a 20-year
National Port Master Plan that will be reviewed every five
years. This master plan will be developed by the
Government at the latest two years after the new law
becomes effective.

Port Master Plan, on the other hand, is required for every
port. A port master plan will be developed by considering
the national port master plan, zoning allotment, feasibility
of technical, economical, and environmental, as well as
safety and security. The port master plan will include
zoning for land and water areas.
The new law initiates a new governance structure within
ports in Indonesia. Basically, it moves toward a ‘Landlord
Port’ administrative model, where Port Authority acts as
regulator and landlord (i.e., provides land, waters, basic
infrastructure, etc.) and Operators provide services on
long term contract/concession basis.

Port Operators consists of Port Authorities and Port
Operating Units. Port Authorities are established for
commercial ports, whilst Port Operating Units are
established for ports that are not yet commercially operated.
Port Authorities are responsible to the Minister of
Transportation, and Port Operating Units are responsible
to the Minister of Transportation and to the Governor
and/or Mayor or Regent.

Basic responsibilities of a Port Authority are to administer,
develop, control and supervise activities in a commercial
port. Its specific responsibilities are to administer and
monitor use of port land and waters, manage shipping
traffic through the use of pilot vessels, set operational
standards for delivery of port services, construct
breakwaters, channels and road networks, construct and
maintain sea navigation infrastructure, ensure port
orderliness and security, ensure and maintain port
environmental sustainability, develop port master plan,
define area of port operation (Indonesian: DLKr) and

area of port interests (Indonesian: DLKp), propose tariffs
to the Minister for use of Government provided facilities
(water, land, infrastructure, etc.), and provide standard
port services.
Basic responsibilities of a Port Operating Unit are to
administer, develop, control and supervise activities in a
non-commercial port, a port fully run by the national or
local governments.
Port Authorities and Port Operating Units will be the
government’s representatives to manage concessions and
other licenses to Port Business Entities, permitting them
to run business activities in the port. Both institutions
shall be established at the latest one year after the law is
effective.

Port business services consist of provisioning and delivery
of port facilities and port services as well as port-related
services. These services serve ships, passengers, and cargo
as well, and either support port operations or give added
value to the port.
Port facilities are commercially operated by Port Business
Entities based on licenses and or concessions they have.
(Note: some concessions are reflected in their agreements
with Port Authorities. This is also the case with Port
Operating Units). A Port Business Entity is a business
entity active in specific port business lines such as terminal
operation. Implementation of regulations on Port Business
Entities will be addressed by government regulations that
are predicted to be issued a year after the law is effectuated.
Thus, besides the Negative List, to identify other
opportunities for foreign investors regarding introduction
of Port Business Entity, we have to wait for the aforesaid
government regulations are promulgated.

Furthermore, with regard to sectors that are open to
foreign investments, the current Negative Investment List
(Presidential Regulation No. 77/2007 in conjunction with
Presidential Regulation No. 111/2007) limits foreign
ownership in a joint venture company to 49% of shares
at maximum. This means that foreign investors are welcome
to invest in the management of Indonesian ports, yet, it
cannot be more than 49%.
It should be noted that although Domestic Sea
Transportation is open to foreign investment, it is required
that the operator must have 1 (one) 5,000-GT Indonesian
flag-carrying vessel manned by Indonesian crews. Foreign
vessels are prohibited to operate in Indonesian waters
(cabotage principle), and there is a criminal sanction for
violating this, namely 5-year imprisonment and IDR
600–million penalty at maximum.
The cabotage principle is a crucial point in the law, allowing
only locally registered vessels to transport domestic passengers
and cargo among Indonesian ports. The cabotage principle will be effective
three years after the law is enacted.

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