TECHNICAL INPUTS FOR      NPMP REVISION       FINAL REPORT
TECHNICAL INPUTS FOR   NPMP REVISION   FINAL REPORT   INDONESIAINFRASTRUCTURE    INITIATIVE      July 2011
INDONESIA INFRASTRUCTURE INITIATIVEThis document has been published by the Indonesia Infrastructure Initiative (IndII), an...
TABLE OF CONTENTSACRONYMS ...................................................................................................
3.3.2 Other Cargo Types and Commodity/Commodity Groups .... 49              3.4    THE RISK OF INSUFFICIENT CAPACITY ........
6.2.1  Container and General Cargo Port Facilities ........................ 97                      6.2.2  Port Productivi...
8.1.3 Availability of Long-Term Project Financing ...................... 153             8.2    POSSIBLE SOURCES OF FUNDIN...
LIST OF TABLESTable 3-1: Indonesian Port Traffic by Trade Flow and Cargo Type, 1999 and 2009 (000’s            tons) ........
Table 5-17. Indonesian Container Traffic under Alternative Growth Scenario, 2009-2030            (000’s TEU) ................
LIST OF FIGURESFigure 2-1: Port Authority Structure .........................................................................
Figure 6-11. The East – Strategic Ports: Bitung, Ambon and ........................................ 123Figure 6 -12. Tanju...
ACRONYMSADB       Asian Development BankAPPI      Asosiasi Produsen Pupuk Indonesia (Indonesian Fertilizer Association)BPS...
EXECUTIVE SUMMARYIndonesia has undertaken a number of initiatives in recent years intended to expandeconomic growth and im...
outcomes is complicated by the fact that Pelindos fall under the Ministry of State-    Owned Enterprises, rendering it dif...
exemptions and in practice no cases have ever been brought specifically against    Pelindos.   Conflicting government age...
   Additional bulk port capacity will be needed in some locations and may be    undertaken by the private sector.The high...
It is estimated that about 70-75 percent of the investment in new Indonesian containerterminals could be provided by the p...
Finally, the adoption of the National Port Master Plan (NPMP) is itself a legal andadministrative action that is required ...
CHAPTER 1: INTRODUCTION              CHAPTER 1: INTRODUCTION              Indonesia has undertaken a number of initiatives...
Technical Report accompanied by a series of technical annexes, IndII in the course of its    review determined the latest ...
CHAPTER 1: INTRODUCTION              This Final Report Presents a summary of all the analyses, findings and              r...
CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF               IMPLICATIONS FOR INSTITUTIONAL CHANGE    This chapter provides...
CHAPTER 2: SHIPPING LAW 17 AND                                                                                            ...
   Main ports are deemed to handle large cargo volumes, while collector ports and        feeder ports handle “medium” and...
CHAPTER 2: SHIPPING LAW 17 AND                                                                                            ...
framework stipulated by the NPMP (Art 71(1)). The former must specify (a) main    facilities such as wharves, terminals an...
CHAPTER 2: SHIPPING LAW 17 AND                                                                                            ...
control. Governors or regents/mayors set up PMUs for regional ports. Both entities     are described as being staffed by “...
CHAPTER 2: SHIPPING LAW 17 AND                                                                                            ...
Figure 2-1: Port Authority Structure                      Figure 2-2: Structure of Port Management Units (1st Class)     T...
CHAPTER 2: SHIPPING LAW 17 AND                                                                                            ...
    Provisions regarding the land rights of PAs and PMUs are vague. PAs have a duty to          “provide land areas for t...
CHAPTER 2: SHIPPING LAW 17 AND                                                                                            ...
roles and inter-relationships between PAs (and PMUs), the MoT and harbour masters     (also see discussion on Harbour Mast...
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Ind ii npmp revision final report

  1. 1. TECHNICAL INPUTS FOR NPMP REVISION FINAL REPORT
  2. 2. TECHNICAL INPUTS FOR NPMP REVISION FINAL REPORT INDONESIAINFRASTRUCTURE INITIATIVE July 2011
  3. 3. INDONESIA INFRASTRUCTURE INITIATIVEThis document has been published by the Indonesia Infrastructure Initiative (IndII), anAustralian Government funded project designed to promote economic growth inIndonesia by enhancing the relevance, quality and quantum of infrastructureinvestment.The views expressed in this report do not necessarily reflect the views of the AustraliaIndonesia Partnership or the Australian Government. Please direct any comments orquestions to the IndII Director, tel. +62 (21) 230-6063, fax +62 (21) 3190-2994.Website: www.indii.co.id.ACKNOWLEDGEMENTSThis report has been prepared by Nathan Associates Inc., who was engaged under theIndonesia Infrastructure Initiative (IndII), funded by AusAID, as part of the Activity#182.The support provided by Efi Novara Nefiadi, IndII Sr. Transport Program Officer, isgratefully acknowledged. Any errors of fact or interpretation are solely those of theauthor.Paul KentNathan Associates Inc.Jakarta, July 22, 2011© IndII 2011All original intellectual property contained within this document is the property of the IndonesiaInfrastructure Initiative (IndII). It can be used freely without attribution by consultants and IndII partners inpreparing IndII documents, reports designs and plans; it can also be used freely by other agencies ororganisations, provided attribution is given.Every attempt has been made to ensure that referenced documents within this publication have beencorrectly attributed. However, IndII would value being advised of any corrections required, or adviceconcerning source documents and/ or updated data.
  4. 4. TABLE OF CONTENTSACRONYMS ........................................................................................................... IXEXECUTIVE SUMMARY ............................................................................................ XCHAPTER 1: INTRODUCTION..................................................................................... 1CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE ....................................................................... 4 2.1 BACKGROUND................................................................................. 4 2.2 NATIONAL PORT SYSTEM ................................................................... 5 2.3 PORT MASTER PLANNING .................................................................. 7 2.3.1 National Port Master Plan...................................................... 7 2.3.2 Individual Port Master Plans .................................................. 7 2.4 INSTITUTIONAL FRAMEWORKS/PARTICIPANTS IN THE PORT SYSTEM ............ 9 2.4.1 Legal Status of Port Authorities and Port Management Units ............................................................................................. 10 2.4.2 Institutional Structure of Port Authorities and Port Management Units .............................................................. 11 2.4.3 Proposed Landlord Role of Port Authorities and Port Management Units and the Relationship with Pelindos ..... 13 2.4.4 Functions Assigned (and Not-Assigned) to PAs and PMUs .. 15 2.4.5 The Relationship between PAs, PMUs and the MoT ........... 16 2.5 PORT CONSTRUCTION ..................................................................... 17 2.6 PORT OPERATION .......................................................................... 19 2.7 SPECIAL TERMINALS AND OWN-INTEREST TERMINALS ............................ 20 2.8 TARIFFS ....................................................................................... 23 2.9 DESIGNATION OF PORTS OPEN FOR FOREIGN TRADE .............................. 24 2.10 ROLE OF REGIONAL GOVERNMENTS ................................................... 25 2.11 HARBOUR MASTER ........................................................................ 25 2.12 OVERVIEW OF SECTOR PROBLEMS AND CHALLENGES .............................. 26CHAPTER 3: ANALYSIS OF PORT TRAFFIC AND CURRENT PERFORMANCE ................. 29 3.1 APPROACH AND DATA SOURCES ........................................................ 29 3.1.1 DGST Shipping Data Sets ...................................................... 30 3.1.2 Pelindo Port Data ................................................................. 31 3.1.3 Data from Other Recent Studies of Indonesian Ports.......... 32 3.1.4 Data Issues ........................................................................... 32 3.2 INDONESIAN PORT TRAFFIC 1999-2009 ............................................. 32 3.2.1 Indonesian Port Traffic in 2009 ............................................ 36 3.3 INDONESIAN TRAFFIC BY CARGO TYPE OR PRINCIPAL COMMODITY ............ 42 3.3.1 Containers ............................................................................ 43 i
  5. 5. 3.3.2 Other Cargo Types and Commodity/Commodity Groups .... 49 3.4 THE RISK OF INSUFFICIENT CAPACITY .................................................. 49CHAPTER 4: PORT FACILITIES AND OPERATIONS REVIEW ........................................ 50 4.1 TANJUNG PRIOK CONTAINER TERMINALS............................................. 50 4.1.1 Throughput .......................................................................... 51 4.1.2 Berth Productivity ................................................................ 52 4.1.3 Berth Utilization ................................................................... 53 4.1.4 Container Yard Utilization .................................................... 53 4.1.5 Dwell Time ........................................................................... 54 4.1.6 Ship Waiting Time ................................................................ 54 4.1.7 Truck Waiting ....................................................................... 55 4.1.8 Impact of High Container Yard utilization............................ 55 4.1.9 Need for Immediate Expansion ........................................... 56 4.1.10 Long-Term Plans................................................................... 56 4.1.11 Short-Term Plans.................................................................. 56 4.2 TANJUNG PERAK ........................................................................... 58 4.2.1 Container Handling Facilities ............................................... 58 4.2.2 Throughput .......................................................................... 