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IX. Shipping Industry
All data presented in this part, which concerns the background of the industry, is taken and processed from various public resources. The Issuer does not provide statement on the accuracy of such information and statistics. Information and statistics
contained in this chapter are not verified, whether individually or collectively, by the Issuer, Underwriter, or other parties appointed by the Issuer.
1. Summary of Industry Indonesia is the largest archipelago in the world with approximately 17,504 thousand of islands, and it has the second longest
shoreline after Canada, which is approximately 95,000 km, establishing Indonesia as a major maritime country. The waters reach 5.8 million square kilometers, comprising 0.3 million ksqm of territorial sea, 2.8 million square kilometers of deep waters and
islands, and 2.7 million square kilometers of Exclusive Economic Zone ZEE. The total number of islands is based on the surveys and verifications conducted by the Ministry of Sea and Fishery KKP and Department of Transportation and Directorate General
of Sea Transportation. As a maritime country with a vast water territory, Indonesia certainly needs ship transportation facilities to reach islands and
connect one land to the other. This is where vessels are a necessity, not only as transportation facilities, but also as defense sys- tem in Indonesia’s water territory.
Indonesian Archipelago
Source: Ditjen Hubla Dephub
In addition, Indonesia is a country with vast natural resources, and other potential mineral sources that have not yet been fully explored. Due to these natural resources, Indonesia has become an exporting country, exporting, for instance, oil, coal, palm oil
and rubber. Particularly in mining and energy sector, the reserves of coal products with low calorivic value that have not yet been explored remain large. Based on BP Migas data, the majority of newly discovered oil reserves are in deeper offshore area. This
encourages the increase in level of demand for shipping industry, especially for transporting exploration equipment, workers, and products.
With this background, the Government commitment is needed to improve sea transportation facilities through regulations and commitments to encourage growth in the shipping industry in Indonesia. Such commitment, among others, is by providing
opportunities to the national shipping industry, and to build adequate sea transportation infrastructure for the smoothness of sea traffic. The shipping industry constitutes the primary supporter of other industry sectors in distributing goods within Indonesian
territory, as an effort to increase the growth rate of the Indonesian economy in the future. a. Cabotage Principle
Indonesia as a geographic archipelago should have regulated its waters and applied the cabotage principle consequently from
early on. Although the cabotage principle has beginning to be applied in 1957, along with Government Regulation PP No.5 of 1964, which is further regulated by PP No.1 and No.2 of 1969. At that time, a regulation has been issued, wherein domestic sea
transportation shall be conducted by National Shipping Companies using Indonesian-flagged vessels and ocean shipping busi- ness permit obligating to own vessels with certain sizes is regulated.
Meanwhile, shipping abroad is conducted by way of cooperation between National Shipping Companies and Foreign Shipping Companies applying a fair cargo transportation distribution fair share in accordance with UN Convention on Regulation on
Distribution of Fair Cargo at the United Nation Convention on Code of Conduct for the Liner Conference in 1975.
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30 years later, on 25 March 2005, the Government issued the Presidential Instruction No.5 of 2005 concerning Empowerment of National Shipping Industry. With this, it is expected that 13 Ministers and Governors District Heads Mayors throughout
Indonesia are able to optimize the implementation of cabotage principle in Indonesia. As one of the realization of Government policies, which is in the matter of implementing goods cargoes transportation between
sea ports in the country, it shall all be served by Indonesian-flagged vessels. Up until 1 January 2010, national shipping business practitioners have succeeded in implementing cabotage principle program by providing Indonesian-flagged vessels for transport-
ing 13 commodities in accordance with KM No.71 of 2005. The 13 commodities are oil and gas, general cargo, coals, logs, rice, crude palm oil CPO, fertilizer, cement, excavation matters, seeds, liquid cargoes and chemical substances, seeds produce of
agriculture, and fresh products. Throughout 2010, national shipping has been hard at work in providing Indonesian-flagged ves- sels in order to support offshore activities.
