Academic paper to support npmp decree

TECHNICAL PAPER TO SUPPORT NPMP DECREE

ACADEMIC PAPER TO SUPPORT NATIONAL
PORT MASTER PLAN DECREE

CREATING AN EFFICIENT, COMPETITIVE, AND RESPONSIVE
PORT SYSTEM FOR INDONESIA

January 2012


Indonesia Infrastructure Initiative
This document has been published by the Indonesia Infrastructure Initiative (IndII), an
Australian Government funded project designed to promote economic growth in Indonesia
by enhancing the relevance, quality and quantum of infrastructure investment.

The views expressed in this report do not necessarily reflect the views of the Australian
Indonesian Partnership or the Australian Government. Please direct any comments or
questions to the IndII Director, tel. +62 (21) 230-6063, fax +62 (21) 3190-2994. Website:
www.indii.co.id.

Acknowledgements
This report has been prepared by Nathan Associates Inc. (Dr. Paul Kent, Mr. Richard
Blankfeld) assisted by national consultants (Prof. Sudjanadi, Hidayat Mao, SH, DR. Russ Bona
Frazila, and Ir. Budiyono Doel Rachman MSc.) and with invaluable support from the IndII
office manager (Desi Rahmawati, SE), who was engaged under the Indonesia Infrastructure
Initiative (IndII), funded by AusAID, as part of the Activity #244.

We would like to extend gratitude to Coordinating Ministry of Economic Affairs, Bappenas,
Ministry of Transport, Ministry of Finance, Ministry of State Own Enterprise, Pelindo 1-4,
Tanjung Priok and Tanjung Perak Port Authorities, INSA, KPPU and NPMP Counterpart Team
for their highly support and valuable informations.

Thanks should also go to David Ray (IndII Facility Director), David Shelley (IndII Technical
Director Transport) for their support and valuable inputs.

The support provided by Efi Novara Nefiadi, IndII Sr. Transport Program Officer, is gratefully
acknowledged. Any errors of fact or interpretation are solely those of the author.

Dr Paul Kent
Nathan Associates Inc.
Jakarta, 12 January 2012


ACRONYMS
ADB Asian Development Bank
APPI Asosiasi Produsen Pupuk Indonesia (Indonesian Fertilizer Association)
BPS Badan Pusat Statistic ( Statistic Indonesia)
COMTRADE Commodity Trade Statistic Database
CPO crude palm oil
CY container yard
DGST Directorate General of Sea Transportation
DWA David Wignall Associates
DWT dead weight tonnage
EIA Energy International Statistic
FFB fresh fruit bunches
GDP gross domestic product
GoI Government of Indonesia
GR 16 Government Regulation No. 61 of 2009
HP horsepower
ICT Information and Communication Technology
IEDC Indonesia Economic Development Corridor
IFC International Finance Corporation
IMF International Monetary Fund
ISPS International Ship and Port Security Code
JICA Japan International Cooperation Agency
JICT Jakarta International Container Terminal
KPPU Commission for the Supervision of Business Competition
Law Law on Shipping No. 17 of 2008
MENPAN Ministry os State Administrative Reform
MoT Ministry of Transportation
MP3EI Masterplan Percepatan dan Perluasan Pembangunan Indonesia (The
Masterplan for Acceleration and Expansion of Indonesia Economic
Development)
NPK nitrogen phosphorous and potassium
NPMP National Port Master Plan
OPEC Organization of Petroleum Exporting Countries
PA(s) Port Authority(ies)
PBEs Port Business Entities
PELINDO Pelabuhan Indonesia (Port Management State Owned Enterprise)
PERUMPEL Perusahaan Umum Pelabuhan
PMU(s) Port Management Unit(s)
PR 67 Presidential Regulation No 67 of 2005
PT IIF PT Indonesia Infrastructure Finance
PT SMI PT Sarana Multi Infrastruktur
RTG Rubber Tired Gantry Crane
SEZ Special Economic Zone
SISTRANAS Sistem Transportasi Nasional (National Transport System)
TEU twenty foot equivalent units
TR Technical Report on Development of National Port Master Plan


Contents

Chapter 1. Introduction ......................................................................................................... 1
Chapter 2. National Port Policy .............................................................................................. 4
2.1 Introduction .................................................................................................................... 4
2.2 Background ..................................................................................................................... 5
2.3 Indonesia’s Need for Integrated Port Policy ..................................................................... 7
2.4 Legal Context................................................................................................................... 8
2.5 Port Sector Vision and Goals ............................................................................................ 8
2.6 Port Policy Formulation, Implementation and Review.................................................... 10
2.6.1 Critical Issues........................................................................................................ 10
2.6.2 Policy ................................................................................................................... 11
2.7 Integrated Planning, Facilitation and Performance Monitoring ...................................... 11
2.7.1 Critical Issues........................................................................................................ 11
2.7.2 Policy ................................................................................................................... 13
2.8 Tariff Regulation ............................................................................................................ 14
2.8.1 Critical Issues........................................................................................................ 14
2.8.2 Tariffs ................................................................................................................... 14
2.8.3 Service Agreements.............................................................................................. 15
2.8.4 Rights of Explanation and Objection ..................................................................... 16
2.8.5 Policy ................................................................................................................... 17
2.9 Promoting Port Sector Competition ............................................................................... 17
2.9.1 Critical Issues........................................................................................................ 17
2.9.2 Complaints Procedure .......................................................................................... 18
2.9.3 Policy ................................................................................................................... 19
2.10 Enhance Labor Competitiveness .................................................................................. 19
2.10.1 Critical Issues...................................................................................................... 19
2.10.2 Policy ................................................................................................................. 20
2.11 Supporting Effective Port Safety Regulation ................................................................. 21
2.11.1 Critical Issues...................................................................................................... 21
2.11.2 Policy ................................................................................................................. 21
2.12 Supporting Effective Environmental Regulation ........................................................... 21
2.12.1 Critical Issues...................................................................................................... 21
2.12.2 Policy ................................................................................................................. 22
Chapter 3. Analysis of Port Traffic and Current Performance ............................................... 23
3.1 Approach and Data Sources ........................................................................................... 23
3.1.1 DGST Shipping Data Sets ...................................................................................... 23
3.1.2 Pelindo Port Data ................................................................................................. 24
3.1.3 Data from Other Recent Studies of Indonesian Ports ............................................ 24
3.2 Indonesian Port Traffic 1999-2009 ................................................................................. 24
3.2.1 Indonesian Port Traffic in 2009 ............................................................................. 27
Chapter 4. Forecast of Indonesian Port Traffic ..................................................................... 39
4.1 Approach....................................................................................................................... 39
4.2 Containers ..................................................................................................................... 39
4.2.1 Forecast of International Container Flows ............................................................ 39
4.2.2 Forecast of Domestic Container Flows .................................................................. 42
4.3 Other Cargo Types and Commodity Groups ................................................................... 47
4.3.1 General Cargo ...................................................................................................... 47


4.3.2 Dry Bulk ............................................................................................................... 47
4.3.3 Liquid Bulk............................................................................................................ 52
4.4 Alternative Traffic Scenarios .......................................................................................... 54
4.5 Implications of Indonesian Port Traffic Forecast for 2009-2030...................................... 58
Chapter 5. Port Location and Development Plan ................................................................. 60
5.1 Approach and Methodology .......................................................................................... 60
5.2 Port Facilities and Capacity Assessment ......................................................................... 60
5.2.1 Container and General Cargo Port Facilities .......................................................... 61
5.3 Strategic Port Development Plan Identified by Government and Pelindos ..................... 73
5.4 National Port Development Plan.................................................................................... 80
5.4.1 Unit Investment Costs .......................................................................................... 80
5.4.2 Investment Requirements .................................................................................... 82
5.5 Port Sector Financing ..................................................................................................... 82
5.5.1. Conditions for Attracting Private Sector Investment in Ports ............................... 85
5.5.2. Indonesia’s Legal Framework for Private Sector Investment in Ports ................... 87
5.5.3. Framework of Government Support and Guarantee ............................................ 89
5.5.4. Possible Sources of Funding for Public Sector Investment .................................... 91
Chapter 6. Legal, Regulatory and Administrative Actions Needed ........................................ 93
6.1 Subsidiary Regulations under the Law on Shipping ........................................................ 93
6.2 Subsidiary Regulations Required under Government Regulation on Port Affairs ............ 93
6.3 Policy Actions ................................................................................................................ 93
6.4 Short-Term Initiatives for Facilitating Policy Implementation ......................................... 96