59 4.2.3 Productivity and Utilization ................................................. 59 4.2.4 Dwell Time and Ship and Truck Waiting .............................. 59 4.2.5 Need for Immediate Expansion ........................................... 60 4.2.6 Long-Term Expansion Plans ................................................. 60 4.2.7 Short-Term Plans.................................................................. 60CHAPTER 5: FORECAST OF INDONESIAN PORT TRAFFIC ........................................... 62 5.1 APPROACH ................................................................................... 62 5.2 CONTAINERS................................................................................. 65 5.2.1 Separation of Port Traffic into International and Domestic Trade Flows .......................................................................... 65 5.2.2 Base Case Forecast of International Container Flows ......... 69 5.2.3 Base Case Forecast of Domestic Container Flows ............... 72 5.2.4 Analysis of Base Case Container Forecasts .......................... 74 5.3 BASE CASE FORECAST FOR OTHER CARGO TYPES AND COMMODITY GROUPS 76 5.3.1 General Cargo ...................................................................... 77 5.3.2 Dry Bulk ................................................................................ 77 5.3.3 Liquid Bulk ............................................................................ 82 5.4 ASSIGNMENT OF TRAFFIC TO SPECIFIC PORT AREAS ................................ 84 5.5 ALTERNATIVE TRAFFIC SCENARIOS ..................................................... 88 5.6 IMPLICATIONS OF INDONESIAN PORT TRAFFIC FORECAST FOR 2009-2030 .. 93CHAPTER 6: INVESTMENT REQUIREMENTS ............................................................. 95 6.1 APPROACH AND METHODOLOGY ....................................................... 95 6.2 CONTAINER PORT FACILITIES AND CAPACITY ASSESSMENT ....................... 97 ii
  6. 6. 6.2.1 Container and General Cargo Port Facilities ........................ 97 6.2.2 Port Productivity Factors ................................................... 100 6.2.3 Container Capacity and Requirements for Additional Capacity.............................................................................. 103 6.3 INVESTMENT REQUIREMENTS ......................................................... 109 6.3.1 Unit Investment Costs ........................................................ 109 6.3.2 Container Port Investment Requirements ......................... 112 6.4 SUMMARY OF INVESTMENT REQUIREMENTS ....................................... 113 6.4.1 Investment Requirements for All Cargo Types .................. 113 6.5 SHORT-TERM SOLUTIONS TO CAPACITY CONSTRAINTS .......................... 124 6.5.1 Short-Term Capacity Solutions for Tanjung Priok .............. 124 6.5.2 Short-Term Capacity Solutions for Tanjung Perak ............. 129CHAPTER 7: LEGAL, REGULATORY AND ADMINISTRATIVE ACTIONS TO IMPLEMENT THE LAW ON SHIPPING...................................................................... 131 7.1 REVISION OF THE LAW ON SHIPPING ................................................. 132 7.2 SUBSIDIARY REGULATIONS UNDER THE LAW ON SHIPPING ..................... 132 7.3 SUBSIDIARY REGULATIONS REQUIRED UNDER GOVERNMENT REGULATION ON PORT AFFAIRS ............................................................................. 135 7.3.1 Port Hierarchy .................................................................... 137 7.3.2 Port Planning ...................................................................... 138 7.3.3 Port Concessioning............................................................. 138 7.3.4 Licensing of Port Services................................................... 139 7.3.5 Organizational Structure of Port Authorities and Port Management Units ............................................................ 140 7.3.6 Subsidiary Regulations Identified by Consultants’ Analysis ........................................................................................... 140 7.3.7 Port Competition Regulations............................................ 141 7.3.8 Tariff Regulations ............................................................... 142 7.3.9 Land Use Management Regulations .................................. 146 7.3.10 Revision of the Regulation on the Organization and Working Procedures of the Ministry of Transport ........................... 146 7.4 TRANSITION ARRANGEMENTS FOR PORT AUTHORITIES TO ASSUME PELINDO RESPONSIBILITIES ......................................................................... 146 7.4.1 Resolving the Port Land Question...................................... 147 7.4.2 Resolving the Conflict between Pelindo Legislation and the Law on Shipping and its Regulations.................................. 148 7.4.3 Building the Institutional Capacity of Port Authorities ...... 149CHAPTER 8: PORT SECTOR FINANCING ................................................................. 150 8.1 VEHICLES FOR ATTRACTING PRIVATE SECTOR INVESTMENT..................... 150 8.1.1 Conditions for Attracting Private Sector Investment in Ports ........................................................................................... 150 8.1.2 Indonesia’s Legal Framework for Private Sector Investment in Ports ............................................................................... 152 iii
  7. 7. 8.1.3 Availability of Long-Term Project Financing ...................... 153 8.2 POSSIBLE SOURCES OF FUNDING FOR PUBLIC SECTOR INVESTMENT .......... 155ANNEXE 1: INDONESIAN TRAFFIC BY CARGO TYPE IN 2009 .................................... 157ANNEXE 2: CONTAINER TERMINAL INVESTMENT COSTS BY PORT ........................ 167ANNEXE 3: REFINEMENT OF DGST PORT TRAFFIC DATA AND REVISIONS TO TRAFFIC FORECASTS AND INVESTMENT REQUIREMENTS ................................. 172ANNEXE 4: ACTIVITY FINAL COMPLETION REPORT ................................................ 174 iv
  8. 8. LIST OF TABLESTable 3-1: Indonesian Port Traffic by Trade Flow and Cargo Type, 1999 and 2009 (000’s tons) .............................................................................................................. 33Table 3-2: Indonesian General Cargo and Container Traffic by Trade Flow, 1999 and 2009 (000’s tons) .......................................................................................... 35Table 3-3: Indonesian Port Traffic by Trade Flow and Cargo Type and Principal Commodity, 2009 (000’s tons) ..................................................................... 36Table 3-4: Indonesian Top 50 Ports for Total Traffic by Trade Flow, 2009 (000’s tons) . 38Table 3-5: Indonesian Top 50 Ports for Total Traffic by Cargo Type and Principal Commodity, 2009 (000’s tons) ..................................................................... 42Table 3-6: Indonesian Top 50 Ports for Container Traffic by Trade Flow, 2009 (000’s TEU) .............................................................................................................. 44Table 3-7: Indonesian Main Ports for Container Traffic, 1990-2009 (TEU)..................... 45Table 3-8: Indonesian Main Ports for Containers, Selected Years, 1990-2009 (TEU) ..... 47Table 4-1: Tanjung Priok Throughput (TEUs) .................................................................. 51Table 4-2: Crane and Vessel Handling Productivity at Tanjung Priok (moves/hour) ...... 52Table 4-3: Tanjung Perak’s Throughput .......................................................................... 59Table 5-1: Domestic and International Container Traffic at Indonesian Main Ports, Selected Years, 1990-2009 (TEU).................................................................. 67Table 5-2: Estimated Domestic and International Container Traffic at All Indonesian Ports, 1990-2009 (TEU)................................................................................. 68Table 5-3: Regression Equation and Statistics for Forecast of Indonesian International Container Traffic ........................................................................................... 69Table 5-4: Projected GDP Growth for Selected Regions and Countries, 2011-2030 ...... 70Table 5-5: Base Case Forecast of International Container Traffic at Indonesian Ports, 2009-2030 (TEU) ........................................................................................... 71Table 5-6: Characteristics of Container Traffic at JICT, 2000-2009 ................................. 72Table 5-7: Regression Equation and Statistics for Forecast of Indonesian Domestic Container Traffic ........................................................................................... 72Table 5-8: Base Case Forecast of Domestic Container Traffic at Indonesian Ports, 2009- 2030 (TEU) .................................................................................................... 73Table 5-9: Characteristics of Container Traffic at Pelindo II Ports excluding JICT, 2000- 2009 .............................................................................................................. 74Table 5-10: Base Case Forecast of Total Cargo Handled at Indonesian Ports, 2009-2030 (000’s tons) ................................................................................................... 77Table 5-11. Indonesian Fertilizer Plants and Annual Capacity (000’s ton)...................... 80Table 5-12. Main Economic Activity for Each Economic Development Corridor ............ 85Table 5-13: Indonesia’s Top 50 Ports for Total Traffic by Cargo Type and Principal Commodity, 2015 (000’s tons) ..................................................................... 86Table 5-14: Indonesia’s Top 50 Ports for Total Traffic by Cargo Type and Principal Commodity, 2020 (000’s tons) ..................................................................... 87Table 5-15: Indonesia’s Top 50 Ports for Total Traffic by Cargo Type and Principal Commodity, 2030 (000’s tons) ..................................................................... 88Table 5-16. GDP Growth Assumptions for Alternative Traffic Scenarios, 2010-2030 (%) ...................................................................................................................... 89 v
