Indonesian Shipping Law


The Indonesian Government and House of Representatives have officially enacted the draft of shipping law as Law No. 17/2008 concerning Shipping. The draft was initiated by the Department of Transportation, and submitted to Commission V of the House at the end of 2005.

On April 8, 2008, the long awaited bill was approved to replace Law No. 21/1992 concerning Shipping. The new law will end PT Pelindo’s monopoly in managing ports. In the older law, the state owned company PT Pelindo ("Pelindo") functioned as both port regulator and port operator, whilst the new law rules that the company will no longer be the sole port operator in Indonesia in three years after the passing of the law.

The new law allows foreign and domestic private entities to operate ports in Indonesia without having to partner with or seek assistance from Pelindo. The definition section in the law preamble does not categorically mention about national or foreign ownership, hence we can assume that port operation is open to foreign participation. The Foreign Investment Negative List clearly states that certain lines of business are now open to foreign involvement with a maximum ownership of 49%.


The new shipping law contains 22 chapters and 355 articles, covering inter alia eight new chapters regulating mortgages and loans, maritime safety and security, port administrator and establishment of sea and coast guard agency. Other important clauses in the law establish cabotage principle that allows only locally registered vessels to transport domestic passengers and cargo among Indonesian ports.

The law will be followed by a series of eight implementation regulations next year. All prevailing implementation regulations that are not contrary to the new law or replaced by new ones will remain in force.

The new law also introduces a concept of National Port Master Plan that governs location selection, construction, operation, further development, and master plan drawing of ports. Every port will now be required to draw its master plan. The Minister of Transportation will define a 20-year National Port Master Plan that will be reviewed every five years. This master plan shall be fully drawn by the Government at the latest 2 (two) years after the new law becomes effective.

There will be new governance structure in national port system too.

Furthermore, with regard to sectors that are open to foreign investments, the current Negative List (Presidential Regulation No. 77/2007 in conjunction with Presidential Regulation No. 111/2007) limits foreign ownership in a joint venture company to 49% of shares at maximum. This means that foreign investors are welcome to invest in management of Indonesian ports, yet, it cannot be more than 49%.

Domestic sea transportation sector covers: (1) Domestic Passenger Liners, (2) Domestic Passenger Trampers, (3) Domestic Cargo Liners, (4) Domestic Cargo Trampers, (5) Special Domestic Trampers for Tourism, (6) Special Domestic Trampers for Cargo, (7) Domestic Pioneering Liners, (8) Domestic Small-Scale Inter-Insular Transportation.

International sea transportation sector consists of (1) International Passenger Liners, (2 International Passenger Trampers, (3) International Cargo Liners, (4) International Cargo Trampers, (5) Special International Trampers for Tourism, (6) Special International Trampers for Cargo, (7) International Small-Scale Transportation.

It should be noted that although Domestic Sea Transportation is open to foreign investment, it is required that the operator must have 1 (one) 5,000-GT Indonesian flag-carrying vessel manned by Indonesian crews. Foreign vessels are prohibited to operate in Indonesian waters (cabotage principle), and there is a criminal sanction for violating this, namely 5-year imprisonment and IDR 600–million penalty at maximum. The cabotage principle is a crucial point in the law, allowing only locally registered vessels to transport domestic passengers and cargo among Indonesian ports. The cabotage principle will be effective 3 (three) years after the law is enacted.

According to the Negative List, the following sectors are now open to foreign investment: loading and offloading, provisioning of port facilities (docking, shipbuilding, towing, container terminals, liquid and dry bulk terminals, and ro-ro terminals) and ship reception facility.

Other sector open to foreign investment with special prerequisite of obtaining special license and securing cooperation with a Government appointed company is provisioning and delivery of port and port-related services for ferry ports (sea, river or lake).

A port may function to be a center of administrative and commercial activities. Typical government activities at port are (a) administering, developing, controlling and supervising port activities, (b) shipping safety and security, (c) customs, (d) immigration; and (e) quarantine.

