Improving Port Competitiveness

1. Improving Port Competitiveness Nathan Associates Inc. IndII Wrap-up Conference 14th June 2011

2. Requirements for Improving Port Sector Competitiveness • Increase competition • Continue institutional and regulatory reform • Provide sufficient port capacity • Institute near term measures to mitigate congestion

3. Increase Competition Government Regulation 61 declares objective of “eradication of monopolies”, but provisions in the Shipping Law Preserve Pelindo “exploitation” monopoly, though monopoly is limited to: Currently provided facilities and services Constrain the development of competition Special terminals prohibited from handling third party cargoes Except under certain conditions (emergency or facilities and services in the port are ineffective or inefficient) Permits for handling third party cargoes given only for 5 years and are extended only if conditions under which they were given continue Negative investment list limiting ownership interest to 49% for foreign investment Pelindos have antitrust immunity, though their JVs fall under KPPU jurisdiction No prohibition against Pelindo “ownership” of additional facilities within and outside their jurisdictions

4. Remedies for Increasing Competition Revise Land Law to eliminate port land management rights assigned to Pelindos to reflect Shipping Law no. 17’s intent port authorities to have land management responsibility Revise Special Terminal regulations to allow permit extension on the basis of meeting certain performance standards Remove maritime terminals from Negative Investment List to encourage investment from foreign firms (in partnership with local firms) Assert the Law’s limitation on Pelindo activities • Pelindo activity limited to exploitation of current facilities (Art 344(3)) • Exploitation defined in the Law as providing port services and port related services (Art 90(1)), including services to vessels, passengers, and cargo (Art 90(2)) and providing facilities (Art 90(3)) Eliminate Pelindo antitrust immunity Restrict the extent of ownership Pelindos and other port business entities may have if it means they would otherwise extend their market dominance

5. Continue Institutional and Regulatory Reform Issue Port Policy – national port policy does not exist Mitigate lack of clarity and contradictions in Shipping Law no. 17 by enhancing Government and Ministerial regulations Transform port authorities and port management units to General Service Organisationsto reflect global best practice in port administration: • Governance by board of directors • Autonomy in decision-making relative to budgeting and finance, tariff setting, personnel compensation systems • Organisationalstructure Develop institutional capabilities of port authorities • Prepare port authority operations toolkit, to include: • Model port operational regulations • Model concession and lease agreements • Tariff analysis model • “Experiential” capacity development exercises, including • Actual preparation of 1 or 2 local port master plans • Implementation of 1 or 2 PSP transactions • Institute “thematic” training programs

6. Provide Sufficient Port Capacity Projected cargo growth is robust for all projection scenarios, especially for containers Congestion highly likely in the near term in Tanjung Priok and Tanjung Perak Increased highway congestion also expected from economic corridor development Indonesia Container Forecast, 20015-2030 (000’s TEU)

7. Reasons for Projected High Growth of Container Traffic Government of Indonesia and IMF forecast real GDP growth of 6.5-7.0% Economic development corridors (MP3EI) will accelerate growth and also directly affect the volume of container traffic due to: • overall higher GDP growth of at least 1% per year • policies for promoting increased value-added will shift some commodities exported in bulk to processed materials shipped in containers Indonesia has had high growth of container traffic since 1990 Substantial potential for domestic and some international general cargo to shift to containers Favorable demographic conditions in a larger productive workforce and lower dependency ratios Increases in GDP per capita will generate a burgeoning middle class that in the next 10 years could double or triple

8. Implications of Traffic Forecast By 2020 Indonesia container traffic will be more than double 2009 volumes and will double again by 2030 New and expanded container terminals is urgently required in many locations Increased container volumes will likely lead to need for new container hub ports such as in Kuala Tanjung and Bitung -- feasibility of development of a 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% by 2020 and another 50% by 2030 Additional bulk port capacity will be needed in some locations and may be undertaken by private sector

9. Short Term Capacity Expansion Measures – Tanjung Priok Present Situation • Vessel Handling Productivity Reasonable • No Meaningful Ship and Truck Waiting • Limited Availability of Berthing Windows • Shortage in Storage Space (CY) Development of North Kalibaru Terminal • Technical Obstacle – Massive Deep-Sea Reclamation; New Breakwater; Elevated Access Road • Financial Obstacle – Likely cannot be financed with existing tariff levels • Capacity from new terminal not available for 3-5 years • Short term solutions needed Short Term Solution • Integrated Off-Dock CYs & Dock Rehabilitation • Convert Marunda Depots to Shipping Line-Controlled CYs • Direct Ship-Side Transfer to CYs • Ship-Side Buffer Operated by Off-Dock Toploaders • Special (Automated) Gate • Special Tariff

10. Short Term Capacity Expansion Measures – Tanjung Perak Present Performance • Vessel handling productivity reasonable • No meaningful ship and truck waiting • Shortage in storage space (container yard) Development of Lamong Terminal • Technical obstacle– deep-sea reclamation; deep-sea (-17 m) wharf; 2.7 km causeway/bridge; new access road • Multipurpose – not providing capacity for international containers • Short term solutions needed TPS Longer-Term Expansion • Extend Berth from 1,000 to 1,500 m • Convert adjacent area now used as depot for storage of containers Short Term Solution • TPS Immediate Expansion • Allows Mixed Export/Import Storage • Convert warehouse to container yard • Develop 7 ha area in front

11. Other Short Term Capacity Enhancement Measures Institute truck appointment system and congestion pricing/discount program Institute intelligent logistics system consisting of • Electronic track and trace of trucks • Secured truck staging areas/distribution centers on highway corridors • Control truck movements along routes • Truck entry control to urban areas around ports Coastal RoRo Ferry system to complement highway corridors

12. Improving Port Competitiveness Nathan Associates Inc. IndII Wrap-up Conference 14th June 2011 Thank you! Terimakasih!