  9. 9. Table 5-17. Indonesian Container Traffic under Alternative Growth Scenario, 2009-2030 (000’s TEU) .................................................................................................... 90Table 5-18. High Growth Scenario Forecast of Total Cargo Handled at Indonesian Ports, 2009-2030 (000’s tons) ................................................................................. 92Table 6-1. Container and General Cargo Berth Facilities at Selected Indonesian Ports, 2011 (meters)............................................................................................. 98Table 6-2. General Cargo and Container Traffic Forecast at Main Indonesian Container Ports, 2009-2030 ........................................................................................ 100Table 6-3. Container Terminal Berth Capacity Indicators, 2009-2025.......................... 102Table 6-4. Assumed Indonesian Port Productivity Factors by Type of Facility, 2009-2030 .................................................................................................................... 103Table 6-5. Capacity Analysis for Main Indonesian Container Ports, 2009 .................... 104Table 6-6. Capacity Analysis for Main Indonesian Container Ports, 2015 .................... 106Table 6-7. Capacity Analysis for Main Indonesian Container Ports, 2020 .................... 107Table 6-8. Capacity Analysis for Main Indonesian Container Ports, 2030 .................... 108Table 6-9. Range of Unit Cost Estimates for Container Terminal Development and Construction (US$ of 2010) ........................................................................ 110Table 6 -10. Unit Investment Cost for Indonesian Container ....................................... 111Table 6-11. Container Port Investments for Main Indonesia Container Ports, 2015-2030 (US$ millions of 2010)................................................................................. 112Table 6-12. Investment Requirements for Indonesian Main Ports by Cargo Type, 2011- 2030 (US$ million of 2010) ......................................................................... 115Table 7-1. Issues and Concerns of Prevailing Law ......................................................... 133Table 7-2. Scope of Government Regulation No. 61 of 2009 ....................................... 134Table 7-3. Regulatory Mandates for the Ministry in Shipping Law 17 of 2008 ............ 136Table 7-4. Tariff Regulation under Shipping Law 17 and Indonesia’s Competition Law .................................................................................................................... 143Table 7-5. Redundant Port Authority and Pelindo Functions ....................................... 147Table 8-1. Indicative Funding Requirements by Private and Public Sector for Development of Port Facilities, 2011-2030 (US$ millions of 2010)............ 154Table A-1: Indonesia’s Top 50 Ports for General Cargo by Trade Flow, 2009 (000’s tons) .................................................................................................................... 157Table A-2: Indonesia’s Top 50 Ports for Cement by Trade Flow, 2009 (000’s tons) ..... 158Table A-3: Indonesia’s Top 50 Ports for Coal by Trade Flow, 2009 (000’s tons)........... 159Table A-9: Indonesia’s Top 50 Ports for CPO by Trade Flow, 2009 (000’s tons) ........... 165Table A-10: Indonesia’s Top 50 Ports for Other Liquid Bulks by Trade Flow, 2009 (000’s tons) ............................................................................................................ 166 vi
  10. 10. LIST OF FIGURESFigure 2-1: Port Authority Structure ............................................................................... 12Figure 2-2: Structure of Port Management Units (1st Class) .......................................... 12Figure 3-1: Indonesian Port Traffic by Trade Flow and Cargo Type, 1999 and 2009 (000’s tons) .............................................................................................................. 34Figure 3-2: Percentage of Indonesian General Cargo and Container Traffic that is Containerized by Trade Flow, 1999 and 2009 .............................................. 35Figure 3-3: Indonesian Port Traffic by Trade Flow and Cargo Type (000’s tons) ............ 37Figure 3-4. Indonesian Top 50 Ports for Total Traffic by Trade Flow, 2009 (000’s tons) 39Figure 3-5. Indonesian Top 50 Ports for Total Traffic by Cargo Type, 2009 (000’s tons) 40Figure 3-6: Indonesian Main Ports for Container Traffic, 1990-2009 (TEU) ................... 46Figure 3-7: Indonesian Main Ports for Containers, Selected Years, 1990-2009 (TEU) ... 48Figure 4-1: The Optimization Plan of Tanjung Priok ....................................................... 57Figure 4-2: TPS Expansion Options.................................................................................. 61Figure 5-1. Indonesian Economic Development Corridors Established for the MP3EI... 64Figure 5-2: Estimated Domestic and International Container Traffic at All Indonesian Ports, 1990-2009 (TEU)................................................................................. 68Figure 5-3: Indonesian Base Case Container Forecast for Domestic and International Trade, 2009-2030 (000’s TEU) ...................................................................... 75Figure 5-4. Indonesian Coal Production, Exports and Domestic Consumption, 1996- 2010 (million tons) ........................................................................................ 79Figure 5 5. Indonesian Urea Plants and Annual Capacity, 2010 (000’s tons) ................. 81Figure 5-6: Indonesian Crude Oil Production and Consumption, 1999-2009 ................. 82Figure 5-7. Forecast of Indonesian Total Container Traffic under Alternative Growth Scenarios, 2015-2030 (000’s TEU) ................................................................ 91Figure 5-8. Forecast of Total Indonesian Port Traffic by Cargo Type Under Alternative Growth Scenarios, 2015-2030 (000’s tons) .................................................. 91Figure 6-1. Investment Requirement Methodology ....................................................... 96Figure 6-2. Location and Forecasted Container Traffic at Main Indonesian Container ports, 2009-2030 (TEU)................................................................................. 99Figure 6-3. Port Investment Requirements through 2030 by Type of Cargo ................ 113Figure 6-4. West Kalimantan – No Strategic Ports, regional ports centred around Pontianak .................................................................................................... 116Figure 6-5. South Sumatra – no Strategic Ports, regional ports centred around Panjang and Palembang ........................................................................................... 117Figure 6-6. East and South Kalimantan – Strategic Ports: Balikpapan, Samarinda and Banjarmasin ................................................................................................ 118Figure 6-7. South Sulawesi – Ports & Terminals centred around Makassar, no Strategic Ports............................................................................................................ 119Figure 6-8. Java, South Sumatra – Strategic Ports Regions Jakarta (Tanjung Priok) and Surabaya (Tanjung Perak) ........................................................................... 120Figure 6-9. Bali, Lombok, Nusa Tenggara and to the south and east – No strategic ports .................................................................................................................... 121Figure 6-10. The East – Strategic Ports: Bitung, Ambon and Sorong ............................ 122 vii
  11. 11. Figure 6-11. The East – Strategic Ports: Bitung, Ambon and ........................................ 123Figure 6 -12. Tanjung Priok and Marunda Map ............................................................ 125Figure 6-13. TPS Expansion Options.............................................................................. 130Figure 7-1. Pre-PPP (top) and Post-PPP Environment Flow of Charges ........................ 145 viii
  12. 12. ACRONYMSADB Asian Development BankAPPI Asosiasi Produsen Pupuk Indonesia (Indonesian Fertilizer Association)BPS Badan Pusat Statistic ( Statistic Indonesia)COMTRADE Commodity Trade Statistic DatabaseCPO crude palm oilCY container yardDGST Directorate General of Sea TransportationDWA David Wignall AssociatesDWT dead weight tonnageEIA Energy International StatisticFFB fresh fruit bunchesGDP gross domestic productGoI Government of IndonesiaGR 16 Government Regulation No. 61 of 2009HP horsepowerICT Information and Communication TechnologyIEDC Indonesia Economic Development CorridorIFC International Finance CorporationIMF International Monetary FundISPS International Ship and Port Security CodeJICA Japan International Cooperation AgencyJICT Jakarta International Container TerminalLaw Law on Shipping No. 17 of 2008MENPLAN Ministry os State Administrative ReformMoT Ministry of TransportationMP3EI Masterplan Percepatan dan Perluasan Pembangunan Indonesia (The Masterplan of Acceleration and Expansion of Indonesia Economic Development)NPK nitrogen phosphorous and potassiumNPMP National Port Master PlanOPEC Organization of Petroleum Exporting CountriesPA(s) Port Authority(ies)PBEs Port Business EntitiesPELINDO Pelabuhan Indonesia (Port Management State Owned Enterprise)PERUMPEL Perusahaan Umum PelabuhanPMU(s) Port Management Unit(s)PR 67 Presidential Regulation No 67 of 2005PT IIF PT Indonesia Infrastructure FinancePT SMI PT Sarana Multi InfrastrukturRTG Rubber Tired Gantry CraneSEZ Special Economic ZoneSISTRANAS Sistem Transportasi Nasional (National Transport System)TEU twenty foot equivalent unitsTR Technical Report on Development of National Port Master Plan ix
