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Domestic Shippers to Reap Big Rewards As Cabotage Extended to Oil and Gas
Yessar Rosendar | January 26, 2010

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Indonesian ship owners are hoping to see a massive increase in revenue from the oil and gas sector this year ahead of new restrictions on the use of foreign vessels.

Since 2005, the government has been phasing in cabotage, a ban on foreign-owned ships carrying goods between ports in Indonesia to boost the underdeveloped domestic shipping industry.

The final phase of its implementation will come into force in January next year, requiring oil and gas companies to use only Indonesian ships.

Johnson W Sutjipto, the head of the Indonesian National Shipowners’ Association, said on Monday that domestic shipping companies expected their earnings to surge this year as the upstream and downstream oil and gas sector begins to shift to domestic ships ahead of the new law’s implementation.

Oil and gas contractors spent $1.5 billion on sea transport in Indonesia last year, Johnson said, with local ship owners winning about $700 million of that business.

Since the first shipping restrictions were implemented in 2005, the freight transported by Indonesian ships has almost doubled from 114.5 million tons to 224.8 million tons last year. The number of ships operated by local companies has increased by about half, from 6,000 in 2005 to 9,064 ships at the end of 2009.

During the first phase of the implementation of cabotage, all general cargo using containers was required to be shipped by local vessels by January this year. The second phase, which takes effect next year, requires all oil, natural gas and coal to be transported by local shipping companies by the end of the year.

Johnson expects local shippers earn at least an additional $259 million from state oil and gas company PT Pertamina alone in the second phase. Pertamina still uses 54 foreign vessels to transport oil and gas that would be shifted to Indonesian-flagged ships, he said. The oil and gas company currently uses 118 Indonesian tankers and 16 barges and tow ships.