Indonesia’s Omnibus Law: New Provisions for the Shipping Sector
Indonesia’s Government Regulation 31 of 2021 (Reg 31/2021) — an implementing regulation of the Omnibus Law — amends several aspects of the country’s shipping law.
A major amendment is the removal of several categories of business licenses. Starting from business licenses for all activities in every sector will be issued based on the business risk level. This risk-based business licensing system has already been introduced under the Omnibus Law and will see the government conduct risk analysis of each application before issuing a business license.The Indonesian government hopes the enactment of the new shipping regulation will attract more foreign investors into the country’s shipping industry, particularly as President Joko Widodo intends to transform Indonesia into a global maritime axis.
To realize this objective, the government has begun improving inter-island connectivity and upgrading port infrastructure – a huge and complex task considering the Indonesian archipelago spans over 6 million square kilometers and consists of over 17,000 islands. An inter-connected archipelago will boost trade and commerce in the more remote islands and develop new markets for marine-based fisheries and maritime tourism.
A centralized business licensing system
A centralized system with oversight by the central government will help simplify the business licensing regime so that relevant permits can be processed under one framework.
Previously, all licenses and approvals related to port activities were issued by the Ministry of Transport (MoT). In addition, vessels operating in Indonesia had to obtain multiple certifications for safety to seaworthiness from a multitude of institutions, such as local port authorities, the Sub-Directorate of Vessel Pollution Prevention, and Safety Management (under the MoT), and a classification agency, also under the MoT.
Retention of the cabotage rule
The Omnibus Law keeps the cabotage rule which requires the domestic transportation of goods and passengers to be undertaken only by Indonesian-flagged vessels with an Indonesian crew.
However, the Omnibus Law does add a provision in which foreign-flagged vessels can conduct other activities in Indonesian waters if Indonesian-flagged vessels are unavailable or not sufficient.
The MoT has an exhaustive list of the types of activities for which foreign-flagged vessels can be used, namely:
- Salvage and underwater works;
- Offshore construction;
- Oil and gas survey;
- Terminal construction; and
- Offshore operational support.
Foreign ownership restrictions
Under another implementing regulation, Presidential Regulation 10 of 2021 (PR 10/2021) — also dubbed as the positive investment list and liberalizes foreign ownership limitations in most sectors — places a 49 percent restriction on foreign ownership in marine shipping activities.
The activities include:
- Domestic liner and tramp activities;
- Domestic sea transport for tourism;
- Domestic sea transport for special goods;
- Domestic liner and tramp sea freight for goods;
- Overseas liner and tramp sea freight for goods;
- Public ferry transport between provinces;
- Lake and river transport for tourism with a fixed route; and
- Lake and river transport for general goods and animals, among others.
The extensive list can be found here.
Removing the requirement of appointing a general agent for foreign shipping companies
Foreign shipping companies can conduct their activities without requiring a general agent. If required, they can establish a domestic company in Indonesia. Previously, foreign shipping companies were mandatorily required to appoint a domestic shipping company or a special sea transportation company as a general agent if they wanted to conduct shipping activities at a port or terminal open to international trade in Indonesia. GR 31/2021 has revoked this requirement.
Provisions on the ownership of Indonesian-flagged vessels
GR 31/2021 adds three conditions for the ownership of Indonesian-flagged vessels. These are:
- The vessel can only be owned by an Indonesian citizen or a legal entity established in Indonesia and is domiciled in Indonesia;
- The vessel must have a minimum gross displacement of 7 GT; and
- If the vessel is owned by an entity under a joint venture, the majority shareholder must be an Indonesian citizen.
The central government, through the Omnibus Law, has centralized the licensing regime for port-related activities including building permits and business licenses for port services. Further, it is the central government and not the MoT that regulates which ports are open for international trading in Indonesia.
GR 31/2021 provides details on the types of activities allowed in ports and the type of entities that can construct and operate them. A port can be constructed and operated by a port business entity (Badan Usaha Pelabuhan – BUP), or a government agency, which can be a port administrator unit (Unit Penyelenggara Pelabuhan) or a port authority (Otoritas Pelabuhan).GR 31/2021 makes minimal changes to the types of activities a BUP can undertake but the regulation does add provisions on stevedoring (loading or offloading cargo to and/from a ship). Under the regulation, BUPs must have a partnership with a local stevedoring company; this is intended to support domestic micro, small and medium-scale enterprises (MSMEs).
A BUP can provide stevedoring services in certain types of terminals, namely, ro-ro terminals, container terminals, liquid bulk terminals, and dry bulk terminals.
According to GR 31/2021, the following sanctions can be imposed on businesses that violate the shipping law:
- Written warnings;
- Freezing business activities;
- Revocation of the business license; and
- Administrative fines.
The Omnibus Law has increased the fines by approximately 30 to 50 percent, the highest of which is the fine of 10 billion rupiah (US$698,000) (from 200 million rupiah (US$13,967) for not removing cargo from shipwrecks by the shipowner.
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