After years of delays and legal wrangling, the government and lawmakers agreed on Thursday to exclude ships in the oil and gas industry from the country’s cabotage law.
The government and House of Representatives Commission V, which oversees transportation matters, met on Thursday. They had heard repeated warnings that forcing foreign vessels to switch to an Indonesian flag to operate in the country’s waters would hurt oil and gas production and drive off investors.
Commission chairman Yasti Soepredjo Mokoagow said the Transportation Ministry must issue a special regulation by April 7 to accommodate specific activities of foreign vessels that serve Indonesia’s offshore oil and gas sector. He also said the commission would consider whether to amend the 2008 law on shipping.
Johnson W. Sutjipto, chairman of the Indonesian National Shipowners Association, said the foreign-flagged ships that would be excluded from cabotage rules were those engaged in seismic, drilling and offshore construction activity in the oil and gas sector. Indonesian shipowners do not engage in those activities, he said, because of high investment costs and short contracts.
“We are not against them operating in Indonesia. We need them,” he said. “The INSA provides support vessels for these activities, but without their existence, our revenue would dwindle.”
Johnson said he did not object to revising the cabotage law as long as its spirit - protecting the domestic shipping industry - remained intact.
He said the number of cargo and transport ships operating in Indonesian waters had risen 66 percent to 10,000 ships in the last five years. Those ships carry domestic passengers as well as operating as cargo ships for goods and minerals as well as oil and gas.
Indonesia enacted its cabotage law in 2005, but enforcement was delayed for years. The law requires all vessels operating in the country’s waters to register as Indonesian-flagged vessels. It requires oil and gas rigs to register here because it classifies them as foreign shipyards.
The law says only locally registered ships can transport passengers or cargo in the country’s waters, including between Indonesian ports. Foreign vessels must register by May 7.
Ministers and industry players had warned the government of dire consequences if cabotage was applied to all vessels. Evita Legowo, the Energy Ministry’s director general for oil and gas, told the commission last week that Indonesia stood to lose $7 billion in oil and gas production if enforcement went ahead.
Sammy Hamzah, vice president of the Indonesian Petroleum Association, said the law would have cost the country 200 million barrels of oil and upward of $13 billion in investment.