LIST OF TABLES

Table 3-1 Indonesian Port Traffic by Trade Flow and Cargo Type, 1999 and 2009 ................ 25
Table 3-2 Indonesian Port Traffic by Trade Flow and Cargo Type and Principal Commodity,
2009 ................................................................................................................................... 28
Table 3-3 Indonesian Top 50 Ports for Container Traffic by Trade Flow, 2009 ..................... 31
Table 3-4 Indonesian Main Ports for Containers, Selected Years, 1990-2009 ....................... 33
Table 4-1 Regression Equation and Statistics for Forecast of Indonesian International
Container Traffic ................................................................................................................. 40
Table 4-2 Projected GDP Growth for Selected Regions and Countries, 2011-2030 ............... 41
Table 4-3 Base Case Forecast of International Container ..................................................... 42
Table 4-4 Characteristics of Container Traffic at JICT, 2000-2009 ......................................... 42
Table 4-5 Regression Equation and Statistics for Forecast of Indonesian Domestic Container
Traffic ................................................................................................................................. 43
Table 4-6 Base Case Forecast of Domestic Container Traffic at Indonesian Ports ................. 45
Table 4-7 Characteristics of Container Traffic at Pelindo II Ports excluding JICT, 2000-2009 . 45
Table 4-8 Base Case Forecast of Total Cargo Handled at Indonesian Ports, 2009-2030 ........ 48
Table 4-9 Indonesian Fertilizer Plants and Annual Capacity.................................................. 51
Table 4-10 GDP Growth Assumptions for Alternative Traffic Scenarios, 2010-2030 .............. 54
Table 4-11 Indonesian Container Traffic under Alternative Growth Scenario, 2009-2030 ..... 55
Table 4-12 High Growth Scenario Forecast of Total Cargo Handled at Indonesian Ports, 2009-
2030.................................................................................................................................... 57


Table 4-13 Low Growth Scenario Forecast of Total Cargo Handled at Indonesian Ports, 2009-
2030.................................................................................................................................... 58
Table 5-1 Container and General Cargo Berth Facilities at Selected Indonesian Ports, 2011 62
Table 5-2 General Cargo and Container Traffic Forecast at Main Indonesian Container Ports,
2009-2030 (Base Scenario) .................................................................................................. 63
Table 5-3 Container Terminal Berth Capacity Indicators, 2009-2025 .................................... 66
Table 5-4 Assumed Indonesian Port Productivity Factors by Type of Facility, 2009-2030...... 67
Table 5-5 Capacity Analysis for Main Indonesian Container Ports, 2009 ............................... 68
Table 5-9 Range of Unit Cost Estimates for Container Terminal Development and
Construction ...................................................................................................................... 80
Table 5-10 Unit Investment Cost for Indonesian Container Terminal Development ............. 81
Table 5-11 Port Sector Investment by Economic Corridor and Port Facility 2011-2030 and
Total 2011-2030 ................................................................................................................. 83
Table 5-12 Indicative Funding Requirements by Private and Public Sector for Development of
Port Facilities, 2011-2030 .................................................................................................... 85
Table 6-1 Regulatory Mandates for the Ministry in Shipping Law No. 17 of 2008 ................. 94
Table 6-2 Scope of Government Regulation No. 61 of 2009 ................................................. 94
Table 6-3 Actions for Policy Implementation ....................................................................... 95
Table 6-4 Near-term Initiatives for Facilitating Policy Implementation ................................. 96

LIST OF FIGURES

Figure 1-1 NPMP within MP3EI Framework ........................................................................... 2
Figure 1-2 NPMP Frameworks ............................................................................................... 3
Figure 2-1 Guidelines for Anti-Competitive Pricing Behavior ................................................ 16
Figure 2-2 Criteria for Assessing Anti-Competitive Behavior ................................................ 18
Figure 3-1 Indonesian Port Traffic by Trade Flow and Cargo Type, 1999 and 2009 ............... 26
Figure 3-2 Indonesian Port Traffic by Trade Flow and Cargo Type, 2009 .............................. 27
Figure 3-3 Indonesian Top 50 Ports for Total Traffic by Trade Flow, 2009 ........................... 29
Figure 3-4 Indonesian Top 50 Ports for Total Traffic by Cargo Type, 2009 ............................ 30
Figure 3-5 Indonesian Main Ports for Containers, Selected Years, 1990-2009 ...................... 34
Figure 3-6 Major International Trade Flows for Indonesia Container Traffic 2009 ................ 35
Figure 3-7 Major Domestic Trade Flows for Indonesia Container Traffic 2009 ...................... 35
Figure 3-8 Major International Trade Flows for Indonesia General Cargo Traffic, 2009 ........ 36
Figure 3-9 Major Domestic Trade Flows for Indonesia Container Cargo Traffic, 2009 ........... 36
Figure 3-10 Major International Trade Flows for Indonesia Dry Bulk Cargo 2009 ................. 37
Figure 3-11 Major Domestic Trade Flows for Indonesia Dry Bulk Cargo 2009 ....................... 37
Figure 3-12 Major International Trade Flows for Indonesia Liquid Bulk Cargo 2009 ............ 38
Figure 3-13 Domestic Trade Flows for Indonesia Liquid Bulk Cargo 2009 ............................. 38
Figure 4-1 General Approach for Traffic Forecast................................................................. 39


Figure 4-2 Indonesian Base Case Container Forecast for Domestic and International Trade,
2009-2030 .......................................................................................................................... 45
Figure 4-3 Indonesian Coal Production, Exports and Domestic Consumption, 1996-2010 .... 49
Figure 4-4 Indonesian Urea Plants and Annual Capacity, 2010 ............................................. 51
Figure 4-5 Indonesian Crude Oil Production and Consumption, 1999-2009 .......................... 52
Figure 4-6 Forecast of Indonesian Total Container Traffic under Alternative Growth
Scenarios, 2015-2030 ......................................................................................................... 56
Figure 4-7 Forecast of Total Indonesian Port Traffic by Cargo Type Under Alternative Growth
Scenarios, 2015-2030 ......................................................................................................... 56
Figure 5-1 Investment Requirement Methodology .............................................................. 61
Figure 5-2 Location and Forecasted Container Traffic at Main Indonesian Container Ports,
2009-2030 ........................................................................................................................... 64
Figure 5-3 Sumatra Economic Development Corridor: Port Planning Parameters and
Strategies through 2030 ...................................................................................................... 74
Figure 5-4 Java Economic Development Corridor: Port Planning Parameters and Strategies
through 2030 ...................................................................................................................... 75
Figure 5-5 Kalimantan Economic Development Corridor: Port Planning Parameters and
Figure 5-6 Bali and Nusa Tenggaraa Economic Development Corridor: Port Planning
Parameters and Strategies through 2030 ............................................................................ 77
Figure 5-7 Sulawesi Economic Development Corridor: Port Planning Parameters and
Figure 5-8 Papua – Kepulauan Maluku Economic Development Corridor: Port Planning
Parameters and Strategies through 2030 ............................................................................ 79
Figure 5-9 Port Sector Investment by Economic Corridor and Period ................................... 84
Figure 5-10 Port Sector Investment by Economic Corridor and Type of Port Facility 2011-
2030.................................................................................................................................... 84

LIST OF APPENDICES

Appendix A-1 Port Hierarchy ............................................................................................... 99
Appendix B-1 Strategic Ports within Sumatra Economic Corridor ....................................... 131
Appendix B-2 Strategic Ports within Java Economic Corridor ............................................. 131
Appendix B-3 Strategic Ports within Kalimantan Economic Corridor ................................. 132
Appendix B-4 Strategic Ports within Sulawesi Economic Corridor ...................................... 132
Appendix B-5 Strategic Ports within Bali –Nusa Tenggara Economic Corridor.................... 133
Appendix B-6 Strategic Ports within Papua – Kepulauan Maluku Economic Corridor.......... 133
Appendix C-1 Port Physical Development Plan by Economic Corridor and Type of Port
Facilities, 2011-2030 ......................................................................................................... 135
Appendix C-2 Port Sector Investment by Economic Corridor and Type of Facility, 2011-2030
......................................................................................................................................... 143


Chapter 1. Introduction
As a nation whose economic growth is heavily dependent on ports, the efficient functioning
of Indonesia’s ports is a top priority. Shipping Law No. 17 of 2008 helps advance that
priority by addressing critical issues of port efficiency, safety, security, and sustainability.
The Law calls for port sector institutional reform, the advancement of competition, the
development of a rationalized port development plan, the use of public-private partnerships
for financing of port projects, the participation of local, regional, and national authorities in
the port planning process, and preparation of a workforce to serve public and private sector
needs. The multidimensional approach the Law addresses will help Indonesian exporters
and importers do what they must to succeed while providing the necessary connectivity --
economic and transport – to enable prosperity to reach all Indonesian citizens. Indonesia’s
port sector vision reflects the multidimensional role for the country’s ports:

An efficient, competitive, and responsive port system that fully
supports international domestic trade and promotes economic growth
and regional development.

