Indonesian port sector reform and the 2008 shipping law

Indonesia has relatively high sea transport costs and this reduces incentives to trade both domestically and internationally. Indonesia"s ports, regarded as relatively inefficient and poorly equipped/managed, are an important factor driving up shipping costs. Vessels involved in domestic trade for example, are spending over half their time sitting idle or waiting at or outside ports. Poor port performance can be explained in large part by the long-held legislated monopoly of port services by state-owned enterprises (SOEs) and the current legal and regulatory environment that effectively constrains competition both within and among ports. The 2008 Shipping Law provides the foundation for a comprehensive reform of the Indonesian port system. Most notably the law removes the 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 in the ports system, putting downward pressure on prices and driving general improvements in port services. Whilst there is some guarded optimism about the new law, investors must now confront a policy vacuum whilst awaiting the development of implementing regulations and supporting institutions. Key concerns focus on: (1) the composition, orientation, and financial / technical capacity of the planned Port Authorities; (2) the possible restrictiveness of the national and individual port master-plans; (3) the degree of pricing autonomy of terminal operators; and (4) the ability of private ports to convert their status to commercial public ports in order to compete with the incumbent SOEs. (Author abstract, modified)