Port Operators consists of Port Authorities and Port Operating Units. Port Authorities are responsible to the Minister of Transportation. Basic responsibilities of a Port Authority are to administer, develop, control and supervise activities in a commercial port. Its specific responsibilities are to administer and monitor use of port land and waters, manage shipping traffic through use of pilot vessels, set operational standards for delivery of port services, construct breakwaters, channels and road networks, construct and maintain sea navigation infrastructure, ensure port orderliness and security, ensure and maintain port environmental sustainability, develop port master plan, define area of port operation (Indonesian: DLKr) and area of port interests (Indonesian: DLKp), propose tariffs to the Minister for use of government provided facilities (water, land, infrastructure, etc.), and provide standard port services.

Basic responsibilities of a Port Operating Unit are to administer, develop, control and supervise activities in a non-commercial port, a port fully run by the national or regional governments.

Port Authorities and Port Operating Units will be the government’s representatives to manage concessions and other licenses to Port Business Entities, permitting them to run business activities in the port. Both institutions shall be established at the latest 1 (one) year after the law is effective.

Port business services consist of provisioning and delivery of port facilities and port services as well as port-related services. These services serve ships, passengers, and cargo as well, and either support port operations or give added value to the port.

Port facilities are commercially operated by Port Business Entities based on licenses and or concessions they have. (Note: some concessions are reflected in their agreements with Port Authorities. This is also the case with Port Operating Units). A Port Business Entity is a business entity active in specific port business lines such as terminal operation. Implementation of regulations on Port Business Entities will be addressed by government regulations that are predicted to be issued a year after the law is effectuated. Thus, besides the Negative List, to identify other opportunities for foreign investors regarding introduction of Port Business Entity, we have to wait for the aforesaid government regulations are promulgated.


Article 4: The new shipping law will be enforced to all transport activities in Indonesian waters, ports, shipping safety and security, protection of marine environment in Indonesian waters, all foreign ships in Indonesian waters, and all Indonesian flag-carrying ships sailing outside Indonesian waters. Article 5: Shipping is controlled by the state, and the control implementation is run by the local governments. Article 6: Types of water transport in Indonesia: sea transport, river and lake transport, and ferry transport. Article 7: Sea transport is divided further into domestic, overseas, special, and small scale inter-insular transport. Article 8: Domestic sea transport is served by national Indonesian flag carriers and manned by Indonesians. Foreign ships are forbidden to serve inter-insular or inter-port passenger and cargo transport . Article 9: Domestic sea transport is served in a way integrated with both intra- and inter-modes to form a national transportation system. Domestic sea transport is served by liners (ships with permanent/regular routes) and complemented by trampers (ships with impermanent/irregular routes). Article 11: Overseas sea transport is served by national and foreign carriers either carrying Indonesian or foreign flag. Foreign carriers can only serve Indonesian ports declared open for international trade and are obliged to appoint a national company as agent and may appoint a representative in Indonesia. Article 28: Domestic sea transport licenses are issued by the local governments, whilst inter-province and international sea transport licenses are issued by the Minister for Transportation. Article 29: Indonesian individuals or companies are allowed to collaborate with foreign carriers or other foreign entities to set up a joint venture company that must have at least 1 (one) 5,000-gross tonnage ship carrying Indonesian flag and manned by Indonesian. Article 31: To smooth sea transport activities in Indonesia, several associated business can be established, such as ship repair and maintenance, ship manning agency, ship broker, etc. Article 50: Water transportation can be part of a multimode transport operated by a multimode business entity. Article 60: A vessel registered in the Indonesian Vessel List can be collateralized. Article 69: A port serves as a place for administrative and commercial activities. Article 80: Administrative activities include regulation, development, control and supervision of port activities, shipping safety and security, customs, immigration, and quarantine. Article 81: Port Operators comprise of Port Authorities for commercial ports and Port Operating Units for non-commercial ports. Article 82: Port Operators are installed for managing 1 (one) or more ports and act as the Government representative to manage concessions for Port Business Entities to run businesses in ports. Article 90: Businesses in a port include provisioning and delivery of port and port-related services for ships, passengers, and or cargo. Article 93: Port Business Entities function as operators of terminals and other port facilities. Article 207: This article requests for installment of Port Administrator as a Government official appointed by a minister and holding the highest authority in a port. Article 276: Establishment of a sea and coast guard unit specially set up to safeguard and enforce laws at seas and along coastlines. Article 344 Paragraph 3: Pelindo is to continue to manage existing activities in ports currently under its responsibilities.


Although some issues have still to be fixed by implementation regulations to be issued next year, we believe that this is a perfect time for foreign investors to enter and involve in Indonesian shipping sector.