  13. 13. EXECUTIVE SUMMARYIndonesia has undertaken a number of initiatives in recent years intended to expandeconomic growth and improve the wellbeing of its citizens. Now, the country hasformulated an accelerated growth strategy to transform the country to the level of adeveloped economy. The Master Plan for the Acceleration and Expansion of EconomicDevelopment of Indonesia (MP3EI) consists of a range of strategies designed to usherIndonesia into one of the top 10 economies worldwide by 2025. Success, as the Planexplains, requires a new way of thinking of how business is done, requiringcollaboration among stakeholders, local and central governments, state-ownedenterprises, and the private sector.Shipping Law 17 and Implications for Institutional ChangeA similar collaboration theme was envisioned two years earlier in the port reformefforts initiated through Shipping Law 17 of 2008. The Law changes the role of thecentral government in the conduct of port affairs, establishing a framework forlandlord port authorities. Local governments play a more prominent role in the portsector, with smaller ports being transferred to local government jurisdiction and themaster plans of all ports being subjected to local government approval before they canbe implemented. The creation of landlord port authorities by definition means thatthe private sector will play a greater role in port investment and operation. The Lawalso indicates the Pelindos will continue to exploit the terminals they had operatedprior to the Law’s passage. So the new port system will have a number of port sector“players” whose roles are established in the Law. Unfortunately, even with theseestablished roles, collaboration among the players has not yet been fully implemented,contributing to delays in the Law’s implementation as some of the players resist thechanges called for in the Law. The main sector problems and challenges identified byour analysis in the context of institutional and legal frameworks are: Incomplete and deficient legal framework. The Law on Shipping and subsidiary government and ministerial regulations do not provide a comprehensive legal framework for the ports sector. The Law lacks implementation detail, especially in relation to crucial issues relating to the landlord role of PAs (i.e. transfer of land to PAs, relinquishing of functions to PAs, future control over Pelindo assets, the relationship between Pelindos and PAs, mixed messages regarding the Pelindos’ future monopolies, etc). Subsidiary regulations do not yet adequately fill all gaps. In some areas, e.g. the relationship between the DGST, PAs and Harbour Master, the Law creates the potential for jurisdictional overlap and institutional conflict. Uncertainty regarding transitional arrangements to achieve landlord status. The Pelindos are the “elephant in the room”, but the Law fails to satisfactorily create a framework for landlord operations. The Law does not adequately address the future role of the Pelindos (except in appearing to provide protection to their established rights). As Pelindos themselves perform various landlord functions, the lack of direction undermines the notion that such functions are now the sole responsibility of PAs. PAs, as newcomers with weak capacity (see below), are not well-placed to assert their authority vis-à-vis the Pelindos. Arriving at sensible x
  14. 14. outcomes is complicated by the fact that Pelindos fall under the Ministry of State- Owned Enterprises, rendering it difficult to include them in the Ministry of Transport’s reform efforts. It appears that a solution must be found at the government level to ensure inter-ministerial collaboration in pursuing a common port reform vision. It is, therefore, to be welcomed that The Masterplan for the Acceleration and Expansion of Indonesia’s Development 2011 – 2025 has specifically identified a need to revise the Law to secure “the separation between regulatory functions (Port Authority) and operating functions (Enterprise)” be accelerated. There is also a need to revisit the role of the DGST and to ensure that its functions are aligned with those of PAs and PMUs. Weak direction on private sector participation. The Law introduces the concept of private sector participation, but fails to give strong direction to ensure a concerted effort in developing time-bound plans to secure greater private investment. PAs (and PMUs) face a particular challenge to develop capacity to implement private investment programs, especially given their limited capacity, uncertainty about the future role of Pelindos, and lack of clarity about their control over port land. Pelindos need to be restructured to assume the role of PBEs, but the Law fails to spell out how this is to be achieved. Deficiencies in the institutional design of Port Authorities. PAs have been created using an “off the shelf” institutional structure that has not been specifically tailored to port management. As currently constituted, the PAs lack all the basic features that have made landlord port authorities successful institutional models for ports elsewhere in the world. In fact, the establishment of port authorities as line agencies is a throwback to early port reform efforts promoted by the World Bank that transformed line agencies port entities to the port authority model for port administration. Mixed messages on encouraging competition. While the Law emphasizes the need for competitiveness and eradicating monopolies, other measures appear to preserve the status quo and hinder new market entrants. Pelindos appear to be given strong rights to continue all current activities, while rules governing special terminals and own-interest terminals contain several restrictive provisions that will hinder any effort to enhance competition. Lack of a comprehensive framework for competition regulation. At present, the Law only addresses tariff regulation, but is silent on the notion of regulating anti- competitive behavior. As presently worded, the MoT faces the potentially difficult task of approving tariffs for each of the PAs and PMUs. Many costs are unique to individual ports which imply different tariffs levels, which all need to be assessed by the MoT. The need for complicated tariff setting can be avoided if a strategy of enhanced competition is adopted, especially in the case of PBEs whose cost structures are more complex. This would enable the MoT to adopt less intrusive regulation – such as tariff filing and monitoring. With regard to broader competition issues, the Competition Commission has jurisdiction over anti- competitive behavior of port operators and service providers, but for the time being state-owned enterprises such as the Pelindos appear to enjoy important xi
  15. 15. exemptions and in practice no cases have ever been brought specifically against Pelindos. Conflicting government agency objectives. The Ministry of State-Owned Enterprises (MOE) has as one of its main objectives to maximize revenues to the government. In fact, each year the MOE sets financial targets that the Pelindos are expected to meet, so it is difficult to imagine a scenario where port charges would decrease as the ports approach full capacity, as is the current situation for Jakarta. This is contrary to what the Law and MoT hope to achieve in terms of enhancing port competitiveness – that is, minimizing port costs while improving port performance.Forecast of Port TrafficAs an archipelago, Indonesia relies heavily on its ports to accommodate its extensiveforeign trade as well as for vast domestic commerce. In 2009, a total of 968 milliontons were handled at Indonesian ports, consisting of 560 million tons of dry bulk cargo(nearly three-quarters of which was coal), 176 million tons of liquid bulk cargo (86percent of which was petroleum and petroleum products or CPO), 144 million tons ofgeneral cargo and 88 million tons of containerized cargo.Foreign trade accounted for 543 million tons or 56 percent of the total volume of cargohandled at Indonesian ports in 2009. Exports shipments at 425 million tons accountedfor more than 80 percent of the foreign trade while imports of 101 million tonsaccounted for 20 percent of the foreign trade. Indonesian domestic cargo handled atits ports in 2009 totaled 433.3 million tons with dry bulk shipments of 255.9 milliontons accounting for 59 percent of total domestic shipments.In 2009, a total of 8.8 million TEU were handled at Indonesian ports, consisting of 6.1million TEU for foreign trade (69 percent) and 2.7 million for domestic trade (31percent). Total container traffic (international and domestic) is forecast to double from8.8 million TEU in 2009 to 17.2 million TEU in 2015 and to reach nearly 26 million TEUby 2020. This corresponds to an overall annual growth rate of 11.8 percent from 2009to 2015 and 8.3 percent from 2015 to 2020.The Indonesian port traffic forecast presented in this report has a number of keyimplications that need to be considered for the future development of the nationalport system. These include: By 2020 Indonesian container traffic will be more than double 2009 volumes and will double again by 2030. New and expanded container terminals are urgently required in many locations. Increased container volumes will likely lead to a need for new container hub ports such as in Kuala Tanjung and bulk facilities at Balikpapan/ Maloy. Feasibility of development of new container hub ports needs further study. Slower growth of dry and liquid bulk traffic means that total cargo tonnage will only increase by 50 percent by 2020 and another 50 percent by 2030. xii
  16. 16.  Additional bulk port capacity will be needed in some locations and may be undertaken by the private sector.The high rates of forecast traffic growth should serve as an important opportunity forIndonesia to expand and modernize it ports system to meet the coming demand and toenhance competitiveness with other nations and regions.Investment RequirementsMany of Indonesia’s main port are approaching the limits of their effective capacitygiven current productivity factors. For containers, the ports of Belawan, Tanjung Emas,Tanjung Perak, Tanjung Priok are each operating at around 90 percent of effectivecapacity, while the ports of Pekanbaru and Samarinda, are each operating at around 80percent of effective capacity.By 2015, the growth in forecasted container traffic results seven Indonesian portrequiring additional capacity. The largest increase is needed for Tanjung Priok that willneed to increase capacity by 1.8 million TEU and Tanjung Perak that will need to add0.8 million TEU of capacity. Belawan/Kuala Tanjung will also require a substantialcapacity increase of 0.4 million TEU.The ports of Tanjung Emas, Banjarmasin and Pekanbaru will also need to add containercapacity in 2015; however, it seems likely that this could be accomplished byconverting some under-utilized conventional general cargo berths for containeroperations. This is typically done by demolishing warehouses and sheds on the quay,strengthening the quay for mobile cranes and adding ancillary container handlingequipment. It should be noted, that for this report, an engineering assessment of thefeasibility of converting general cargo berths for container operations has not beenconducted.By2020, ports of Tanjung Priok, Tanjung Perak, Belawan/Kuala Tanjung and TanjungEmas will need to bring on-line new container berths. In addition, the ports ofPekanbaru and Balikpapan will each now need to add a new berth of at least 200 m.By 2030, 16 of Indonesia’s main container ports will need to provide additionalcapacity. This includes accommodation for 9.4 million TEU at Tanjung Priok, 4.3 millionTEU at Tanjung Perak, 1.9 million TEU at Belawan/Kuala Tanjung and 0.9 million TEU atMakassar.The report presents revised estimates of the total investment cost for Indonesia’s mainports including container, CPO, petroleum and petroleum products, coal and cruisevessels. The estimated total direct investment in port facilities for these elements ofport traffic is US$ 19.2 billion, 60 percent is needed for container traffic, 18 percent forpetroleum and petroleum products, 13 percent for coal, and 9 percent for CPO. xiii
