Colloquy: Indonesia tightens cabotage

Nina Rach

September 1, 2014

Cabotage is trade or navigation in coastal waters and traditionally refers to shipping along coastal routes, transporting passengers or goods from port to port in the same country. Laws governing cabotage serve to protect local industries and affect logistics for offshore oilfield development and services.


Indonesia’s Ministry of Transportation (MOT; Kementerian Perhubungan) is gradually tightening its cabotage laws for offshore vessels, presumably to encourage the country’s ship building industry to grow, and to protect member companies of the Indonesian National Shipowners Association (INSA).

MOT has allowed liberal cabotage exemptions for the past few years for a variety of vessel types in order to maintain hydrocarbon production levels.

Article 8 of Indonesia’s 2008 Shipping Law states that sea activities in the country’s waters are to be convened only by national sea transport and shipping companies that use Indonesian flagged ships manned by Indonesian crews, effective as of 7 May 2011.

However, local shipyards were unable to produce sufficient vessels, so the government created exemption tables in 2011, allowing certain foreign-flagged ships to continue to operate in Indonesian waters: Government Reg. No. 22/2011 and MOT Reg. No. 48/2011.

The first deadline was December 2012 for two types of offshore support vessels: platform supply vessels (PSVs) and anchor-handling tug supply (AHTS) >5000BHP with dynamic positioning (DP2, DP3). Local shipyards were able to produce enough so that the exemption ran out and AHTS vessels are now subject to cabotage principles.

The next deadline under the 2011 regulations was December 2013 for offshore construction vessels and dredging vessels.

Local yards were able to supply diving support vessels, but not derrick/crane or SURF laying barges, or dredging vessels.

In early March, UOB Kay Hian Securities noted that the shortage of locally-flagged vessels in Indonesia is pushing up dayrates. A growing drilling rig fleet will lead to increased AHTS and PSV demand. UOBKHS analyst Nancy Wei said, “Indonesia’s oilfield services sector is still in its infancy and is driven by an upcycle in exploration and production spending and offshore vessel cabotage.”

2014 extension

At the end of 2013, MOT announced it would extend exemptions. In March 2014, MOT Regulation No. 10/2014 became the regulation of reference for offshore vessel cabotage.

The current exemptions for oil & gas survey vessels (seismic, geotechnical), offshore construction vessels, dredging, salvaging and underwater works (heavy floating cranes and crane barges >300 tonne) will expire in December 2014.

In December 2015, the current exemptions for jackups, semisubmersibles, deepwater drillships, tender-assist and swamp barge rigs will also expire.

GBG Indonesia wrote: “Indonesia’s amendment to its cabotage principles should be interpreted as a measured strategy; flexible enough to allow for a relaxation in deadlines if domestic supply of specific offshore vessels falls short but at the same time strict enough to cease exemptions when the local industry has sufficiently improved upon its production capabilities.”

Indonesia’s shipbuilding industry is already able to construct 19 types of offshore vessels, and local expertise is growing. However, I don’t expect to see many drillships and semisubs to emerge from Indonesian yards in the very near future. OE