In the somewhat more niche world of oil and gas, and its related offshore marine industries and, coal mining and shipping exports, Indonesa is though a rather big deal. If, to be fair, not the easiest card overseas investors have ever been dealt.
Indonesia perhaps typifies the complexity of dealing with a developing nation that has much potential but on the flipside many challenges. It has by global standards high GDP growth, which although dropping to 5.8% in 2013, is still a level that is very respectable. Similar levels of growth are expected in 2014.
Indonesia’s shipping and offshore marine industries have undergone a major sea change over the last decade. In 2005 after many years of campaigning by the Indonesian National Shipowners Association (INSA) a cabotage law was finally enacted. Cabotage has been phased in across various sectors reaching offshore in 2011.
Under the cabotage law foreign shipowners can own a maximum 49% stake in a local joint venture to trade vessels in domestic trades. It has sparked a boom in joint ventures and the Indonesian-flagged fleet has jumped from 6,000 vessels in 2005 to 13,000 ships in 2014, which carry around 99% of domestic cargoes.
There is little doubt the law has benefitted the Indonesian shipowning and offshore vessel owning communities as previously high taxes and expensive finance had put them at a distinct financial disadvantage to their foreign counterparts.
Attending the Mare Forum Indonesia conference last week there were two new areas of ambition outlined. First from the shipowners was a concept called “beyond cabotage”. This essentially involves capturing a greater portion of Indonesia’s international shipping trade of which roughly 90% moves on foreign-flagged vessels. To achieve this Oentoro Surya, commissioner of Arpeni Pratama Ocean Line said if the new government, to be formed after presidential elections in July, was more focused on maritime he hoped for more subsidies for the sector.
When it comes to competing in the international arena RINA Services ceo Michele Francioni noted, “There is a bit of an issue with standards with Indonesian-flagged vessels. If you want to go beyond cabotage you need to make your ships are fit for purpose.”
There is also a question of financing larger, and newer vessels required for international trade. One western shipping banker noted rather dryly that while they had lost money in many countries over the last five years they had lost the most in Indonesia. Worryingly for financiers despite many years of lobbying Indonesia still does not have a ship arrest law, although Oentoro said it had been drafted and just needed to be enacted. With the upcoming change in government it is not clear when this will happen.
The second area of ambition covers the offshore sector where cabotage will be extended to include highly cover highly complex vessels such subsea and inspection, maintenance and repair (IMR) and what was described as the “golden goose” of cabotage - drilling rigs.
There are though a number of hurdles facing this move up the ladder in the offshore sector. Looking at drilling rigs that cost hundreds of millions of dollars financing one would be extremely difficult for a local owner. This means going down the joint venture route and it is going to be a pretty brave foreign investor who gives up majority ownership of an asset of that kind of value. Crewing complex and expensive assets with suitably trained and qualified Indonesia crew required under cabotage could also be an interesting challenge.
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