The Indonesian Shipping Law and its implementing regulations contain Indonesia's cabotage rules, requiring that domestic sea transportation be carried out by an Indonesian shipping company using an Indonesian-flagged vessel and an Indonesian crew. These provisions are broadly interpreted to cover most vessels, including different types of vessels operating in Indonesian waters that are not engaged in domestic sea transportation.

On August 31, 2016, Indonesia’s Minister of Transportation (“MOT”) issued a regulation on the procedures and requirements to obtain a permit to use a foreign-flagged vessel in Indonesian waters for activities other than the transportation of passengers and/or goods, MOT Regulation Number PM 100 Year 2016 (“PM 100”).

The regulation revoked MOT Regulation Number PM 10 Year 2014, which was amended three times, by MOT Regulation Number PM 79 Year 2014; MOT Regulation Number PM 10 Year 2015; and MOT Regulation PM 200 Year 2015.

Cabotage Exemptions

Under PM 100, specific types of foreign-flagged vessels operated in Indonesian waters for specific types of activities may be exempted from cabotage rules. Such foreign-flagged vessels may be operated in Indonesia by a holder of a Shipping Company Business License (Surat Izin Usaha Perusahaan Angkutan Laut or “SIUPAL”) after meeting the requirements provided in PM 100. The cabotage exemption is granted in the form of a permit to use foreign vessels (Izin Penggunaan Kapal Asing or “IPKA”), which can only be issued to SIUPAL holders.

PM 100 changes the time period and process for the application for and issuance of an IPKA, and the supporting documents that must be submitted with the IPKA application.

The IPKA application and supporting documents must be submitted by the applicant to the MOT through the Directorate General of Sea Transportation (the “DGST”) no more than seven business days before the vessel is operated. This is a shorter time period than under the previous regulation, which allowed for the submission of an application at the latest 14 working days before operation of the vessel. The DGST’s assessment of the application and supporting documents shall be completed within four business days of receipt, compared to the seven business days provided in the previous regulation.

A work plan for the foreign-flagged vessel and a confirmed and legalized SIUPAL are among the required supporting documents for an IPKA application. While the previous regulation required the work plan to include a schedule of work and the work area, with geographic coordinates, PM 100 now requires the work plan also to describe the scope of the vessel’s work. Also, the previous regulation only required a copy of the SIUPAL to be legalized, not confirmed and legalized.

Evaluation

IPKA applications must also be evaluated by a team (the “Evaluation Team”) consisting of members from related work units from the DGST, and which may also involve the Central Executive Board of the Indonesian National Shipowners Association (“INSA”). INSA’s involvement was previously mandatory but is now optional under PM 100. Following the evaluation, the DGST must deliver the application to the MOT, which must then issue the IPKA within three working days. Under the previous regulation, the time period for the MOT to issue the permit was five working days.

Under PM 100, an IPKA is granted for a maximum period of one year and may be extended with a recommendation from the Evaluation Team, if the applicant has exhausted all efforts concerning the procurement of an Indonesian-flagged vessel and provides proof of its latest procurement or tender offer. Such possibility for extension did not exist under the previous regulation.

Attachment I to PM 100 lists foreign-flagged vessels that can conduct drilling activities in Indonesia up to the end of December 2017. These vessels include:

  1. Jack-up rigs/jack-up barges/self-elevating drilling units;
  2. Semi-submersible rigs; and
  3. Deepwater drill ships.

PM 100 allows for foreign-flagged vessels not included in Attachment I to PM 100 to be used in Indonesian waters. Unlike those vessels included in Attachment I, however, these foreign-flagged vessels may be used in Indonesia only at the discretion of the MOT, rather than through the typical IPKA. The MOT shall approve the use of such vessels in Indonesian waters after taking into account the following:

  1. The availability of Indonesian-flagged vessels that have the specifications required by the applicant, as confirmed by the Evaluation Team;
  2. Whether the activity of the foreign-flagged vessel is to support Indonesian national interests, with a recommendation confirming such from the relevant ministry and/or institution; and
  3. The limited time period of the permit.

With respect to the prioritization of foreign-flagged vessels funded by financing companies, PM 100 only requires a subsidiary of an Indonesian legal entity borrowing the money from a financing company to have a majority of its shares owned by Indonesians. The previous regulation required 100% domestic ownership. PM 100 requires an additional document in the form of a statement that the vessel will become Indonesian-flagged, while the previous regulation only required a leasing agreement between the subsidiary and the leasing company, and the subsidiary’s deed of establishment.

Conclusion

It remains to be seen whether the Indonesian Government will extend the exemption for foreign-flagged vessels beyond 2017. As long as Indonesian-flagged vessels are not yet available for specific activities such as oil and gas drilling, however, it is likely that the Indonesian Government will extend the exemption.