Shipping Law No. 17 of 2008 mandates the development of a National Port Master Plan
(NPMP). The Plan establishes the policy framework to facilitate achievement of the vision.
It also sets forth the requirements for a rationalized approach to port development. The
Plan, encompassed in this document, presents cargo forecasts, port development
requirements in the coming years, investment costs, and financing constraints and
strategies, with the final chapter laying out the actions needed to facilitate port
modernization and its integration in both economic development and transport system
frameworks.

The underlying theme of the NPMP is integration on several levels – across transport
corridors, between investment and policy and public and private sectors, among levels of
government, and in collaboration with economic development initiatives. They will provide
a coherent foundation for long-term planning and prudent investment among the partners
involved. While this obviously will include public and private investment in new and
expanded infrastructure where the need is demonstrated, it will also be essential to achieve
maximum efficiency and capacity out of existing footprints. That will require integrated
measures addressing issues of policy and administration, and governance and operations, in
addition to building infrastructure.

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Figure 1-1 NPMP within MP3EI Framework

2


Figure 1-2 NPMP Frameworks

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Chapter 2. National Port Policy

2.1 Introduction
In very recent years Indonesia has made some very important decisions relating to the
reform of its port sector. The country passed a new law, Shipping Law 17 of 2008, that calls
for the transformation of its port system from one operated by state-owned monopoly
corporations to a port authority system more characteristic of the landlord model with the
inducement of competition for providing the range of services offered to port users. Port
authorities are being established and future concession programs are intended to secure
needed investment while expanding the number of rivals seeking to provide port services.
This transformation underscores the importance of the Ministry of Transport and DGST in
developing a policy framework designed to facilitate the Shipping Law’s underlying objective
for the development of a competitive and efficient port system.

This chapter sets forth the policies which the government will adopt in order to achieve the
Shipping Law’s objectives. This follows the preparation of the Scoping Study Policies and
Procedures Report, which identified some of the policy themes open to the government to
implement. The process of developing policies involved consultations with government
officials and other stakeholders, site visits, and a review of the Shipping Law and
complementary regulations. The process also considered other economic development
initiatives the government is implementing that may be facilitated in part by the existence of
an efficient port system.

The development of a Port Policy for Indonesia was thus conducted in three stages:
diagnostic, consultative, and policy formulation. The diagnostic stage consisted of a review
of existing reports and data, technical site visits to pertinent maritime infrastructure, and
extensive interviews with both government and private sector stakeholders. The
consultative stage consisted of conducting several meetings and a workshop with industry
stakeholders on the basis of the National Port Master Plan and the noted Policy and
Procedures Report findings. The workshop stimulated discussion among a range of
stakeholder groups and resulted in a number of comments. Having carefully considered the
comments, revisions were made to the Policy and Procedures Report, which set forth policy
implications from the Shipping Law and National Port Master Plan from which port policy
would be formulated.

In the sections that follow, we first present a background to Indonesia’s port sector policy
environment, including institutional arrangements and challenges, and recent
developments. We then describe the legal context for Indonesian port policy. This is
followed with the presentation of the port sector vision, mission and strategic objectives and
a discussion of the critical issues that influence the development of policy. The chapter then
presents the policies the government will implement. Initially, four sets of supporting
regulations are proposed to be issued to support the implementation of policy. These relate
to: (a) port tariff regulation (b) complaint procedure and dispute resolution; (c) safe, secure
and environmentally-responsible port operations, and (d) port planning.

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2.2 Background
As a nation composed of many islands, Indonesia is perhaps the world’s most port-reliant
nation. Historically, the main focus of government has been on the administration of its port
system. In response to government’s call for port sector restructuring, government focus is
now extended to the associated institutional, regulatory and technical issues that need to be
addressed in building a modern port sector.

In 1992, Indonesia had installed a system of state-owned enterprises (Pelindos) charged with
the development, administration, and operation of Indonesia’s ports. The institutional
reforms introduced by Shipping Law 17 established a system of landlord port authorities
(and related port management units) and also changed the status of the Pelindos to port
operators (port business entities). The port authorities are charged with the development
and regulation of Indonesia’s ports, but as entities holding civil service status, do not reflect
the wide span of autonomy normally accorded landlord port authorities. And while the
Shipping Law did not create a new entity overseeing Indonesia’s port administration, the
transformation to the landlord model also indicates a change in the role of the Ministry of
Transport, which is charged in part with issuing regulations related to the implementation of
the Shipping Law.

Indonesia’s new port institutional framework implies a set of new or revised responsibilities
for port sector governance. There is a need to ensure clarity about each institution’s roles
and objectives. They must work together effectively in building the port sector. As
Indonesia’s port interests are now housed in separate entities, the Ministry of Transport’s
primary role needs to be clearly defined as including acting as policymaker for the port
sector, monitoring the performance of the port system and its individual components, and
overseeing the government’s interests in ports. Shipping Law 17 and its complementary
regulations entrust the Ministry of Transport with responsibility for:

 Planning the development of the country’s commercial and non-commercial
seaports;
 Securing and facilitating investment in port development and improvements;
 Promulgating regulations and guidelines for port authorities and PMUs designed to
assure effective port sector governance, coordinated and integrated planning, and
efficient operation;
 Formulating an education and training model to assure effective performance of
port-related functions and a ready supply of highly capable port sector human
resources;
 Approving port authority and PMU tariffs and developing port tariff structures for
port business entities;
 Issuing permits for port development, construction, operation; and
 Approving port authority, PMU, and private sector plans for the development and
upgrading of ports.

And while the Ministry of Transport’s role can be viewed as one of instituting port policy and
overseeing the port sector, the responsibility for planning and direct supervision of the port
sector is housed within port authorities and port management units. To this extent, port
authorities and PMUs are charged with:

 Assuring the smooth flow of goods in ports and establishing standards for
operational performance;
 Provide land and water areas for ports;

5


 Contracting port business entities to undertake port business activities;
 Prepare tariffs for services rendered by port authorities and PMUs and submit them
for approval by the Ministry of Transport;
 Issue regulations governing the use of ports, harbors, and pilotage services;
 Prepare local master plans for approval by the Ministry of Transport;
 Assure environmental protection in the port areas; and
 Facilitate dissemination of port-related information.

In 2009, nearly 1 billion tons of cargo were handled in Indonesia’s ports, with about 543
million tons (56 percent) and 435 million tons handled in foreign and domestic volumes,
respectively. While cargo volumes are substantial, competitiveness is lower than
expectations. Pelindo subsidiaries arguably compete on the basis of operational
performance, but competition on the basis of pricing is virtually nonexistent given the
majority ownership position of the Pelindos in port business entities. This has been due
largely to barriers to market entry imposed on non-Pelindo affiliated port business entities
and antitrust protections accorded to state-owned enterprises. Re the former, special
terminal operators are highly restricted from engaging in cargo handling services for third
party cargoes and, even if given the required permits to do so, permits are granted for only
five years. Though options for renewal are available, it is difficult to imagine a situation
where an investor can receive financing where there is a risk of non-renewal and the loan’s
payback period far exceeds the initial permit period. Re the latter, the KPPU legislation
exempts Pelindos, as state-owned enterprises, from antitrust regulation, hence allowing
them to directly engage what would otherwise be prohibited behavior. Additionally,
Indonesia currently requires government entities to hold 51% equity in joint venture
arrangements involving foreign corporations, discouraging foreign investment in Indonesia’s
port sector. Finally, Pelindos are accorded land stewardship responsibility and hence control
of landside port development within their territories.