Transportation shall be obligated to use Indonesian-flagged vessels for sectors supporting upstream and downstream activities of oil and natural gas starting at the latest on 1 January 2011. Meanwhile, vessels carrying out transportation contracts signed prior
to the issuance of Law No.17 of 2008, shall be given tolerance until 7 May 2011 or 3 years after the issuance of the said Law.
b. Sea Transportation Sea transportation plays a very important role in Indonesian economy. The very large market potential for national shipping fleets
in export-import transportation has not been fully used by national shipping fleets. Through Presidential Instruction No. 5 of 2005 concerning Empowerment of National Shipping Industry and Presidential Regulation No. 44 of 2005 concerning ratification of
international convention on Mortgage Law and Maritime Liens 1993 and also Law No. 17 of 2008 concerning Shipping, along with government regulations as their derivatives that must be completed by 2009.
Support and commitment from the Government is necessary to develop and build infrastructures in sea transportation sector. In 2009, the development of sea transportation infrastructure has been done, among others:
a. Development of 15 cargo ports among others, Tanjung Priok Port, Tanjung Perak Port, Belawan Port, Tanjung Emas Port, Panjang Port, Makasar Port, Banjarmasin Port, Pontianak Port, Bitung Port, Samarinda Port, and Palembang Port, 17 ports
with terminals for passengers and 142 ports for pioneer shipping; b. Development of 18 units of pioneer vessels;
c. Development of shipping telecommunications system facilities, among others, Preparation for Indonesia Ship Reporting System INDOSREP in Sunda Strait and Lombok Strait, development of Vessel Traffic Services VTS in Malacca Strait,
development of vessel traffic information System VTIS in Teluk Bintuni, Papua Barat, also installment of automatic identification ship AIS in five ports, which are Belawan, Jakarta, Semarang, Surabaya, and Makassar;
d. Development of shipping navigation aid facility SBNP covering 42 units of light houses, 123 units of signal light signs, and 100 units of signal light floats;
e. Dredging of port flow pool reaching 17.17 million m3; and Procurement of four units of navigating vessels.
c. National Shipping and Ships National Shipping Industry generally records a positive growth, this is reflected from the significant increase in number of fleets of
ships. Policy package of Inpres No. 5 of 2005 concerning Empowerment of National Shipping Industry has been able to encourage an increase in the number of national shipping fleets. As of 30 April 2010, the number of domestic vessels reached
9,309 units, an increase of 139 units compared to 2009. Meanwhile the number of national vessels within the last 5 years March 2005 – March 2010 increased by 54.1 or 3,168 units. The number of National Shipping Companies also grew from 1,831 to
1,980 companies during the same period. Source: List of Regulations of Shipping and Ships in Indonesia, 2010.
Market Share of Domestic Sea Transportation 2005-2009 Market Share of Foreign Sea Transportation 2005-2009
Source : Ditjen Hubla Dephub, 2009
54 56
61 65
79 86
46 45
39 35
21 14
2004 2005
2006 2007
2008 2009
Indonesian Foreign 4
5 6
6 7
9 97
95 94
94 93
91
2004 2005
2006 2007
2008 2009
Foreign Indonesian
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2. Fleets supporting offshore transportation
Fleets supporting offshore are divided into a number of types of vessels from very small ships to very large ships and three stakeholders, which are BP Migas, Ditjen Hubla and INSA have agreed to divide the offshore supporting vessels into 3
groups, namely:
Group A Group B
Group C
Tugboats Mooring boats
Utility vessels Barges
Landing craft Oil barges
Security Boats Sea trucks
Crew boats Crane barges
Pilot barges Anchor boat
Accommodation Barges 250 ft class Anchor handling tugs
Anchor handling tug supply ASD Tugboats
Platform Supply Vessel Seismic Vessel
Crane Barge FSO
FPSO Jack up rig
Submersible rig Pipe Cable laying vessel
Particularly for vessels in group A, almost all have been controlled by Indonesian-flagged vessels. For group B, most of them are still controlled by vessels with foreign flag, and group C is all controlled by vessels with foreign flag. The investment value for ves-
sels in group A is in a range below US2 million, for vessels in group B between US2 million and US40 million and in group C around hundreds of millions of US.
In accordance with cabotage principle and regulation KM 22 2010, all vessels operating in Indonesian waters must have Indonesian flag at the latest by 1 January 2010. In accordance with Law 17 2008, exceptions are given to foreign vessels, which
prior to May 2008 have been in operation in Indonesia. Vessels in this group may operate in Indonesia until, at the longest, May 2011.
