DPR Agrees to Exempt Oil and Gas Vessels from the Cabotage Principle

Almost three years ago, with the issuance of Law No. 17 of 2008 on Shipping (“Law”) on 7 May 2008, the cabotage principle was introduced by Article 8 of the Law. The principle, in essence, stipulates that domestic carriage services in Indonesian waters, can only be performed by Indonesian shipping companies with Indonesian flagged vessels and crewmembers. Those violating the cobatage principle can be subject to 5 years imprisonment and IDR 600 milllion in fines pursuant to Article 284.

Pursuant to Article 341 of the Law, a 3 year exemption period is granted to foreign flagged vessels that engage in carriage services in Indonesia. Article 341 was later further addressed by the implementing Ministry of Transportation Regulation No. 73 of 2010 on Amendments of Minister of Transportation Regulation No. KM22 of 2010 on Transportation of Inter-Domestic Sea Ports Goods/Cargoes (“Regulation”).

Article 4 of the Regulation stipulates that foreign ships engaged in activities supporting the domestic upstream and downstream oil and gas business may continue their operation until 7 May 2011.

However, a further exemption from the cabotage principle for foreign vessels that support oil and gas upstream and downstream activities is expected, with the House of Representatives (Dewan Perwakilan Rakyat / DPR) Commission V, the Ministry of Transportation, and the Ministry of Energy having agreed to issue a regulation to accommodate the oil and gas industry.

The expected regulation is supported by the DPR and the government due to the inability of Indonesian companies to provide the needed vessels to support the oil and gas industry. The main reason for the lack of such domestic vessels is the substantial investment that is required, the complex technology, and their scarcity.

Although the government expects that the regulation will be completed before 7 April 2011, Evita Herawati Legowo, the Director General of Oil and Gas at the Ministry of Energy and Mineral Resources cautioned that the regulation is still subject to change.