  17. 17. It is estimated that about 70-75 percent of the investment in new Indonesian containerterminals could be provided by the private sector under long-term concessionarrangements. The remaining 25-30 percent of the investment for common portinfrastructure such as channel deepening and breakwaters will need to be provided bythe public sector.The investments identified above focus on relatively long-term capacity requirements.However impending capacity constraints will soon affect both Tanjung Priok andTanjung Perak. We have identified some short-term measures that can help mitigatecapacity constraints until new construction/expansion bring additional capacity on line.Though Tanjung Priok’s terminals are performing to acceptable standards, the berthand yard are operating at close to capacity, particularly for imported boxes in the yardarea, where current occupancy has exceeded 100 percent. Yard congestion willultimately impact berth and gate performance, causing a dramatic increase in both shipand truck waiting time. One immediate option for easing container yard congestion isestablishing an Integrated Off-Dock Container Yard Program. The main thrust of theIntegrated Off-Dock Program is relocating some of the yard and gate activities from themarine terminals inside Tanjung Priok to off-dock container yards located nearby andoutside the port in an effort to expand container yard capacity.For Tanjung Perak, we recommend allowing mixed storage of import and exportcontainers at TPS’s container yard. Our rough estimate of the impact of this step onstorage (and terminal) capacity is about 5 percent. Another immediate measure isdemolition of the warehouse which, as we understand, is barely used. Converting thisarea to a container yard could also add another 5 percent to the capacity. A moresubstantial addition to the container yard could be generated by fully developing anarea of 6 ha located in front of the existing container yard. This could add about 20percent to the TBS capacity. Hence, overall, terminal capacity could be enhanced byabout 30 percent.Legal, Regulatory and Administrative Actions NeededMany actions that are identified are intended to overcome vagueness in Shipping Law17 with regard to its implementation. The GoI has already undertaken various actionsto ensure the implementation of the Law. The first was to adopt implementationregulations contained in Government Regulation No.61 of 2009 on Port Affairs (GR 61).Further steps were taken at the end of 2010, when the Minister of Transport adopted aseries of regulations setting up port authorities, port management units (PMUs), andharbor masters’ offices.Legislation needs to be developed to create a framework for tariff regulation (legal),and the regulator needs to regulate tariffs (regulatory) and develop supporting systemsand procedures (administrative). Often, there is also a logical progression in thesetasks. The adoption of legislation paves the way for regulatory implementation andadministrative action. This report proposes implementation actions in relation tospecific topical areas, rather than as strict legal, regulatory and administrative subsets. xiv
  18. 18. Finally, the adoption of the National Port Master Plan (NPMP) is itself a legal andadministrative action that is required to implement the Law. Amongst others, theNPMP must give policy direction in numerous areas such as the construction of newports, private sector participation, etc. It is also a prerequisite for various actionsrequired under the Law, such as the preparation of individual port master plans.Implementation action is required in the following areas: Revision of the Law on Shipping; Subsidiary regulations required by the Law on Shipping; Subsidiary regulations required under Government Regulation on Port Affairs; and Subsidiary Regulations identified by our analysis.A range of transition arrangements are required for Port Authorities to assume Pelindonon-operational responsibilities. In practice, the Pelindos currently perform variousfunctions for which they have a statutory mandate, but which have now also beenassigned to port authorities. Additionally, there are a number of other functions whichPelindos appear to have assumed by default, but which are also activities that are nowentrusted to port authorities. Functions in this category include undertaking masterplanning and providing port security. xv
  19. 19. CHAPTER 1: INTRODUCTION CHAPTER 1: INTRODUCTION Indonesia has undertaken a number of initiatives in recent years intended to expand economic growth and improve the wellbeing of its citizens. Now, the country has formulated an accelerated growth strategy to transform the country to the level of a developed economy. The Master Plan for the Acceleration and Expansion of Economic Development of Indonesia (MP3EI) consists of a range of strategies designed to usher Indonesia into one of the top 10 economies worldwide by 2025. Success, as the Plan explains, requires a new way of thinking of how business is done, requiring collaboration among stakeholders, local and central governments, state-owned enterprises, and the private sector. A similar collaboration theme was envisioned two years earlier in the port reform efforts initiated through Shipping Law 17 of 2008. The Law changes the role of the central government in the conduct of port affairs, establishing a framework for landlord port authorities. Local governments play a more prominent role in the port sector, with smaller ports being transferred to local government jurisdiction and the master plans of all ports being subjected to local government approval before they can be implemented. The creation of landlord port authorities by definition means that the private sector will play a greater role in port investment and operation. The Law also indicates the Pelindos will continue to exploit the terminals they had operated prior to the Law’s passage. So the new port system will have a number of port sector “players” whose roles are established in the Law. Unfortunately, even with these established roles, collaboration among the players has not yet been fully implemented, contributing to delays in the Law’s implementation as some of the players resist the changes called for in the Law. The MP3EI conveys a very important message. Collaboration is a prerequisite for achieving change, and the Plan’s repeated references to needed improvements in the port sector implies the required collaboration needed within the port sector and between the port sector and the economic players that depend on reliable and efficient port services. In fact, the success of Indonesia’s Logistics Blue Print, its Economic Corridors Initiative, and its National Connectivity Program could all be held hostage to ineffective port performance if needed collaboration fails to materialize. An important requirement of the Law is the development of a National Port Master Plan (NPMP). The NPMP is the “grand-daddy” of all plans as local port master plans must conform to the vision reflected in the NPMP. The NPMP is intended to set forth national port policy, define market outlook for the port sector and key individual ports, identify improvement and expansion requirements, and a formulate a financing strategy. As part of its continuing port reform efforts, Indonesia mandated the Directorate General of Sea Transportation (DGST) to prepare a National Ports Master Plan by June 2010. The Plan, the recent draft of which was prepared in September 2010, was supported by a consultant (DWA) retained by IndII. Though DWA submitted aTECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 1
  20. 20. Technical Report accompanied by a series of technical annexes, IndII in the course of its review determined the latest revision failed to meet expectations, as documented in IndII’s Consolidated Comments on the Technical Report of December 10, 2010. Accordingly, IndII retained Nathan Associates to provide assistance to improve upon the work done by the consultant in response in part to the Consolidated Comments. Rather than redo the work that has been done, IndII requested that the team of consultants to review the DWA work, complete data collection and analysis in view of IndII’s Consolidated Comments, and prepare four new Background Papers that consolidate and improve the DWA work along with a summary report. The scope of the four Background Papers included: 1. Baseline  Summary of main provisions of Shipping Law 17/2008 and examination of implications for institutional change;  Brief description of existing institutional arrangements;  Diagnostic of sector problems;  Description of planning procedures, in particular relationship of NPMP to public and private sector plans for port development; and  Compilation of basic data on port infrastructure, operational practices and traffic volumes. 2. Traffic Forecasts  Twenty year projections, by major commodity group, identifying international, domestic and trans-shipment traffic, by major port zone. 3. Investment Requirements  Broad brush estimates of total investment requirements in physical terms for 2011 – 2020 and 2021 - 2030, taking account of existing capacity and the potential for improvements to operational efficiency;  Identification of any need for new ports; and  Estimates of total investment costs, with a clear and justified statement of assumptions for unit costs. 4. Institutional Development and Financing  Identification of the legal, regulatory and administrative actions needed to implement Shipping Law 17/2008 effectively;  Transition arrangements as Port Authorities take over some of the Pelindo responsibilities for port management;  Identification of appropriate vehicles for attracting private sector investment in the port sector;  Examination of the likely scale and possible sources of funding for public sector investment in ports; and  Identification of areas where more detailed study would be appropriate TECHNICAL INPUTS FOR2 NPMP REVISION FINAL REPORT
  21. 21. CHAPTER 1: INTRODUCTION This Final Report Presents a summary of all the analyses, findings and recommendations prepared during the NPMP Revision Study.TECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 3