Opportunities for national shipping companies to achieve market share, especially Group B, is very significant with the Government cabotage program. Shipping companies, including negative investment class in BKPM, thus to establish a national
foreign company with foreign owner, the following stipulations must be complied with: a the majority of shares are owned by Indonesian citizens or Indonesian legal entities and b it must own one vessel of at least 5,000 GT.
Especially for offshore transportation fleets, only FSO and FPSO vessels that meet the criteria of 5,000 GT and as such, the presence of foreign parties is very limited.
Based on BP Migas data as of 18 January 2010, the number of vessels operated for oil and gas upstream sector used by KKKS for business operational activities is approximately 531 units of vessels, among others:
� 468 units with Indonesian flag 88 � 63 units with foreign flag 12
Vessel Recapitulation Data per Flag January 2010
Foreign Flagged
12
Flagged Vessels
Vessels
88
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125 Source : BPMigas.
As of January 2010, the 12 vessels with foreign flag contribute approximately 56 of the total charter income. This shows that although vessels with foreign flag have smaller number, however they have higher charter fee, since their vessels constitute high
value added types of vessels. With the implementation of the cabotage principle, this segment is likely to provide significant oppor- tunities for national shipping companies.
Recapitulation Data of Income of Vessels with Indonesian Flag vs Foreign Flag January 2010
3. Oil and Gas Industry Currently, the oil and gas upstream industry remains the primary mainstay for state income APBN. In 2009 the income
contributed by the oil and gas upstream industry to the state reached US19.6 billion. The Government issued Government Regulation No.35 2004 regulating Oil and Gas Upstream Industry and Government Regulation No. 362004 regulating Oil and
Gas Downstream Industry within the country in order to create a more conducive and competitive investment climate and business competition. The Government through BP Migas is expected to continue to seek new oil sources, whether offshore or onshore,
and any exploration locations will be offered to investors for concession of distribution of any oil and gas produced.
Development of Oil and Gas Exports Based on data from BPS-Statistics Indonesia, Indonesian exports in May 2010 increased by 4.06 compared to April 2010, from
US12,035.2 million to US12,523.6 million. Compared to May 2009, the exports grew by 36.0. This increase in exports in May 2010 was caused by the increase of 4.3 in non oil and gas exports, from US9,830.6 million to
US10,253.6 million. Meanwhile, oil and gas exports also increased by 2.97, from US2,204.6 million to US2,270.0 million. Furthermore, the increase in oil and gas exports was caused by crude oil exports amounting to 4.63 to become US783.7
million and exports of oil products increased by 17.22 to US382.7 million. On the contrary, gas exports decreased by 2.26 to US1,103.6 million. While the oil and gas exports volume in May 2010
compared to April 2010 based on data by Pertamina and BP Migas for crude oil and gas increased respectively by 15.62 and 0.02, exports of oil products decreased by 11.76. Meanwhile, the price of Indonesian crude oil in the global market decreased
from US85.54 per barrel in April 2010 to US77.02 per barrel in May 2010. Compared with May 2009, the export value in May 2010 increased by 36.00. This increase was caused by the increase in non
oil and gas exports by 27.02 and oil and gas exports by 99.71. The value of Indonesian exports cumulatively from January to May 2010 reached US60.095,5 million, increasing by 47.68 compared to the same period in 2009, while non oil and gas
exports reached US48.932,1 million, an increase of 39.93.
Flagged Vessels
Foreign
Indonesian Flagged
Vessels
Source : BPMigas.
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Summary of Development of Indonesian Exports January - May 2010
Source : Badan Pusat Statistik.
