Cabotage Rule Suspended for Upstream Oil and Gas Vessels

Government Regulation No. 22 of 2011 on the Amendment of Government Regulation No. 20 of 2010 on Water Transportation (“Regulation”) has been enacted to amend some of the provisions in the Article 5 and to add Chapter XIIIA.

The reason for the issuance of the Regulation is that Government Regulation No. 20 of 2010 did not sufficiently govern the use of foreign flagged vessels for activities other than the transport of passengers and/or goods. Moreover, foreign flagged vessels are needed to support the continuity of the oil and gas business, dredging, salvage, and underwater activities.

Article I stipulates that the provisions of Article 5 (2) are amended, and Articles 5 (3) and (4) are deleted.

The most important part of the Regulation is the addition of Chapter XIIIA, which contains Article 206a, which states that foreign flagged vessels can engage in activities other than the transportation of passengers and goods in Indonesian territory as long as Indonesian flagged vessels are not available or their availability are not sufficient. However, in order to engage in such activities, permission from the Ministry of Transportation is required. Specific activities that are permissible for foreign flagged vessels are: (1) survey oil and gas; (2) drilling; (3) offshore construction; (4) support of offshores operations; (5) dredging; and (6) salvage and underwater activities.

The Head of the Indonesian National Ship-owners’ Association (“INSA”), Johnson W Sutjipto, commented positively on the Regulation, saying that that the market now has more certainty. National shipping companies, however, are apparently not interested in these kinds of vessels, because they are not bankable and the average period of contract is only 3 months. However, INSA is trying to encourage some local shipping companies to create a charter vessel consortium, so that there would be certainty of longer contract periods.

The Regulation has been in force since 4 April 2011.