Indonesia can expect continued robust economic growth in the coming years, generally
averaging about 6.4 percent through 2030. This growth places new demands on operational
efficiency and capacity; failing to meet these demands may constrain expected economic
growth. Global shipping patterns are in a state of flux as ship sizes increase, a risk of
container carrier overcapacity emerges, and rate instability ensues; shipping lines in turn will
seek to minimize port calls in an effort to rationalize their businesses. Efficient modern port
facilities capable of handling the latest generation of container ships and large bulk carriers
efficiently are seen as the key to reducing transport costs and hence attracting overseas
investment and diversifying Indonesia’s manufacturing and trading base. At the same time,
Indonesia needs to replicate global best practices and develop a port institutional
framework that is commercially efficient. Such a framework includes an element of planning
and control to ensure that development and operations are carried out to the highest
international standards and hence contribute towards, rather than constrain, the
achievement of Indonesia’s goal of accelerated economic development.

The port reform process is not yet complete. There are gaps and clarifications needed in the
Shipping Law and more legislation and regulations may be needed to assure effective policy
implementation. Additionally, the emergence of a competitive port system is dependent on
finding the right people. The newly created port entities will need the ability to recruit and
retain a workforce of the highest caliber to undertake the tasks with which they are
entrusted. Port authorities will be unable to wrest highly qualified people from other
sectors unless compensation rates can exceed the compensation levels bound by current
civil service rules. Retaining employees also means that effective management of human

6


resources, including training and development, will be necessary to support the functioning
of DGST and the port authorities.

Access to qualified labor is also a concern for the port business entities. As cargo volumes
increase in the coming years, additional physical capacity will be needed, and there will be
increasing demand for workers to manage and operate these new facilities. Indonesia’s port
sector will need a ready supply of qualified workers in order maintain and operate facilities
at acceptable global standards.

2.3 Indonesia’s Need for Integrated Port Policy
The policies set forth below are intended in part to enhance multimodal and cross-sectoral
integration. Ports can no longer be viewed in isolation of the rest of the transportation
system and economic development strategy. Hence, policy implies an emphasis on rigorous
analysis and long-term planning in partnerships among government agencies and between
public and private sectors. The emergence of global supply chains as the preeminent
business model is a key factor in global economic changes. Propelled by dramatic changes in
information and transportation technologies, leading-edge production strategies now
feature deeper integration of production, marketing, transportation, and distribution –
commonly referred to as integrative trade. These changes in how businesses operate have
significant implications for transportation, as pressures mount for greater scale and
efficiency in infrastructure systems that support major trade flows.

As businesses increase their reliance on seamless, secure, and efficient multi-modal
transport systems as keys to their success, transportation as a whole is being recognized as
more crucial than ever to Indonesia’s competitiveness. Hence, the key for Indonesia’s future
success will be an integrated approach to both policy and physical infrastructure relative to
all surface transport modes. This approach places transportation infrastructure at its core,
but goes further to encompass other interconnected issues of public policy, regulation, and
operational practices that directly impact how well transport infrastructure works and how
well Indonesia takes advantage of it. As for investment, the crucial role for private
investment is highlighted, along with a commitment to policies that foster a positive climate
for it to increase while safeguarding the public interest.

The scope of a future maritime policy in Indonesia is potentially wide-ranging. It is inevitable
that the various policies, once approved, will be phased in and may be changed during the
course of time in view of strategic and other events. This suggests that policies will also
have to be prioritized and maybe revised. Hence, the Ministry of Transport will rely
continuously on input from stakeholders in identifying the most important policy areas and
any needed modifications.

Policies are required to ensure that Indonesia’s port sector develops into a world-class
competitive industry and that the ports are operated in line with international safety and
environmental standards. The objective should be to ensure that the port sector promotes
competitiveness, facilitates trade, and seamlessly integrates with the multimodal transport
logistics system. To achieve this, a flexible legal and regulatory framework is required that
ensures orderly, safe, secure, accessible, and competitive services, high standards of
corporate governance, and effective economic and technical regulation. It requires a clear
policy built on consensus and a commitment from policymakers, managers, regulators and
stakeholders.

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2.4 Legal Context
Shipping Law 17 of 2008 is the “parent” law governing Indonesia’s ports sector. The Law
covers both port and shipping matters. Port issues are mainly dealt with in Chapter VII (Arts
67 – 115), Chapter XI and in a few scattered provisions elsewhere in the Law. The main
topics covered in Chapter VII of the Law are:

 National Port System
 Port Master Planning
 Institutional Frameworks / Participants in the Port System
 Port Construction and Operation
 Special Terminals and Own Interest Terminals
 Tariffs
 Designation of ports open for foreign trade
 Role of regional government

Also relevant is Chapter XI, which establishes the office of the Harbour Master and defines
its powers and functions. The Law is supplemented by various Government and Ministerial
regulations issued to give effect to specific provisions. The principal regulations governing
port institutions, their roles, functions and duties include:

 Government Regulation No 61/2009 regarding port affairs;

 MoT Ministerial Regulation No KM 62/2010 on the organization and working
procedures of Port Management Units and its amendment (PM 44/2011);

procedures of Port Authorities and its amendment (PM 45/2011);

procedures of the Harbour Master’s Office; and its amendment (PM 46/2011);

procedures of the Batam Port Office and its amendment (PM 47/2011).

2.5 Port Sector Vision and Goals
Chapter 1 presented the vision for Indonesia’s port sector. The government’s goals for
achieving this vision are set out below.

 Secure Private Investment. Indonesia’s port sector will require substantial
expansion to accommodate higher demand as well as to support economic
development initiatives. The scale of investment is such that the public sector
cannot cover the cost alone. While private sector participation is key to port
development and operations success, government currently has regulations in place
that have the effect of discouraging private sector investment. Restrictions to
operational scope by special and own-interest terminals, related restrictions on
length of permits, and mandatory foreign equity ownership guidelines in terminal
infrastructure limit foreign investment and the ability of the private sector to engage
in third-party cargo handling.

 Institute competition. Indonesia’s port sector is characterized by market dominance.
As a result, prices are not determined by market conditions, translating to higher

8


costs to port customers, and in the end Indonesia’s producers and consumers, than
what would otherwise exist under fully competitive conditions. Market entry by
competitors is constrained by certain provisions in the Shipping Law that should be
amended. A light-handed regulatory framework is needed to guard against abuses
of market power until such time as it is feasible to introduce more competition, and
allow market forces to drive the search for greater efficiencies and lower costs after
competition is introduced. The principle to be applied is “competition where
possible, regulation when necessary”.

 Enhance the landlord model of port administration in Indonesia. Indonesia’s port
landlord model as currently configured does not reflect international best practice,
particularly in regards to the autonomy given landlord ports of other countries.
Missing from the existing model is the port authority’s ability to make independent
decisions relative to organizational structuring, marketing, pricing, budgeting,
financing, procurement, setting compensation levels, and hiring/termination. This
has the effect of slowing responsiveness to changing market conditions and
constraining inter-port competition that could emerge in future years as hinterland
accesses to market catchment areas are improved.

 Integrate planning. The success of Indonesia’s economic development initiatives
depends to a great degree on the port sector’s ability to facilitate implementation of
these initiatives while contributing to their success. This is particularly true of the
MP3EI, where ports will serve some of the economic activity located along the
economic corridors. Port planning must respond to the growing requirements of
economic activity and integrate these developments in the development of their
master plans. Port development must also be coordinated with national
transportation planning and planning decisions cannot be made in isolation of the
communities where ports operate; port plans must therefore be in conformity with
local land use plans.

 Create an enabling, flexible, legal and regulatory framework. Indonesia has already
embarked on extensive legal reform with the introduction of the Shipping Law and
its complementary regulations. However, further legislation and/or regulations are
likely to be required to improve integrated and coordinated planning, provide an
efficient procedure for regulating tariffs, and allow for light-handed regulation in the
event of market failure.

 Ensure safe and secure port operations. The port sector has to have a good safety
record and secure its assets and human resources. In the future this will require
more capacity to ensure that safety and security regulation adheres to world class
standards and international protocols to which Indonesia is a signatory. Technical
capacity must be created to meet these challenges and to cooperate with national
authorities in building an efficient safety and security management regime that
applies to Indonesia’s ports.

 Expand protection of the environment. Future port expansion requirements will
result in the increased use of coastal waters and new developments along the
coastline increase the threat to the marine environment. The port authorities and
port management units must be diligent in implementing systems to mitigate such
threats, and effective oversight mechanisms must be established by the Ministry of

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Transport to achieve this in cooperation with other relevant agencies in Indonesia.
Systems for implementation include effective emergency response programs.

