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Indonesian 2020 cabotage waiver could create unfair competition and legal risk

The cabinet of re-elected president Joko Widodo may set out to deliver on a directive issued last October to waive cabotage play ships from complying with the global sulphur cap. However, the move has prompted criticism from shipowner groups claiming any exemptions would create unfair competition and may lead to non-compliance on a wider scale

Sprawling archipelagic Indonesia may not be the only nation seeking to implement IMO 2020 waivers within port waters

INDONESIA’S reported backtracking on the enforcement of the January 1 2020 sulphur cap for domestic shipping runs counter to fair competition interests and could result in legal challenges, according to a group of shipowners.

The Trident Alliance, a coalition of shipowners pushing for a robust enforcement of the maritime sulphur regulations, have raised concerns about a statement issued by Indonesia’s transport ministry on Monday which suggests the government will allow domestic shipping to burn 3.5% sulphur fuels after the January 1 deadline. 

“We strongly urge any state contemplating partial enforcement to reconsider in favour of the only approach that makes lasting sense on a moral, legal and business basis; full and effective enforcement,” said The Trident Alliance in a statement issued Monday. 

“Any local deviations from this would create unfair competition and may lead to non-compliance on a wider scale. Furthermore, it is extremely unhelpful to make such decisions so late in the day given the expense and effort the industry has already expended in preparing,” the statement continued.

The Indonesian government has reportedly cited cost and availability issues as the main reasons for its decision, along with a large volume of domestic high-sulphur fuel oil to work through.

While the precise details of Indonesia’s plans have not been clarified, media reports have quoted government officials as saying that an exemption will not apply to Indonesian-flagged vessels on international voyages, or to foreign-flagged vessels in Indonesian waters. 

Nevertheless, if the waiver is confirmed it will mark the first time an International Maritime Organization member has openly said it will not abide by the organisation’s sulphur cap.

Aside from the unfair distortion to the competitive landscape, the Trident Alliance has also questioned how a failure or refusal to enforce the new sulphur cap would not expose a state to legal consequences. States, such as Indonesia, that are party to IMO’s Marpol Annex VI do not have the facility to exempt merchant vessels from compliance. Additionally, states party to Annex VI can be held liable for non-enforcement by the other states that are party to it.

If the exemption for domestic shipping does happen the market implications for smaller boxships could be significant. 

By Alphaliner’s estimate 253 Indonesia-flagged boxships active in domestic trades could be affected. Alphaliner’s founding executive consultant, Tan Hua Joo noted that while the fleet is substantial by absolute vessel count, its combined capacity works out to just 162,000 teu. That is relatively insignificant when referenced against some 23m teu in global container ship capacity.

Still, one other concern is whether other port states may follow suit in rolling out waivers for coastal shipping.

The Philippine Inter-Island Shipping Association has reportedly requested the local authority to exempt domestic ships from complying with the IMO 2020 regulation.

The regulation capping sulphur in marine fuel on board ships to no more than 0.5% provides for leniency towards cases in which there are no available compliant fuels.

Mr Tan pointed out that Indonesia, as possibly the first country to roll out an IMO 2020 waiver, may justify its action by citing non-availability of compliant fuels for ships plying trades across its sprawling archipelago of over 17,000 islands.

But such leeway does not extend to the vast majority of the international shipping fleet plying trades that call at bunkering hubs including Singapore, he said.

The shipping community is still awaiting the finer details of the Indonesian waiver, which also has to be formally endorsed by the Jokowi-led cabinet now in the making.

Pacific International Lines executive director for fleet Teo Choo Wee said: “We are still waiting on clarity from the government of Indonesia on what this exemption — if it pans out — may entail and whether it will extend to beyond cabotage trades.”

PIL has foreign-flagged boxships that call at ports in Indonesia.

Rheinhard Tobing, an adviser to Indonesia’s shipbroker association, noted that while the regulation has not yet been formalised, the understanding so far is that the waiver will not extend to foreign-flagged vessels serving international trades and calling Indonesian ports.

However, he added that Indonesia’s national oil company Pertamina is expected to dedicate one of its refineries for producing low-sulphur marine fuels complying with the IMO 2020 regulation.

Indonesia is a signatory party to the IMO’s International Convention for the Prevention of Pollution from Ships, Marpol Annex VI, the main international agreement covering all types of ship pollution. 

Questions remain whether the Southeast Asian nation that boasts the world’s fourth-largest population, can press on with its planned waiver. 

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