Based on the development of oil and gas industry and performance of oil and gas exports showing positive trend, it is estimated that the condition in oil and gas industry shall continue to improve. And it is expected that it can encourage the growth in domestic
oil production which directly increases Government income from oil and gas sector. Based on data by BP Migas, the Government has conducted tender for 34 new Oil and Gas Blocks, which constitutes the first
round in 2010. The offer of such blocks is conducted together with Indonesia Petroleum Association IPA conference. Whereas the mechanism of offering and oil and gas block territory are, among others, through:
1. Regular Tender Mechanism 2. Direct Offer Mechanism
� East Natuna � South East Baronang
� Nias I � Nias II
� Tanjung Jabung � Sunda Strait I
� Sunda Strait II � Sunda Strait III
Sokang Utara North West Natuna
Gurita Sumbagsel
Tital Kuala Pembuang Sampit
Damar Belayan
Bone Bay Babar
Yamdena Laut Arafura I
Arafura Utara Onin
Semai Utara With the discovery of new oil and gas blocks by BP Migas, the growth potential in the oil and gas sector remains significant. In
addition, PT Pertamina Persero as a state owned company targets oil and natural gas production to reach one million barrels by 2015. The Government, in order to meet APBN, acquire sources of state income not only from taxes but also from the oil and gas
sector. As an effort to meet the target to increase oil and gas production, the number of blocks signed by the Government has shown a
significant increase within the last 3 years, such as shown in the following industrial data:
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Ship and shipping sector which constitutes oil and gas sector supporter, especially offshore oil and gas, acquires significant opportunities for increasing the level of demand for sea transportation to transport exploration equipments and oil production to
support drilling activities.
4. Shipping Law and Policies in Indonesia The development in the shipping industry is influenced by policies issued by the Government, which determine the direction of the
industry’s development and aim to encourage the establishment of a healthier business competition. In such efforts, the Govern- ment has issued various policies related to the shipping industry, which are as follows:
a. Presidential Instruction No. 5 of 2005 INPRES No. 5 2005 INPRES No. 5 2005 instructs 13 ministers, governors, district heads, and mayors throughout Indonesia to apply the cabotage
principle consequently and formulate policies and also take steps needed in accordance with their respective duties, functions, and authorities in order to empower national shipping industry. INPRES No. 5 2005 contains the Empowerment of National
Shipping Industry applying the cabotage principle, which prohibits vessels with foreign flag from providing domestic transportation shipping services in Indonesia, thus within 5 years since the issuance of INPRES No. 5 2005, all domestic transportation shall
have used national companies and fleets. Application of this cabotage principle is also contained in KepMen No. 71 of 2005 issued as one of the forms of implementation of
tINPRES No. 5 2005. This regulation specifies a timeframe for effective and comprehensive implementation of the cabotage principle in Indonesian waters:
1. Oil and natural gas transportation activities between domestic ports are required to use Indonesian-flagged vessels at the latest on 1 January 2010; and
2. Transportation supporting oil and natural gas upstream and downstream business activities, at the latest on 1 January 2011. Even in article 3 paragraph 2 it is stated that in the event that prior to the time limit as set forth in paragraph 1 vessels with
Indonesian flag are available for transporting goods cargoes between sea ports within the country, the implementation of the said transportation is required to use vessels with Indonesian flag.
These regulations and policies, among others, formulate policies encouraging the development in transportation shipping industry in Indonesia, which includes policies in all sectors, namely in trading, financial, transportation, industry, energy and mineral
resources, and also education and training sectors. b. Decision of Minister of Transportation No.71 of 2005
Regulation of Minister of Transportation No. KM 71 of 2005 concerning Transportation of Goods Cargoes Between Domestic Sea
Ports, issued as one of the forms of implementation of Inpres No. 5 of 2005. The said regulation contained the time of implementation of the cabotage principle. For general cargoes, logs, and products of
primer woods, rice, fertilizer, and cement, it is to be applied at the latest 1 January 2007. For commodities such as vegetables, fruits, and fish fresh products, crude palm oil CPO, other seeds, and mining excavation products metal and non metal
excavation products or excavation products in group C mine and quarry it is to be applied at the latest 1 January 2008. Whereas transportation of coal and oil and natural gas between domestic sea ports is required to use Indonesian-flagged vessels
at the latest 1 January 2010, while for offshore supporting activities at the latest 1 January 2011. Moreover, in article 3 paragraph 2 of KM 71 of 2005, it is stated that in the event that prior to the time limit as set forth in
paragraph 1 Indonesian-flagged vessels are available for transporting goods cargoes between sea ports within the country, the implementation of the said transportation is required to use vessels with Indonesian flag although in reality despite the availability
of Indonesian-flagged vessels, vessels with foreign flag are still prioritized for goodsservices procurement activities for offshore business.