 Develop human resources. The port sector should provide a safe and rewarding
work environment with opportunities for career progression and personal
development. To become an “employer of choice” in a more competitive labor
market, the sector needs to provide attractive employment conditions, challenging
and rewarding work, an appropriate work–life balance, and greater opportunities
for training and upgrading the skills of the workforce. The ultimate goal is high levels
of efficiency within a work environment that balances the interests of workers,
employers, and society as a whole. But assuring quality workers begins with
preparation well before they are ready to embark on their careers – both vocational
institutes and universities must play a role in preparing the port sector workforce.
For workers already employed for cargo and vessel handling, training programs must
focus on measures for improving productivity while Indonesia must strive to meet
global standards for port labor practices. Further, women do not figure prominently
in the port sector workforce -- Indonesia must focus on strategies designed to
mainstream women in this important sector.

2.6 Port Policy Formulation, Implementation and Review

2.6.1 Critical Issues
Indonesia’s port governance system is new as is the role of the Ministry of Transport in this
new landlord form of administration. At the same time, there is a lack of a policy framework
setting out government’s goals for the sector, how these goals are to be achieved and who
will be responsible for achieving them.

It is traditionally the role of line function government departments, such as the Ministry of
Transport and DGST, to undertake policy development and monitor its implementation. This
must occur on a consultative basis with the involvement of all stakeholders. The process
adopted in the development of the National Port Master Plan already establishes a suitable
precedent for stakeholder involvement.

Policy is never static and must continuously adapt to changing circumstances. Hence, the
Ministry of Transport must also be tasked with reviewing policy on a regular basis to verify
that it still supports the Government’s overall economic and social goals. Legislation is a tool
of policy. As Indonesia’s port policy takes shape, legislation must be revised to ensure that it
fully enables policy objectives to be achieved.

The Ministry of Transport’s work in policy development should be concerned with:
 Contributing to the debate on the long-term structure of the port industry by
advising on ways of increasing competition. Although the Pelindos currently have
superior technical knowledge in this area, it has a major conflict of interest as any
increase in competition will automatically weaken its own position. A healthy debate
on the issue will enable the government to make a better-informed judgement on
the amount and form of competition which is appropriate and time at which it is
introduced. The Ministry of Transport’s proposed role in promoting competition is
elaborated further below.

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 Ensuring that Indonesia’s ports are compliant with the country’s policies. The
Ministry of Transport will also be expected to represent port sector interests when
new policies are being developed at the national level, while DGST must work within
the Ministry to assure that prospective Ministry of Transport modal policy
incorporates deliberations about the impact modal policy may have on the port
sector.

 Integrating the port system more effectively with other modes of transport, for
example by setting regulations on vehicle weights and drivers hours, or improving
highway systems, which do not have the effect of impeding the efficient working of
the ports.

2.6.2 Policy
 The Ministry of Transport will develop capacity to oversee the effective
implementation of its proposed policy. It will report regularly to government and
stakeholders on progress in achieving policy goals. The Minister of Transport,
working through DGST, will from time to time issue guidelines to government
institutions and commercial agencies with regard to the implementation of port
policy. As appropriate such policy guidelines will be preceded by consultation with
key stakeholders.

 Business strategies of all stakeholders, including port authorities, PMUs, and port
business entities, must be aligned to support government’s port policy objectives.
To this end the Ministry of Transport through DGST will enter into a dialogue with
stakeholders with regard to those aspects of its plans and budgets that raise issues
of port policy. The Ministry of Transport will pursue a structured and open dialogue
with stakeholders, via the establishment of stakeholders and/or port user
committees, aimed at promoting a broad consensus and seeking to resolve
differences in emphasis or approach through a consultative process.

 Policy will be regularly reviewed to ensure that it is still responsive to achieving the
goals identified for the port sector. A policy review will be undertaken on a three
yearly basis and will be integrated with the Ministry of Transport’s strategic planning
process. The review process will allow for stakeholder consultation and the
reviewed policy will thereafter be published for public notice.

 Legislation will be reviewed to ensure that it provides an enabling framework for the
Government’s policy goals for the sector.

2.7 Integrated Planning, Facilitation and Performance Monitoring


Integrated Planning
The Shipping Law has assured a coordinated port planning process. The Ministry of
Transport through DGST is responsible for preparing and updating a national port master
plan (NPMP) every five years with interim updates made as appropriate. Port authorities
and PMUs are, in turn, responsible for preparing local port master plans in conformity with
the NPMP; but the local master plans must also be aired with local governments to assure
they adhere to local land use planning provisions. There is, however, no provision in the Law
and its complementary regulations to assure plans are part of an integrated national

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transport planning process and also to assure port master plans facilitate overall economic
development objectives.

It is therefore crucial that the ports are effectively integrated with other transport modes
and economic development initiatives. Planning to achieve such integration must occur at
various levels and among agencies within the national government and the port authorities
and Pelindos. The challenge is to devise a framework that promotes complementary
planning and allocates responsibility to each organization on the basis of its mandate and
distinct responsibilities.

Typically, it is a core function of transport departments to undertake overall planning for the
transport sector that ensures effective integration of transport modes. The desired
outcome is a seamless integration of modes that function as a single logistics chain.
Experience in many countries demonstrates that where such integrated planning is absent,
transport operations are constrained resulting in inefficiencies and higher costs. A good
example is inadequate road or rail connections to modal interchange points such as ports.

An important role of the DGST is to develop a strategic vision of future port requirements, to
coordinate port planning with developments in other sectors of the economy, and to ensure
that the growing volumes of port traffic can be comfortably accommodated on Indonesia’s
road, rail, and interisland transport systems. The primary role of port authorities and PMUs
is to undertake the physical planning and oversee construction and operation of port
infrastructure. However, DGST also has an important supporting role in coordinating port
authority plans with those of other government organizations and reviewing port authority
plans from a strategic and operational perspective.

Port development plans need to be integrated into wider strategies for economic
development, land use, and environmental protection. It is important to map out clearly
how this strategic planning process will work, and define the central role of the Ministry of
transport and DGST in coordinating port development plans with those of other entities and
sectors. DGST and port authorities may also be required to facilitate consultation on the
plans to ensure that the views of all stakeholders are properly taken into account.

The Ministry’s port planning responsibility should include the role of overall sector
facilitation. This entails facilitating between the port sector and stakeholders in both
government and the private sector to ensure that the port system can function at optimal
efficiency levels. Worldwide, studies have shown that over 75% of the constraints to port
system efficiency result from the activities of government agencies such as customs, poor
productivity due to the inefficient use of information technology and logistics practices that
are below par. There is potentially an extensive role to play by the Ministry in securing
greater cooperation between agencies and stakeholders involved in the transport field to
ensure higher productivity and overall lower port and transport costs.

Finally, the Ministry’s overall planning role implies that it must also be in the position to
evaluate the efficiency of the transport system and to assess whether policies and plans are
contributing towards higher port productivity and lower costs. This entails developing the
required performance monitoring and data processing capacity.

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Port Hierarchy
Indonesia has developed a hierarchical framework to reflect the roles ports play in the
country’s port system, how they may be integrated in the country’s economic and port
planning processes, how they may be institutionally restructured as national, regional, and
local assets, and the extent to which they may be financially supported by the government
of Indonesia.

As indicated in the Shipping Law, the port hierarchy consists of 1) main, 2) collector, and 3)
feeder ports. Main ports serve domestic and foreign trade, while collector and feeder ports
are limited to domestic trade only; main ports are deemed to handle large cargo volumes,
while collector ports and feeder ports handle “medium” and “limited” volumes, respectively.
Main ports are to be administered by port authorities; collector ports may be administered
by port authorities or PMUs; feeder ports are to be administered by PMUs. Collector ports
and feeder ports may also be administered by regional or local governments. How collector
and feeder ports are administered will be determined in close consultation with regional and
local governments based on their expressed interest to the Ministry in administering these
ports or upon the Ministry’s interest to transfer these ports to local and regional control.
The current classification of Indonesian ports is presented in Appendix A.

2.7.2 Policy
 The Ministry of Transport is responsible for coordinating planning of the entire
transport system in Indonesia based on sector plans prepared by modal divisions,
other modal agencies, and port authorities. To this end, port authorities will
cooperate with DGST to ensure that DGST is regularly informed of ongoing planning
efforts. The Ministry of Transport will issue planning regulations consisting of
requisite planning processes and guidelines to provide a basis for the Ministry’s
monitoring of this activity. The Ministry will also require Pelindos and other port
business entities to provide port authorities with all relevant detail needed for
assessing impacts of their plans on the master plan, and port authorities to provide
similar details to the Ministry to coordinate overall transport system planning.