  22. 22. CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE This chapter provides a review of the Shipping Law and where relevant also examines how its provisions have been fleshed out further by various implementing regulations (in particular the Government Regulation on Port Affairs No 61 of 2009). The analysis of the law includes a description of institutional arrangements for the ports, as set out in Ministerial Regulations Nos 63 and 64 of 2010, which respectively establish Port Authorities and Port Management Units. A diagnostic of sector problems as they relate to policy, legal and institutional issues forms part of the review as well as a review of planning procedures and the relationship between the NPMP and public and private plans for port development. 2.1 BACKGROUND The Shipping Law 17 (“the Law”) – enacted on 7 May 2008 – is the “parent” law governing Indonesia’s ports sector. The Law comprises 355 articles divided into 22 chapters. As its title suggests, the bulk of the Law focuses on shipping rather than port topics. The former are matters typically covered in a country’s merchant shipping laws1. For the most part, they are not directly relevant for ports, and address issues such as the regulation of shipping, liability of shipping service providers, ship mortgages, ship seaworthiness, crewing, maritime pollution, wrecks, accidents, search and rescue, human resource development relative to shipping, etc. 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 1 Compare, for example, the Canada Shipping Act 2001 or the Singapore Merchant Shipping Act 1996. Though several countries and regional governments (e.g. United Arab Emirates’ Abu Dhabi), the majority of countries deal with shipping and port matters in separate laws. This is mainly driven by practical considerations. The regulation of shipping is different from port governance and regulation (for the same reason the regulation of air services, airports and air navigation services is also often treated in different laws). Separating the laws can avoid confusion and misinterpretation. TECHNICAL INPUTS FOR4 NPMP REVISION FINAL REPORT
  23. 23. CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE  Tariffs  Designation of ports open for foreign trade  Role of regional government These should be read with 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;  Government Regulation No 62/2010 on the organization and working procedures of Port Management Units;  Government Regulation No 63/2010 on the organization and working procedures of Port Authorities;  Government Regulation No 64/2010 on the organization and working procedures of the Harbour Master’s Office; and  Government Regulation No 65/2010 on the organization and working procedures of the Batam Port Office. 2.2 NATIONAL PORT SYSTEM The Law describes the national port system in Art 67 – 70. These provisions mainly contain statements on the desired role of the ports in Indonesia’s foreign and domestic trade and their functions within the overall transport system. As such, they have limited institutional or regulatory implications2 and are presumably intended largely as guidance to policy-makers and regulators in the preparation of the National Port Master Plan (see next section). Art 70 categorizes Indonesia’s ports into two main types: marine ports; and river and lake ports. The former are placed in the hierarchy of (a) main (b) collector and (c) feeder ports and are defined in Art 1. Their main features are:  Main ports serve domestic and foreign trade, while collector and feeder ports are limited to domestic trade only; 2 By this we mean that the Law does not assign any institutional responsibility or regulatory authority based on these provisions. In some countries, however, a hierarchy is sometimes done to distinguish ports that can be operated on a commercial basis from those that cannot be; usually in the former case these ports are national or regional commercial gateways while in the latter case ports serve as lifeline service ports, normally requiring subsidies to operate.TECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 5
  24. 24.  Main ports are deemed to handle large cargo volumes, while collector ports and feeder ports handle “medium” and “limited” volumes respectively3; and  All ports also serve as passenger ports and as nodes for inter-provincial ferry services. The proposed hierarchy of ports is also relevant for the Law’s definition of port authorities (PAs) and port management units (PMUs). Art 81 introduces the concept of “commercial” and “non-commercial” ports, but unfortunately the Law does not define these terms. PAs are established in respect of the former and PMUs for the latter. The usefulness of stipulating a hierarchy of ports in legislation is uncertain4. At present the Law only provides guidance on the designation of main ports in relation to foreign trade (Art 111), but these are largely self-evident criteria and in practice the decision is taken by the Minister (Art 111(5)). In fact, the whole legislative intent of the proposed port hierarchy as contained in the Law is unclear. This is apparent from the following:  A specific port type is not matched to any institutional structure. For example, there is no guidance that a main port is necessarily to be administered by a PA and a collector or feeder port by a PMU. Moreover, the Law’s provisions on ports serving foreign trade suggest that such a port may be either a commercial or a non- commercial port5.  The sphere or level of government responsible for a specific port type is not clear. Art 82 states that PAs are always formed by the central government represented by the Minister (of Transport). However, it appears that PMUs may be formed by either the central government or by a governor or regent/mayor. The Law is silent on how to determine whether a port falls under central or regional government authority6.  Lastly, it is unclear on what basis ports are to be classified as “commercial” or “non- commercial”. According to its standard definition, “commercial” implies “making or intended to make a profit”. In many ports, there may be examples of viable commercially and non-commercial investments rendering the basis of the classification meaningless. In developing the port master plan, it has been proposed that main ports will always be “commercial”, while a collector port may be either “commercial” or “non-commercial”. Finally, it is suggested that feeder ports will always be non-commercial in nature. 3 The Law also provides no guidance how cargo volumes are to be measured in order to be categorized as “large”, “medium” or “limited”. 4 See Technical Report on the Development of the National Port Master Plan (“TR”), par 5.6. 5 See Art 111 which states that only “main ports” may be open to foreign trade; Art 150 of GR 61 indicates that the “main port organizer” (i.e. either a PA or a PMU) must apply to the Minister for foreign port status. 6 One way to achieve this is to add a schedule to the Law which lists all ports and matches them to central government , local government or a regency / mayoralty. TECHNICAL INPUTS FOR6 NPMP REVISION FINAL REPORT
  25. 25. CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE Given the lack of guidance in the Law, further criteria to classify ports have been developed as part of the development of the National Port Master Plan7. These criteria provide technical guidance, but they have no binding effect without legislative backing. 2.3 PORT MASTER PLANNING 2.3.1 National Port Master Plan The provisions of the Law governing port planning are set forth in Arts 71 – 78. A National Port Master Plan (NPMP) must be prepared based on a 20 year planning horizon. It is intended as a guideline on port location, construction, operation and development. The NPMP must contain the (a) national ports policy, (b) port location plans, and (c) a designation of the hierarchy of ports8. Art 71 further stipulates that the preparation of the NPMP must be guided by national, provincial and local spatial layout plans and driven by socio-economic priorities, the natural resource potential of the country and individual regions and strategic environmental considerations (national and international) (Art 71 (2) d). The GOI has issued further guidance on the preparation of port location plans in regulations (Government Regulation No. 61 of 2009 on Port Affairs, hereinafter cited as GR 61). Separate criteria are stipulated for main, collector, feeder and river/lake ports. These criteria relate mainly to issues such as geographic proximity to markets, availability of shipping services, and topography. While not stated explicitly, the NPMP must encompass both existing ports and new (planned) ports. With regard to the latter, the proposed port location must be approved by the Minister. GR 61 further stipulates:  A procedure to be followed in approving the location of ports. Approval is granted by the Minister acting on an application from “the Government9” or a regional government; and  The information and data to be provided to the Minister to motivate the application (GR 61 Art 18). 2.3.2 Individual Port Master Plans In practice, each port is required to have its own port master plan which must include a land and a sea area allotment plan. Individual plans are to be prepared within the 7 See TR par 5.5 8 As stated in the previous section, the hierarchy of ports described in Art 70 is presumably intended to guide policy-makers in preparing the NPMP. 9 Presumably this refers to the DGST or another government department wishing to construct a port.TECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 7
  26. 26. framework stipulated by the NPMP (Art 71(1)). The former must specify (a) main facilities such as wharves, terminals and warehouses and (b) supporting facilities such as road and rail services, utilities and accommodation. The sea area allotment plan must also specify main “facilities” such as channels and basins and supporting “facilities” such as waters allocated for long term development, shipping trials and abandoned ships. Feeder port plans are approved by the Governor (regional feeder ports) or the regent/mayor (local feeder ports and river/lake ports)10. The development of port master plans should be coordinated with national, province, and regency/city spatial layout plans (Art 73(2)), and the Minister (Art 76(1)(a) or the Governor, Regent/Mayor (Art 76(1)(b) and Art 76(2), as appropriate, are to approve the plans based on conformity to these spatial layout plans, as recommended by the relevant governors, regents, and mayors (Art 76(1)(a)). Each port master plan must also be accompanied by a description of the “port working area” and “port interest area”. The port working area is to be defined based on geographic co-ordinates and largely overlaps with the areas taken up by the main and supporting facilities described in the land and sea area allotment plan11. The port interest area appears to refer to land and sea areas on the outer limits of the port which may be developed to become part of the port complex. The definition of both these areas requires the approval of the Minister for main and collector ports and the governor or regent/mayor for feeder ports (Art 76). There is no express provision in the Law or GR 61 relating to the inclusion of special terminals or own interest terminals in a port master plan. As own interest terminals fall within the port working area, it seems implied that they are part of the “main facilities” that should be referenced in the plan. In practice, operators of own interest terminals – as PBEs – would need to define their needs and interests to ensure that PAs (or PMUs) accurately reflect these in the plan. Special terminals fall outside the port working area and interest area which would suggest that they do not need to be taken into account during the preparation of port master plans. However, Art 103 states that special terminals are “stipulated as part of the nearest port”. This phrase is not clarified further, but could be interpreted as meaning that they are part of the nearest port for planning purposes.12 This conclusion is strengthened by the fact that when a 10 This provision implicitly suggests that main and collector ports fall under central government and feeder ports under regional governments. However, there is no explicit statement to this effect in the Law. See previous discussion on “National Port System”. 11 In fact, the drafters of the Law appear to have confused a port infrastructure and facilities plan (the so-called land and sea area allotment plan) and a definition or description of port limits (or boundaries) which accords with the port working area and port interest area. These provisions of the Law would benefit from review to clarify these terms. 12 In fact, from a planning point of view, special terminals should be considered in determining physical capacity requirements. The law implicitly recognizes this, as special terminals can only be built if the nearest port cannot accommodate the cargo to be handled by the Terminal or the Special Terminal is shown to be more effective than any facilities available in the port (Art 111(a) and (b)). TECHNICAL INPUTS FOR8 NPMP REVISION FINAL REPORT