KM No. 71 of 2005 also contained sanction in the form of revoking of sea transportation business permit or special sea transportation operational permit in accordance with the prevailing statutory regulation, which shall be applied on violation of
provisions concerning implementation of transportation of goods cargoes between domestic sea ports. c. Regulation of Minister of Energy and Mineral Resources No. 026 of 2006 Permen ESDM No. 26 2006
The Ministry of Energy and Mineral Resources issued regulation Permen ESDM No. 26 2006 concerning Supplying of Oil Based
Fuel in the Event of Empowerment of National Shipping Industry as a follow up to INPRES No. 5 2005, point 5 of First section
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that instruct the Minister of Energy and Mineral Resources to guarantee BBM supplies in accordance with routes and number of sailing days to national shipping companies operating Indonesian-flagged vessels and conduct domestic sea transportation.
In addition, this Permen ESDM also requires business entities in the energy and mineral resources sector to use Indonesian-flagged vessels in their transportation and storing activities. This is confirmed in article 4 which stated: “in conducting
business activities in energy and mineral resources sector, Business Entities or Permanent Business Entities using sea transportation facilities vessels for transporting and storing domestically are required to use Indonesian-flagged vessels operated
by National sea transportation companies in accordance with the statutory regulations.” d. Shipping Law No. 17 of 2008 Shipping Law No. 17 2008
In 2008, the Government ratified a new shipping Law, which is Shipping Law No. 17 2008 which constitutes improvement of Law
No. 21 of 1992 to support the development of shipping industry in Indonesia and also to improve the implementation of cabotage principle implemented through INPRES No. 5 2005. This Law, among others, regulates the implementation of cabotage principle,
minimum navigation requirements, good ports governance, tariff and status of ports, ships registration, international standards for vessel crews and provisions on sea management and environmental safety. This regulation is expected to create a better, more
efficient shipping climate, and also improvement in business infrastructure. In Law No. 17 of 2008 concerning Shipping, cabotage principle is regulated in article 8, which stated the following:
a. Article 8 paragraph 1 : domestic sea transportation activities are carried out by national sea transportation companies using
Indonesian-flagged vessels and manned by crews of Indonesian citizenship. b. Article 8 paragraph 2 : foreign vessels are prohibited from transporting passengers andor goods between islands or ports
within Indonesian waters. Explanation of article 8 paragraph 1 stated that the use of Indonesian-flagged vessels by national sea transportation companies in
the event of implementing the cabotage principle in order to protect country’s sovereignty and to support the realization of Wawasan Nusantara and also to provide the broadest opportunities to do business for national sea transportation companies in
acquiring share of cargoes.
e. PP No.20 of 2009 Stipulation on the cabotage principle is also emphasized in PP No.20 of 2009 concerning Transportation on Waters constituting
derivatives from Shipping Law. The said PP emphasized that the implementation of transportation on waters to be executed by way of applying the cabotage principle in a consequent and consistent manner in order for national sea transportation companies
to become masters of their own home. Furthermore, the PP emphasized that domestic sea transportation activities are to be conducted by national sea transportation
companies using Indonesian-flagged vessels and manned by crews of Indonesian citizenship, which is intended, in the event of implementing the cabotage principle, to protect the country’s sovereignty and to support the realization of Wawasan Nusantara
and also to provide the broadest opportunities to do business for national sea transportation companies in acquiring share of cargoes.
f. Permenhub No.22 of 2010 After Kepmen 71 of 2005 has been applied for five years, the Ministry of Transportation issued Permenhub No. 22 of 2010 which
constitutes the replacement regulation for KM No.71 of 2005 concerning Transportation of GoodsCargoes between Domestic Sea Ports. Permenhub contains three provisions:
1. foreign offshore vessels, contracts of which are signed before 7 May 2008 are given the tolerance to still use their flags until 7 May 2011.
2. foreign offshore vessels, contracts of which are signed after 7 May 2008 are given the tolerance to still use their flags until 1 January 2011.
3. After 7 May 2011, all offshore vessels operating in Indonesia must use the Indonesian flag.
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X. Summary of Material Financial Data
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