 The Ministry will review the status of ports in future years to determine if their
hierarchical status should change and what implications there are in terms of
revising the prevailing and future National Port Master Plans and in the plans
submitted by port authorities and PMUs.

 The Ministry of Transport will review port authority development plans from an
integrated transport planning perspective and establish a review procedure in the
planning regulations. The DGST will promote a continuous dialogue with the port
authorities to ensure that DGST is able to effectively execute its regulatory and
planning responsibilities.

 The Ministry of Transport through DGST will develop capacity to supplement its
planning function by undertaking overall sector facilitation. To this end, the Ministry
will engage with other government agencies such as customs, and private sector
role-players such as freight forwarders and logistics service providers, to
continuously review sector performance and adopt practices that eliminate
constraints to the optimal functioning of the transport chain.

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 The DGST will develop a system of indicators for both planning and monitoring
performance purposes and publish regular findings of key port performance
indicators.

2.8 Tariff Regulation

Port authorities and PMUs are required to prepare tariffs for services that they render and
submit tariffs for review and “stipulation” by the Ministry of Transport. It is important that
the process of tariff review and approval is well understood by all the parties. The Law
suggests a “light-handed” regulation approach as tariffs are not imposed; instead, port
authorities are subjected to tariff approval, and eventually, as port authorities and PMUs
reflect the global standard approach to landlord administrations, they will make their own
pricing decisionsbased on a combination of commercial and cost recovery principles. In this
instance, the Ministry of Transport’s role will be limited to ensuring that the tariff complies
with its general tariff guidelines and does not discriminate unfairly or constrain competition.

Steps will be taken to ensure short-medium term stability in the published tariff and major
adjustments to the tariff should be relatively rare, unless there are large unforeseen changes
in costs. At the same time port authorities will need some flexibility to negotiate tariffs if
these are needed to bring in new business. The role of the Ministry of Transport is to ensure
that these do not seriously disadvantage other customers, and do not undermine the overall
financial stability of the port authority by leading to large losses.

International best practice generally advocates non-discriminatory treatment of
customers—similar tariffs for similar customers receiving a similar service—but this is not
always easy to achieve, as most customers can find something that differentiates them from
others and can be used to justify a lower tariff.

While the Shipping Law does not compel port business entities to submit tariffs for approval,
the risk of oligopolistic behavior by port business entities requires that port business entities
submit tariffs to enable the Ministry of Transport to monitor for anticompetitive pricing
practices. The tariff setting process should incorporate a formal tariff filing system for port
authorities and port business entities covering both the published tariffs and the tariffs
negotiated with individual port users on the basis of “one-off” service agreements. This will
enable the Ministry of Transport to monitor tariffs to ensure that they remain internationally
competitive, are not the result of collusive behavior, cover costs, and do not unfairly
discriminate against individual port users. The tariff filing system is expected to operate
broadly as follows.

2.8.2 Tariffs
Tariffs are the standard charges by port authorities that apply to all port users unless
otherwise specified. It is anticipated that they will be changed infrequently in order to give
users a high degree of certainty about the level of port charges, and that the changes will be
preceded by a period of consultation during which users will be able to prepare for the
effects of any proposed changes.

Changes to the port tariff will be proposed by port authorities and should be filed with the
Ministry of Transport at least 60 working days before their intended date of introduction. If
the port authorities receive no comments from the Ministry by 15 working days before their
intended date of introduction they are deemed to have been approved.

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Port authorities will be expected to provide some justification for the proposed tariff
changes based on their financial impact on the port authority, requirements to recover
investment and operating costs of relevant services, competitiveness concerns, and the
outcome of any consultations port authorities have held with port stakeholders. The
Ministry of Transport will be entitled to conduct its own consultations with stakeholders if it
believes this is necessary. The tariffs for all port infrastructure and services will be
published for public notice, for example, on the Ministry’s and port authority websites.

While the Shipping Law does not require Ministry approval of port business entity tariffs,
this does not mean they would not be subjected to review and monitoring for
anticompetitive behavior. In terms of terminal operations, port business entities control all
activities between and including the berth and gate. Port business entities in dominant
positions have the ability to leverage higher prices without the threat of losing business,
thereby placing an undue cost burden on port users that is detrimental to trade
competitiveness. There is also a further cost to society as prices not constrained by
competition or regulation increases the costs to consumers and domestic production.

Today, state-owned enterprises are not subjected to the provisions of Indonesia’s
competition law, while other port business entities are. The KPPU antitrust case precedents
have shown that it has regulatory jurisdiction over state-owned enterprise subsidiaries, but
not over state-owned enterprises themselves. This has the effect of encouraging state-
owned enterprises to avoid creating subsidiary operating companies and directly managing
and operating terminals themselves or, alternatively, to set standard prices for all terminals
under their control. State-owned enterprises are also not prohibited from engaging in
anticompetitive practices, such as predatory pricing and discriminatory behavior as well as
cross-subsidization, in their efforts to eliminate competition. State-owned enterprises are
also not prohibited from engaging in anticompetitive practices, such as predatory pricing
and discriminatory behavior as well as cross-subsidization, in their efforts to eliminate
competition. Given the changing role of the Pelindos brought about by the new Shipping
Law, it is important to seek clarification from KPPU regarding the question of antitrust
exemption. A continued exemption in itself will serve as a constraint to market entry of
potential rivals and ultimately discourage needed port infrastructure investment. This in
itself will serve as a constraint to market entry of potential rivals and ultimately discourage
needed port infrastructure investment. Finally, we must bear in mind that state-owned
enterprises have profit maximization as their objective, with the Ministry of State-Owned
Enterprises establishing annual financial performance targets.

2.8.3 Service Agreements
Service agreements with individual customers are negotiated quite frequently and may be
for either a fixed or indeterminate period of time, or linked to the shipment of specific
consignments. Because they usually involve price guarantees, they serve as de facto tariffs.
Service agreements should be monitored to assure non-discriminatory behavior. They
should be filed with the Ministry of Transport under confidentiality rules established by the
Ministry no more than 10 working days after they have been agreed with port users,
together with supporting information which describes briefly the nature of the transaction
and the reasons for entering into a service agreement rather than applying the tariff. If no
comments are received from the Ministry within 10 working days of the date of filing, they
are deemed to have been approved. Because they are highly confidential, service
agreements with individual customers will not be published. Regulations should provide for

15


the confidentiality of agreements to be protected, unless disclosure is authorized by port
business entities.

2.8.4 Rights of Explanation and Objection
The Ministry of Transport will be entitled to request an explanation from port authorities
and port business entities for any proposed tariff changes (in the tariff or service
agreements) which it wishes to query. At the request of the Ministry of Transport, changes
to tariffs can be put on hold while this explanation is being given.
The Ministry of Transport should have the right to object to an existing or proposed tariff
only on the grounds that it is anti-competitive or non-compliant with government policy. A
tariff or service agreement can be considered to be anti-competitive when it fails to comply
with Ministry of Transport guidelines (see Figure 2-1). These guidelines will also provide
grounds for complaints about anti-competitive behavior which port users may refer to the
Ministry of Transport. Port users making complaints about anti-competitive behavior will be
expected to produce factual evidence to support their complaints before the issue is taken
any further.

The Ministry of Transport’s right to object to a tariff item should only be exercised if the
matter cannot be resolved through discussions with the port authorities and port business
entities. In this event, the following procedures will apply.

 The Ministry of Transport should formally notify port authorities and port business
entities of its objection, together with the reasons for it.
 Port authorities and port business entities may respond to the objection with a
statement of reasons which the Ministry of Transport is required to consider after
which it must inform port authorities/port business entities whether or not it
withdraws its objection.

Figure 2-1 Guidelines for Anti-Competitive Pricing Behavior

Anti-competitive pricing behavior is normally defined in terms of the following criteria:

Excessive tariffs. Average charges are high in relation to the cost of providing the service or for use of similar
infrastructure or services elsewhere and the premium cannot be justified by any unique feature in the cost
structure of the port or terminal.

Predatory pricing. Tariffs for particular infrastructure or services are below their appropriate marginal cost
(long-term or short-term, according to the nature of the transaction).

Price discrimination. Similar customers are charged different tariffs for the provision of similar services.
However, this does not preclude volume discounts or the negotiation of individual service agreements for which
there is economic justification.