  27. 27. CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE special terminal is converted to a port this may only occur if it conforms to the NPMP (Art 107). The preparation of an NPMP and individual port master plans was not previously required under Indonesian law13, although it is an established feature of the port landscape, especially in the large ports. At present there is no recognition in the Law that there are numerous existing port master plans which have been variously prepared by the Pelindos and other government agencies. A further relevant issue is the time scale for the preparation of individual port master plans and the NPMP. Given the size of Indonesia’s port sector, this is a massive undertaking. It would, therefore, be better if the Law had introduced a phased process to progressively build the NPMP starting with the priority (or “strategic”) ports. Separately, the institutional capacity to prepare master plans is a critical issue. The NPMP is to be issued by the Minister as a ministerial regulation. The Law allocates no specific responsibility in this regard, but it is implicit that the preparation of the NPMP is the task of the DGST14. In turn, individual port master plans must be prepared by PAs and PMUs. 2.4 INSTITUTIONAL FRAMEWORKS/PARTICIPANTS IN THE PORT SYSTEM Arts 79 – 95 set out an institutional framework for Indonesia’s port system. The key participants in the port system are identified as: (a) port operators (PAs or PMUs), and (b) Port Business Entities (PBEs). The Law defines “port business entities” as entities undertaking the business of exploiting a terminal or other port facilities. The Law also defines “business entities”. These are described as state-owned business entities (such as the Pelindos), regionally-owned business entities and “Indonesian” business entities15. As mentioned earlier, PAs are formed by the Minister for commercial ports. The Minister also sets up PMUs for non-commercial ports under central government 13 See Law No 21 of 1992 on Maritime Transportation (now repealed). 14 In order to coordinate and manage the implementation of the plan, one proposal is that a secretariat be formed in the MoT headed by the senior officer reporting to the Director- General (see TR 8.2.1). 15 The reference to “Indonesian” business entities appears to be an oblique reference to the so- called “negative investment list”, whereby foreign capital ownership in a range of port-related business activities may not exceed 49 percent . The business activities include: container transportation, general cargo transportation, dangerous cargo transportation, special cargo transportation, domestic sea transportation, river and lake transport, port facilities such as pier buildings, container holding terminals, liquid bulk terminals, dry bulk terminals, Ro-Ro terminals, port facilities such as waste storage, salvage services and or underwater work, and terminal support services (see Presidential Regulation No. 36 of 2010).TECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 9
  28. 28. control. Governors or regents/mayors set up PMUs for regional ports. Both entities are described as being staffed by “state civil servants”16. The functions assigned to PAs and PMUs are virtually identical. Both are required to (a) provide and maintain breakwaters, port basins, shipping channels and road networks, (b) aids to navigation, (c) ensure port order and security, (d) ensure and maintain the preservation of the environment, (e) compile port master plans (and define the port working area and port interest area), and (f) ensure the smooth flow of goods. Functions exclusively assigned to PAs are: (a) to provide land and water areas for the port, (b) regulate and supervise the use of port land and water areas, (c) supervise the port working area and port interest area, (d) regulate pilotage, and (e) stipulate standards of operational performance of port services. The only function exclusively assigned to PMUs is “to provide port facilities”. While not included in the list of functions, both PAs and PMUs are also required to “act as Government representatives to provide concessions and other forms (sic) to PBEs to carry out exploitation activities in ports” (Art 82(4)). The features of the institutional framework for ports that require further analysis are:  The legal status of PAs and PMUs;  Institutional structure of PAs and PMUs;  The proposed landlord role of PAs and PMUs and the relationship with the Pelindos;  Functions assigned and not assigned to PAs and PMUs;  The relationship between PAs, PMUs and the MoT. 2.4.1 Legal Status of Port Authorities and Port Management Units The Law declares PAs to be government agencies (Art 1(26)), but no such declaration is made for PMUs, and the Law does not expressly define where PAs and PMUs are positioned in the government (e.g. specifically within the MOT). The statement that they are to be staffed by civil servants appears to have been interpreted to mean that PAs and PMUs are to remain part of the MoT structure. In practice, this has led to the creation of PAs and PMUs as “technical executing units” under the MoT. Technical executing units answer to the MoT through the DGST. They are funded through government appropriations based on budgets approved by the Minister. They do not retain any of their revenues which must be paid over to the GoI as “non tax revenue”. Technical executing units have a standard organizational structure governed by 16 Effect has been given to this provision by establishing PAs and PMUs as technical executing units under the MoT. TECHNICAL INPUTS FOR10 NPMP REVISION FINAL REPORT
  29. 29. CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE regulations issued by the Ministry of State Administrative Reform (MENPAN)17. Amongst others, the MENPAN regulations:  Prescribe the ranks (seniority) of the principal officers leading and managing the port authorities (and PMUs);  Prescribe a basic organization structure consisting of a maximum of 2 divisions. These divisions may be supplemented by an administrative/secretarial department. 2.4.2 Institutional Structure of Port Authorities and Port Management Units Based on the MENPAN regulations, all 4 port authorities set up to date have the same organizational structure18. Each port authority is headed by an official classified in echelon II.b (Director) supported by a senior management comprising 3 officials in echelon III b and 9 officials in echelon IV.b. For example, Port Authority II (which is responsible amongst others for Tanjung Priok) has a total staffing of 136 officials. The DGST is, however, planning to ultimately establish 96 port authorities which will be divided into 5 classes depending on the size, commercial and strategic relevance of the port and other factors19. Government Regulation 62/2010 also prescribes the basic organizational structure of the port authority, as shown in Figure 2-1. 17 Ministerial Regulation No Per/18/MPAN/11/2008. 18 PA I (Belawan), PA II (Tanjung Priok), PA III (Tanjung Perak), and PA IV (Makassar). 19 DGST’s proposes to establish 9 class 1 authorities, 15 class 2 authorities, 16 class 3 authorities, 16 class 4 authorities and 40 class 5 authorities.TECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 11
  30. 30. Figure 2-1: Port Authority Structure Figure 2-2: Structure of Port Management Units (1st Class) The 186 Port Management Units are classified in three classes (first, second and third class) and their organizational structure differs accordingly. There are 5 units in the first class, 20 in the second class and 161 in the third class. First class units are headed TECHNICAL INPUTS FOR12 NPMP REVISION FINAL REPORT
  31. 31. CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE by an official in echelon IV.b.20 Second class units are headed by a class IV.a official and third class units by a class IV.b official. The organizational structure of the Port Management Units prescribed by Government Regulation No 62/2010 is presented in Figure 2-2 (2nd and 3rd class units have a more simplified structure). By adopting the technical unit structure for PAs and PMUs, their organizational structure has been pre-determined without reference to the functions they must perform nor to the operational and physical environments in which the port operate. This approach runs contrary to accepted good practice in institutional design. As we discuss elsewhere, as presently conceived Indonesia’s port authorities lack many of the critical features that characterize successful landlord ports worldwide21. In initiating these institutional reforms, the GoI has not only foregone the opportunity to adopt international good practice, but has selected an organizational form which provides minimal flexibility in terms of structuring PAs and PMUs so that they can perform effectively. It is an accepted tenet of institutional design that “form” follows or comes after “function”. This implies that an organizational structure is developed only after the functions that the organization is to perform has been decided. In Indonesia’s case, this approach was not followed, but an “off the shelf” structure was chosen which serves as a template for a variety of government agencies across all sectors. 2.4.3 Proposed Landlord Role of Port Authorities and Port Management Units and the Relationship with Pelindos The term “landlord port authority” does not occur in the Law. There is an implicit assumption that PAs and PMUs will assume this role by virtue of Art 82(4), which requires PAs and PMUs to represent the GoI in granting concessions to PBEs to undertake “exploitation activities”. Exploitation activities are defined in Art 90(1). They include many of the port operations typically undertaken by private firms under concessions or licensing arrangements22. The Law fails to address a number of issues critical to the performance of a landlord role: 20 This information is based on the English translation of the MENPAN document. However, it is presumed to be incorrect as this would imply that an official of lower rank heads a class 1 unit compared to a class 2 unit. The correct designation is probably a class III,b official. 21 Such as managerial and financial autonomy, private sector-led boards and market-driven compensation schemes and employment conditions. 22 E.g. stevedoring, container terminal services, mooring, bunkering, etc.TECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 13
