6 - Indonesian Port Sector Reform and the 2008 Shipping Law

Summary

As the world's largest archipelagic nation, Indonesia requires a well-developed and efficiently run ports sector. This is because producer competitiveness in national and international markets, internal distribution efficiency and, more generally, national economic cohesiveness and integrity are influenced to a significant extent by port sector performance. Despite its obvious critical importance to the national economy, Indonesia does not have a port system that performs well from the perspective of its users. Indonesia's main port terminal, the Jakarta International Container Terminal (JICT), has been shown to be one of the least efficient of the main terminals in Southeast Asia in terms of productivity and unit costs (Ray 2003), and yet it is one of the better performing Indonesian ports. Performance indicators for all the major commercial ports suggest the entire port system is highly inefficient and in urgent need of upgrading. Berth occupancy rates, average turnaround times and working time as a percentage of turnaround time are well below international standards, suggesting that vessels are spending too much time at berth, or in queues outside ports.

Geographic factors such as the lack of deep-water harbours and the inland location of many ports on rivers that require near constant dredging are important constraints to port performance. But arguably the greatest constraint to development is the overall lack of private sector participation (investment) and competition in the ports system. This is in large part due to the dominance of the state in the provision of port services through the activities of four state-owned enterprises, the Indonesian Port Corporations or IPCs (Pelabuhan Indonesia), as well as deficiencies in the current legal and regulatory environment, which effectively constrains competition both within and between ports.

Some of these issues were addressed in Law No. 17/2008 on Shipping, which provides the foundation for comprehensive reform of the Indonesian port system. Most notably, the law removes the legislated state-sector monopoly on ports and opens the door for new participation by the private sector. This could lead to the injection of much needed competition, putting downward pressure on prices and driving general improvements in port services. Transforming the Indonesian ports system, however, will be a long and arduous process.