The government has released new regulations, creating exemptions from Indonesian cabotage law for six activities of foreign-flagged vessels that are serving the country’s oil and gas sector.
According to the ruling, a copy of which was obtained by the Jakarta Globe, foreign vessels that perform surveys, drilling, offshore construction, offshore activities, dredging work, salvage jobs and underwater activities for the oil and gas sector will be exempted from cabotage law.
The ruling was signed by President Susilo Bambang Yudhoyono on April 4 and became effective immediately. It came just a month after lawmakers asked the government to exempt foreign vessels in the oil and gas sector from the cabotage law, which requires all vessels operating in the country’s waters to register as Indonesian-flagged vessels by May 7.
Analysts said the government’s quick response showed Indonesia is keen to support the oil and gas sector’s offshore activities as the nation strives to meet production targets.
“The government sees the urgency, as in the future it expects oil and gas exploration in offshore locations to play a greater role in boosting oil and gas production,” said Kurtubi, director of the Center for Petroleum and Energy Economic Studies and a lecturer at the University of Indonesia.
Oil and gas players have moved their exploration activities to offshore locations as output from onshore wells has gradually decreased. This year, the state budget set production targets of 970,000 barrels of oil per day and 7,769 million standard cubic feet of natural gas per day.
According to the Indonesian Petroleum Association, oil and gas companies operated 531 vessels in Indonesian waters during March. While just 12 percent of those operated under a foreign flag, they played a significant role in the sector’s activity as local companies lack the funding to purchase the necessary ships for offshore exploration.
Despite the ruling allowing foreign vessels to continue operating normally, the government is keen to push local shipping companies to compete.
“We are currently drafting a roadmap for the nation’s shipping sector to be able to provide those services,” said Sunaryo, director of water transportation at the Transportation Ministry.
However, local shipping companies have not expressed much interest in taking up the challenge, saying it is not a profitable business for them.
“We are not interested in the offshore vessel business as the contracts are very short. It may increase our operational costs more than our profits,” Peter Chayson, a spokesman for local vessel provider Buana Listya Tama, said on Sunday. Contracts for offshore vessels, for instance, typically last for three months.
Johnson W. Sutjipto, chairman of the Indonesian National Shipowners Association, suggested oil and gas companies create consortiums in some of their offshore projects “so we can use the ships in longer-term contracts, let’s say for three years. That is enough to propose a bank loan.”
Indonesia enacted a cabotage law in 2005, but enforcement was delayed for years. In addition to forcing vessels operating in the country’s waters to register as Indonesian-flagged vessels, it also requires oil and gas rigs to register here because it classifies them as foreign shipyards.
As the deadline approached, though, ministers and industry players warned Indonesia could lose billions of dollars in foreign investment and miss its production targets if the law was applied to all vessels.