In situations where the Minister of Transport determines there may be anticompetitive
behavior, or if a complaint received may be valid, then the Ministry of Transport may refer
its own determination or complaint to Indonesia’s competition commission (KPPU), which in
turn is obliged to take up the matter. To be able to do this, it is important that an
interagency Memorandum of Understanding be prepared that defines the process and roles
of either agency in considering possible antitrust behavior. Additionally, in furtherance of
promoting competition, already a part of Indonesia national policy, the Ministry of Transport
must seek to incorporate a port sector state-owned enterprise exception to the exemption
accorded to all state-owned enterprises in the antitrust legislation.

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Circumstances will change over time, and the regulations should be flexible enough for tariff
review procedures to be modified by mutual agreement and formalized through a
ministerial decision without requiring legislative amendment.

2.8.5 Policy
 It is the duty of the Ministry of Transport to review the tariffs. The basic approach
that the Ministry of Transport will adopt is that of “light-handed” regulation. On the
part of port authority or PMU tariffs, it will object to proposed tariffs only to the
extent that they are not reasonable relative to the cost of providing the service or
infrastructure. In the case of port business entities, the Ministry will refer the
proposed tariff to the Competition Commission if in the Ministry’s judgment it is not
reasonable relative to the service or infrastructure cost or is anti-competitive or
discriminatory.

 The Ministry of Transport’s power of review is without prejudice to the freedom of
port business entities to negotiate service agreements with individual customers.

 The Ministry of Transport will issue regulations to clarify the procedure to be
followed with tariff monitoring and review to ensure that a light-handed approach is
followed which does not impose any undue burden on port authorities, port
management units, or port business entities. The regulations will also specify the
grounds for regarding the tariff or a service agreement as anti-competitive.

2.9 Promoting Port Sector Competition

Competition is generally regarded as the best way of achieving economic development
because of the incentives it provides for all participants to satisfy customer needs in the
most efficient way possible. Government intervention is only needed when competition
does not produce the desired outcome. The basic policy approach that many governments
adopt and which is also the approach for Indonesia is “competition where possible,
regulation when necessary”. This approach allows government to adopt a “hands-off”
stance intervening only for one of three reasons: anticompetitive behavior, the existence of
externalities (such as traffic congestion or pollution which are not automatically taken into
account in commercial decision-making), and a failure to provide customers with sufficient
information.
Indonesia’s port sector is not yet highly competitive, meaning that shippers are left with very
few options relative to their hinterland markets. The use of more distant ports imposes
significant transaction costs on port users, thus reducing their effective choice. Currently,
terminals serving specific hinterlands are now managed by the same state-owned enterprise
through subsidiaries. This enables the state-owned enterprises to take decisions that may
be favorable to their overall business, but which could be to Indonesia’s disadvantage. As
sole providers of port infrastructure and services, the potential for abuse of monopoly
power exists even if it is never exercised. These factors create a strong case for the Ministry
of Transport to have a role in advising the government on ways in which competition might
be increased, and to have a role in controlling anti-competitive behavior should it arise.

The layout and scale of cargo volumes in Indonesia’s largest ports suggest that competition
could be introduced to effect inter-terminal competition. Hence, as part of its master plan
review process, the Ministry of Transport will consider strategies for introducing

17


competition. Additionally, in order to avoid monopoly or oligopoly effects of vertical
integration of port services, and the opportunities for cross subsidization, the Ministry may
prohibit port business entities providing certain services from also providing other services.
For example, terminal operators may be prohibited from also offering tug assist services.
This policy will prevent operators from bundling port services and thus expand the
opportunities for inducing competition.

The Ministry of Transport will also endeavor to simplify licensing procedures for services
currently requiring licenses while assuring adequate insurance against liability. This policy is
intended to ease market entry requirements while simultaneously assuring only qualified
license holders can provide the service. This will serve to establish a market for certain
services which will encourage local entrepreneurship and the development of small and
medium sized enterprises.
Where the market fails to ensure competition, Indonesia must have a framework in place
that can anticipate the potential for abuse of monopoly power in the future as commercial
relationships may evolve in unforeseen ways. Anti-competitive behaviour can assume a
variety of forms (see Figure 2-2).

2.9.2 Complaints Procedure
Due to the imbalance in market power between the port operator, service providers and
port users, it is important that an effective channel exists for reporting and resolving
complaints and disputes relative to anticompetitive behavior. Such complaints refer only to
issues related to anticompetitive behavior. For complaints not related to anticompetitive

Figure 2-2 Criteria for Assessing Anti-Competitive Behavior

 Entry barriers (Access discrimination). Potential port users are deliberately excluded from access
to particular infrastructure or services, at a time when the port business entity is physically and legally
capable of supplying them, and would not lose money by doing so. This includes failure to invest
when the port is approaching full capacity.

 Service bundling. Port users are required to purchase services they do not want, or could buy from
a competitor, in order to obtain access to infrastructure or services for which the supply is more
restricted.

 Exclusive dealing. Port users – and the port operator’s own suppliers - are not allowed to deal with
the port operator’s competitors, and are threatened with loss of their existing business if they do so.

 Performance standards. The port operator fails to provide an acceptable quality of service, and/or
consistently fails to meet its conditions of contract with port users or government.

behavior, port authorities are better positioned to receive, respond, and seek remedies to
complaints relative to non-competitive issues.
Best practice encourages the parties to negotiate a commercially-acceptable solution. The
regulator’s first response should always be to direct the parties to seek a negotiated
outcome, rather than have a solution imposed “from above” by the regulator. Only if
theparties are unable to achieve a settlement between them should the regulator become
involved. However, even with the involvement of the regulator, the initial approach will be

18


to seek to reach an amicable settlement between the parties through independent non-
binding mediation. Only once both direct negotiations and mediation have failed will the
Minister of Transport refer the matter to the KPPU. The following general guidelines should
apply to complaint procedures.

First, all incoming complaints should be formally recorded and acknowledged. Complaints
should be made in a prescribed format and be accompanied by supporting documentation.
After a review of the complaint a decision should be made on whether the complaint falls
within the Ministry of Transport’s jurisdiction. Complaints about day-to-day operational
matters, for example, should be automatically referred back to the port authorities.
Frivolous or vexatious complaints should also not be entertained. The organization against
which the complaint has been made should then be given the right to respond, usually
within a pre-determined time period which reflects the nature of the complaint. At this
point, the Ministry of Transport is entitled to ask either party to the dispute for further
information if this seems appropriate.

After reviewing this “first round” of information, the Minister of Transport may ask the
parties involved to attempt to resolve the dispute themselves and it will generally do so if it
believes a commercially-negotiated outcome can be achieved. In fact, before lodging a
complaint, complainants should make every effort to solve a dispute through negotiations as
they are likely to be required to present evidence to the Ministry that they attempted to
resolve matters in good faith. Where the Ministry directs the parties to attempt to resolve
the dispute themselves, it should be entitled if it wishes to offer informal suggestions on
how to proceed. A limited period of time should be allowed for the parties to resolve the
dispute, at the end of which the status of the complaint – resolved, unresolved, or
partially/conditionally resolved - should be recorded by the Ministry.

2.9.3 Policy
 The Ministry of Transport in partnership with the KPPU has the overall responsibility
to promote competition within the port sector. It is cognizant of the fact that the
ports sector is highly concentrated and characterized by monopolies. Hence, it will
remain vigilant to prevent anti competitive behavior and abuses of monopoly
power.

 The Ministry of Transport will promote competition by executing its planning
functions and participating in the debate – by conducting its own independent
analysis - of ways in which competition can be increased, especially with regard to
the planned new port developments or expansion of existing ports.

 The Ministry of Transport will develop the capacity to respond to alleged anti-
competitive behavior by introducing a complaints and dispute resolution procedure
in regulations. Where applicable, the approach to be followed will be similar to the
procedure used in resolving disputes with regard to port tariffs.

2.10 Enhance Labor Competitiveness

While all workers should be assured of a safe and rewarding work environment, there is an
expectation that the work force will also be competitive relative to global standards. Port
authority and PMU employment systems must distinguish themselves in terms of
employment conditions and work environments in order to effectively compete for highly

19


qualified workers with other sectors. Port authorities and PMUs must offer a nurturing
environment for entry level workers, both men and women, that translates to career
advances facilitated by training and development and experience. At the same time, there
has to be a concerted effort in collaboration with vocational and higher education
institutions to promote the port sector as a desirable career option, for both men and
women, and to assert a symbiotic relationship in continuing education opportunities for port
sector workers.

