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Legal Updates

Postponement of Cabotage Principle – Minister of Transportation Decree No. KM 22 of 2010

The Minister of Transportation issued Regulation No. KM 22 of 2010 (the "2010 Regulation") to revised the deadline for Indonesian shipping companies to fully implement the cabotage principle, which requires all intra-Indonesian shipments to use Indonesian-flagged carriers - as set out by Minister of Transportation Regulation No. KM 71 of 2005 (the "2005 Regulation").

Prior to the 2010 Regulation, the exact date for full implementation of the cabotage principle was uncertain. The 2005 Regulation sets out that the final stage of implementation must be 1 January 2011.

Meanwhile, Law No. 17 of 2008 on Shipping (“2008 Law”) stipulates that the cut-off date for implementation (i.e., compliance of the shipping industry) is 7 May 2011. In principle, the 2008 Law prevails due to its position in the legal hierarchy, but it was not explicitly clear as to whether the Law repeals and replaces the 2005 Regulation.

With the new 2010 Regulation, the deadline for compliance is clear: 7 May 2011 (as put forth by the 2008 Law). Until that time, foreign-flagged carriers may transport commodities within Indonesian waters, but only under certain conditions.

  1. In the event no local carriers can deliver the requested shipment (i.e. providing enough ships, and / or specific characteristic for specific shipment - e.g. a 'double-hull' ship), and;

  2. Cooperation between the requesting party (i.e. party ordering a shipment) and the foreign shipping company (i.e. foreign-flagged carriers) was concluded - in a contract - before 7 May 2008.

If the two aforementioned requirements are satisfied, the 2010 Regulation will give “dispensation” for the requesting party to employ the services of foreign ships. However, if local carriers are available and able to fulfill the demand for an intra-Indonesian commodity shipment, they must be the first priority.

Article 3 (2) explains how to determine whether or not a domestic carrier is available to transport a given commodity shipment: the information can be obtained from the 'Coordination Forum for Goods and Spaces Information' or 'IMRK' - a government – backed shipping - related forum available online via the Ministry of Transportation website.

There is one exception to the deadline for compliance: downstream and upstream oil and natural gas activities; shipments must be with Indonesian flagged vessels as early as 1 January 2011. This is almost 3 months before the compliance is obliged of other categories in the final stage of implementation (oil, gas, coal, general cargo, and other goods / commodities as listed in the 2005 Regulation).

In the event that a violation to the provisions of the 2010 Regulation takes place, port services will be denied to the ship within Indonesia. Other sanctions provided by the 'umbrella' 2008 Law are also presumably applicable.

The 2010 Regulation has been in force since 30 March 2010, and effectively repeals and replaces the 2005 Regulation.

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