  32. 32.  Provisions regarding the land rights of PAs and PMUs are vague. PAs have a duty to “provide land areas for the port”, but the law fails to indicate how they are to acquire such rights in the first place23.  The Law contains no transitional provisions relating to port land presently under the control of other state entities such as Pelindos. Most valuable port land is under Pelindo control. The Law provides no guidance on the future status of such land.  Provisions in GR 61 suggest that while the eradication of monopolies is an objective24, the monopolies of the Pelindos are preserved. Art 344(3) retains the right of Pelindos to continue “exploitation activities”, which entails providing port- and port-related services.  There is no express duty imposed on PAs or PMUs to advance a concession program (and other forms of private sector participation) within a specific timeframe. The Law could be interpreted as allowing an individual authority the discretion whether or not to grant specific concessions. Lastly, the Law does not resolve conflicts between the landlord role of PAs and similar landlord functions performed by Pelindos under their founding legislation. The problem of land ownership is recognized25 and the DGST has elaborated four options to resolve it. These are: (a) The purchase of land rights by PAs, (b) a revision of the Law, (c) Reform of the Pelindo with support from the MSOE, or (d) an exchange of land rights for the right of Pelindos to act as concessionaires. Each option has pros or cons. Option (a) has been described as impractical in view of the expense26, while options (a), (c) and (d) all require the co-operation of the Pelindos and the MSOE whose support is uncertain. An amendment of the law (Option B) provides the greatest clarity and legal certainty, but may take a long time to achieve and face various political hurdles. One reading of the Law, however, would suggest the PAs and PMUs are assigned land management rights in the same manner the Pelindos originally received them, without regard for land ownership. The Pelindos were established in 1991 by Government Regulations No. 56, 57, 58, and 59 as limited companies owned by the government. These regulations were intended to change the status of port entities, which had been established as Public Port Companies (Perusahaan Umum Pelabuhan) under prior law, when they had been referred to as Perumpels. Shipping Law No. 21 of 1992 stated in part that the management of state ports could be delegated to state owned 23 Art 85 states that PAs and PMUs have rights to the management of land and utilization of waters “in accordance with the provision of statutory regulations”. This statement is essentially meaningless. 24 The Elucidation of GR 61 indicates the following: The enactment of Law 17 of 2008 calls for “. . . regulation of port affairs including provision of monopolistic eradication. . .” 25 See TR par 7.5. 26 Although the counter argument is that a transaction may effectively be self-financing as the funds to purchase land would be provided by the GoI which would receive the monies back by way of revenues earned by Pelindos and paid to the GoI as dividends. TECHNICAL INPUTS FOR14 NPMP REVISION FINAL REPORT
  33. 33. CHAPTER 2: SHIPPING LAW 17 AND EXAMINATION OF IMPLICATIONS FOR INSTITUTIONAL CHANGE enterprises that are established for the purpose of providing port services (Art 26(1)). This was followed by Government Regulation No. 69 of 2001, which further addressed the status, role, and function of the Pelindos. The regulation in part gave the authority to the Pelindos to manage the land and water areas of the port (Art 19) and to provide land for building and storage, roads and bridges, parking areas, cargo handling terminals, among others (Art 37(2)). Based on the above, land ownership was never assigned to the Pelindos. Lands were entrusted to them to manage and use. This authority was then given to the Port Authorities (and Port Management Units) by virtue of Shipping Law No. 17 of 2008, which grants Port Authorities the right to provide land and water areas for the port (Art 83(1)(a)); regulate and supervise the use of port land and water areas (Art 84(a)); supervise the use of port Work and Interest Environment Areas (Art 84(b); manage land and utilization of waters in accordance with statutory regulations (Art 85); and prepare Port Master Plans and Port Work and Interest Environment Areas (Art 83(1)(f)). These rights do not conflict even with Shipping Law 17’s Article 344, which retains the right of the Pelindos to continue exploitation activities (Art 344(3)). Recall that exploitation is defined in Shipping Law 17 as providing port and port-related services (Art 90(1)). Though the language would seem to indicate that Port Authorities have the clear right to manage lands, undoubtedly those who disagree would point to GR 61, where land management rights are granted to government, regional governments, or state-owned enterprises (Art 1(27)).27 Irrespective of the landownership option chosen, a further constraint is that the exact boundaries of port land and of registered rights in such land is not known. State agencies have not always been required to register their land titles. Such titles may be held by Pelindos, other state-owned corporations, local and regional governments and private individuals or firms. A comprehensive register of port land, its classification and associated ownership or use rights is needed. This need has been recognized in GR 61, which provides for a transitional period of three years, which is intended to assist government to undertake an evaluation and audit of Pelindo assets. Thereafter, GR 61 requires that such activities must be “adjusted” to be aligned with the new regime. However, it appears that little or no progress has been made during the transitional period to audit and evaluate the Pelindo’s assets. 2.4.4 Functions Assigned (and Not-Assigned) to PAs and PMUs The Law does not assign the full spectrum of functions normally associated with landlord port authorities to PAs and PMUs. Moreover, the scope of the functions for which they are responsible is not always clear. This creates some confusion as to the 27 As if to complicate matters further, the Transport Minister recently issued a letter (No. Hk 003/1/1 Phb/2011 of 6 May 2011) informing all of the Pelindos that they retain the right to manage the land area of the port, contradicting Shipping Law 17’s provision that Port Authorities shall manage land and utilization of waters in accordance with statutory regulations (Art 85).TECHNICAL INPUTS FORNPMP REVISION FINAL REPORT 15
  34. 34. roles and inter-relationships between PAs (and PMUs), the MoT and harbour masters (also see discussion on Harbour Masters below). It also leaves open the question of the extent of the residual authority which the GoI will continue to exercise over the ports sector. Functions associated with landlord authorities which have not been expressly assigned to PAs and PMUs include port marketing and promotion and oversight of concessionaires (and other private sector service providers)28. Other ancillary functions which many port authorities perform include: managing a port performance database, promoting research and development and collaborating with educational institutions, and managing human resource development programs. The role of the PA (or PMU) to act as default port operator and service provider is also implied rather than expressly stated.29 2.4.5 The Relationship between PAs, PMUs and the MoT Hierarchically, PAs answer to the Minister, while PMUs answer either to the Minister or a regional or local government. The Minister manages this relationship through the DGST of the MoT. Notwithstanding the functions entrusted to PAs and PMUs, it appears that the Minister – acting through the DGST – retains significant executive authority over day-to-day port operations30. Within the DGST, this authority is exercised primarily through the Directorate of Ports and Dredging (DPD). In terms of current legislation31, the DPD is responsible for:  Formulating government policy on ports and dredging;  Formulating technical and administrative guidance and directions on how PAs and PMUs are to perform their functions;  Assisting in resolving problems encountered in the port system;  Evaluating individual port master plans;  Issuing approvals and licenses for the location of new ports, port construction, port operation, special terminals (outside the port interest area) and own-account terminals (within port working areas); and 28 It could be argued that this function is implicit in the role of PAs (and PMUs) to “represent the GoI in providing concessions” and in stipulating ‘standards for port services”. However, it is clearly preferable for this function to be explicitly imposed, as it underlines the need for ongoing supervision and monitoring of port productivity, investment levels, etc by the PA. 29 Art 110 indicates the possibility that PAs may operate facilities or provide services by according them the right to set tariffs for such facilities and services in consultation with the Minister. Further, Art 83(2) compels the PAs to perform provide services not yet provided by PBEs. 30 This finding underscores the earlier conclusion that the PAs and PMUs lack the managerial autonomy typically associated with port authorities elsewhere. 31 Decision of the Minister of Transport on the organization of the DGST (in Indonesian). TECHNICAL INPUTS FOR16 NPMP REVISION FINAL REPORT

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