While capacity development is recognized as important to port performance, we must also
recognize the importance of work practices to a port’s competitiveness. Today, terminal
operators are compelled to hire workers from labor cooperatives; because of low
productivity and capability concerns, workers from labor cooperatives are retained while
terminal operators simultaneously deploy their own workers, increasing the cost of doing
business in the port. Labor cooperatives must demonstrate improved capacity to work
skillfully and productively, while availing themselves of training programs designed to
improve their capabilities and performance. At the same time, as skill levels are increased,
work practices must also reflect global standards; the size of the gangs offered by
cooperatives for container handling, for example, are substantially larger than the norm for
container handling. Additionally, while most modernized port systems offer workers on a
24/7 basis, labor cooperatives in some cases are not willing to deploy late-shift gangs.
Terminal operators are thus not able to serve vessels during late-shift hours as they are not
permitted to use workers without hiring cooperatives.

2.10.2 Policy
 The Ministry of Transport, in close consultation with training centers, port business
entities, port authorities, and labor cooperatives, will identify port sector training
and education requirements for the Ministry (including DGST), port authorities,
PMUs, labor cooperatives, and port business entities and and will develop a strategy
for addressing port sector training and education needs. Training requirements and
strategy will be periodically revised to reflect changing demands.

 The Ministry of Transport will engage in memorandums of understanding with
training centers, vocational institutions, and higher education institutions to
promote port sector careers and to identify training and development requirements
to improve labor productivity and assure respective curriculums are responsive to
port sector needs, including those of the Ministry of Transport, port authorities and
PMUs, port business entities, and labor cooperatives.

 The Ministry of Transport will engage in a dialogue with labor cooperatives to
formulate incentives for increasing productivity, expand training programs, improve
work practices, and to identify strategies for enhancing competition among the
cooperatives providing port workers.

 The Ministry will promote the recruitment and retention of women into the port
sector workforce and women’s participation in vocational and higher educational
institutions.

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2.11 Supporting Effective Port Safety Regulation

Effective safety regulation in Indonesia’s ports is a shared responsibility of the national
government, port authorities, and port business entities. This requires the Ministry to
establish a policy for safe operations with the port authorities responsible for the execution
of this policy. Port business entities in turn are responsible for introducing safety
management systems as part of their operational functions.

The role of port authorities in landside safety and environmental management must be
clarified in view of their status as new organizations and the Ministry’s oversight role in
ensuring that ports are managed in a safe and environmentally-responsible manner.
Independent safety oversight by the Ministry of Transport can be undertaken by developing
a port safety and security framework that is agreed between the Ministry and the port
authorities by way of a Port Safety Code or similar standard. In practice, it will be a formal
agreement between the Ministry of Transport and the port authorities that sets out port
safety operating requirements and corresponding performance measures.

2.11.2 Policy
 The Ministry of Transport will enhance implementation of regulations which entrust
port authorities and harbor master with effective powers to oversee safety and
security based on international guidelines and standards.

 The recent reforms creating the port authorities require that there be independent
oversight of port safety. To this end, the Ministry of Transport will develop a port
safety framework setting out the obligations of port authorities in respect of
compliance with port safety regulations.

2.12 Supporting Effective Environmental Regulation

There are many common environmental concerns that ports face. These include:

 Handling, storage, and movement of International Maritime Dangerous Goods Code
(IMDG) cargoes;
 Waste generation from vehicle and maintenance activities and proper disposal of
such wastes;
 Bunker facilities, pipelines and other above- or underground storage tanks for fuels;
 Potential for oil, fuel and hazardous material spills and the need for spill prevention
planning and emergency-response measures;
 Protection of the sea and atmosphere from releases into the environment, either
from spills, directed discharges, or non-point source pollution;
 Air pollution from ground vehicle and vessel exhaust fume emissions;
 Wastewater discharges from cleaning operations and ballast water;
 Solid waste (sewerage and garbage) disposal; and
 Ballast water management.

Hence, national authorities are responsible for establishing internationally acceptable
guidelines in respect to the port and marine environment. The Ministry of Transport is
responsible for developing and applying regulations while port authorities are responsible

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for assuring compliance by port business entities and users. An ISO 14001 Environmental
Management System is required to help the port self-police its environmental requirements
and audit its own facilities, as well as develop plans to reduce pollution and commit to
continuous improvement. In turn, the ISO 14001 Environmental Management System should
be part of an integrated Environmental, Health and Safety Management System.

2.12.2 Policy
 Effective environmental protection must be ensured through a port environmental
protection code that will be developed by the Ministry of Transport and
implemented by port authorities which sets forth:

 An Indonesian standard and best practice guidelines for environmental
protection in the ports;
 A framework for an environmental management system to be developed and
implemented by the Ministry of Transport; and
 Provides for periodic independent audits in addition to the oversight role to be
undertaken by the Ministry.

 Harbor master will be entrusted with specific powers to manage and control
pollution in the ports.

 The Ministry of Transport will assume its full responsibilities under the Emergency
Management System and engage partners in the maritime field to ensure that there
is a functioning system of emergency response in the port sector.

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Chapter 3. Analysis of Port Traffic and Current Performance
In this chapter we present information collected on traffic for ports within the Indonesian
port system, and trends in foreign and domestic traffic volumes by type of cargo and
commodity/commodity group. Data on foreign trade (imports and exports) and domestic
shipping (loadings and unloading) are presented for the following cargo types and
commodity/commodity groups:

 General cargo
 Container
 Dry bulk
o Cement;
o Coal;
o Iron ore;
o Fertilizer;
o Grain;
o Other dry bulk.
 Liquid bulk
o Petroleum & products;
o Crude palm oil (CPO);
o Other liquid bulk.
 Total traffic

3.1 Approach and Data Sources
A complete profile of the traffic handled at Indonesian ports is an important element to
prepare traffic forecasts, identify necessary future port capacity additions and estimate
investment. Information sources include data maintained by the DGST, by individual
Pelindos, and from other recent studies of the Indonesian port sector. The information
obtained from each of these sources is described in the sections below.

3.1.1 DGST Shipping Data Sets
DGST compiles from data provided by the shipping companies that report information on
vessel calls at Indonesian ports. Separate data sets are maintained for foreign trade for
domestic shipping. The foreign data set obtained for 2009 includes the following
information:

 Name of shipping company;
 Name of vessel;
 Deadweight, gross tonnage and horsepower of vessel;
 Name and location of shipper (exporter or importer);
 Direction of trade (import or export);
 Foreign port of origin or destination;
 Indonesian port of origin or destination;
 Commodity and commodity group;
 Tons or TEU loaded or unloaded;
 Crew;
 Type of vessel (tramper or liner).

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For 2009, the foreign trade data set contains 32,734 records of individual vessel calls in
Indonesia for foreign trade.

The domestic shipping data sets have separate files for coal, fertilizer, cement and other
commodities. The domestic data sets include the following information:

 Name of shipping company;
 Name of vessel;
 Flag (domestic or foreign);
 Deadweight, gross tonnage and horsepower of vessel;
 Indonesian port of origin and destination;
 Commodity and commodity group;
 Cargo type;
 Tons or TEU loaded or unloaded;
 Type of vessel (tramper or liner).

For 2009, the domestic trade data set contains more than 72,000 records of
cargo/commodity shipments in Indonesian domestic trade between ports. 1 These data sets
were reviewed and revised to clean them of inconsistencies and obvious errors, including
the following:

 Indonesian port names were harmonized to a single spelling and to a single name for
a particular port;
 Commodity (e.g. coal) or commodity group (petroleum and petroleum products)
classifications were harmonized to a single commodity or commodity group name
and spelling;
 Obvious errors in reported cargo volumes were corrected when the cargo volume
grossly exceeded the carrying capacity of the vessel;
 Container shipments in TEU and vehicle shipments in units were separated from
other cargo reported in tons.

The DGST data sets provide the single most comprehensive view of the cargo handled in
Indonesian ports during 2009.

3.1.2 Pelindo Port Data
Historic information on cargo handled at Indonesian ports is also maintained by the
individual Pelindos. The time series presented in this chapter are largely derived from data
provided or reported by the Pelindos.

3.1.3 Data from Other Recent Studies of Indonesian Ports
Information was reviewed on port traffic from a number of recent Indonesian port sector
studies and reports to fill in data gaps and to confirm or verify information obtained from
the two primary sources described above.

3.2 Indonesian Port Traffic 1999-2009
As an archipelago, Indonesia relies heavily on its ports to accommodate its extensive foreign
trade as well as for vast domestic commerce. In 2009, a total of 968.4 million tons were

1
Please note that some of the vessel calls have multiple records to accommodate the multiple
commodities that are loaded or unloaded at a port.

24

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