Indonesia: Rivalry Between Government, State-Owned Port Company Hampers Growth

September 1, 2022 GENERAL

President Joko “Jokowi” Widodo has inaugurated a new multipurpose terminal, Terminal Kijing, at the Port of Pontianak, West Kalimantan on August 9 to support expansion of existing capacity, which has reached peak capacity.  The new terminal has a capacity to handle 5,000 twenty-foot TEU of containerized cargo, with a throughput of 200,000 TEU, and eight million tons of general bulk and breakbulk commodities.

To develop Terminal Kijing, state-owned port operator PT Pelabuhan Indonesia (Pelindo) spent around IDR2.9. trillion (US$194 million) and six years of construction, which started in 2013.  Pelindo faced many obstacles and progress was stalled several times until 2016 when the central government stepped in to give the project a boost by designating it a national strategic project.  This status cleared all bureaucracy.

This situation reflected the reality that a state-run port does not have full control of the port development program.  The government retains a big portion of authority in the hands of the Ministry of Transport with the power to allocate budget and give endorsement.  However, this policy triggers an asymmetrical business practice among state-run ports and private port operators.

By virtue of Shipping Law No. 17/2008, the port business is opened to both public and public sectors.  Nonetheless, the private sector has more support from the government than state-owned port companies.

For example, private port operators do not pay dividend to the state, only income tax and concession fee.  Pelindo, on the other hand, has to financially support the state.  Moreover, Pelindo’s financial performance is subject to scrutiny by the Audit Board or BPK (Badan Pemeriksa Keuangan), the national supreme auditing institution.  The private port operators are not subject to this scrutiny.

Unlike counterparts from other countries, Indonesian state-owned port companies do not enjoy any advantages, preference or special treatment from the government.  In fact, the government often hampers the growth of the state-run ports.

For example, the government’s poor handling of the development of Patimban Port in Subang, West Java.  The Ministry of Transport claimed Patimban Port is complementary to the Port of Tanjung Priok, Indonesia’s busiest port, which is located not far away.

However, the facilities at both ports are similar with the same container and car terminals.  When the Patimban Port was officially launched in December 2020 by Jokowi, the ministry was reportedly deviating car carriers from Tanjung Priok to Patimban.  Some responded positively but many, especially big car carriers, still called at Tanjung Priok.

The Patimban Port is financed partly by the Japanese government through the Japan International Cooperation Agency (JICA), which funded IDR14.17 trillion of the IDR17.16 trillion needed for the first phase of the construction, which included the building of car, container and multipurpose quays, vehicle and box yards and other supporting facilities.  JICA has a 49 percent stake in the port.

PT Pelabuhan Patimban Internasional (PPI), the port operator, handed over the operation of the car terminal to Toyota Tsusho for a two-year contract, and reportedly the contract to operate the container terminal is given to a company majority-owned by Chairul Tanjung, an Indonesian businessman and former cabinet minister.  It seemed that PPI has morphed into a landlord instead, which may be in breach of the agreement it has with the Ministry of Transport.

Another similar story involved the Tanjung Carat project in South Sumatra, which was located close to the existing Boom Baru Port operated by Pelindo.  Pelindo, again, has to compete with Tanjung Carat Port.

The Terminal Kijing project has shown that port development by the Ministry of Transport and state-owned companies tended to favor small facilities scattered across the archipelago.  Consequently, they attracted less interest from main line operators and limited cargo flow from the hinterland.

The government should give Pelindo, the biggest national port operator, the authority and freedom it deserves to develop ports.  Pelindo, whose work can trigger great impact in the country, is to be hailed for its tenacity amidst unfavorable business climate.  So, next time, if Pelindo wants to develop a port, the government should give it permission to construct it adjacent to the Strait of Malacca with giant capacity and modern technology. Hopefully.


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