Client Newsflash

New Regulation Allows Port Concessions through Appointment and Regulates Mandatory Transfer of Facilities

On August 19, 2015, the President enacted Government Regulation No. 64 of 2015 amending Government Regulation No. 61 of 2009 on Ports (the “New Port Regulation”) in order to stimulate investment in port infrastructure by allowing Port Administrators to use direct assignment and appointment to grant port concessions. To implement the New Port Regulation, the Minister of Transportation issued Regulation No. 15 of 2015 on Concession and other forms of Cooperation between the Government and Port Business Entities in the field of Ports, which was later amended by Regulation No. 166 of 2015 (“MOT Reg. 15/2015”).

♦  Assignment and Appointment

As opposed to Government Regulation No. 61 of 2009 (the “Old Port Regulation”), which authorized concessions solely by way of public tender, the New Port Regulation allows Port Business Entities (Badan Usaha Pelabuhan – “BUPs”) to receive concessions by way of assignment or appointment in cases where the land is already owned or controlled by the BUP and the investment is fully covered by the BUP (i.e., does not utilize funds from the State/Regional Budget).

To obtain a concession by assignment or appointment, the BUP applies to the Port Administrator, who forwards the application and preliminary feasibility studies to the Directorate General of Sea Transportation. If the application and feasibility studies are deemed sufficient, the BUP and the Port Administrator can execute a concession agreement. MOT Reg. 15/2015 provides some minimum requirements for concession agreements, such as concession fee, ownership and use of infrastructure, and a clause covering transfer of port facilities to the Port Administrator at the end of the concession period.

The concession fee must be at least 2.5% of the total gross profit during the concession period.

MOT Reg. 15/2015 further provides that concessions for ports that were built, developed and/or operated prior to the enactment of Law No. 17 of 2008 on Shipping shall now be granted by way of assignment/appointment and may be extended in accordance with prevailing laws and regulations. This includes development of facilities that were built or developed by: i) the Government and stipulated as State Capital Participation in Port State-Owned Enterprises (BUMN Kepelabuhanan), ii) BUMN BUPs, and iii) Non-BUMN BUPs.

♦  Post-Concession Transfer of Land and Facilities

Concession land and facilities must be transferred to the Port Administrator by the end of the concession agreement as documented by a Minutes of Transfer (Berita Acara Serah Terima Fasilitas Pelabuhan dan Lahan) and a Handover Document (Dokumen Serah Terima) covering i) condition of the land and facilities being transferred, ii) procedure for transfer, iii) statement that the land and facilities are free from encumbrance, and iv) the BUP’s indemnification of the Government against any third party claims arising prior to the transfer.

♦  Utilization Cooperation

After the land and facilities have been transferred to the Port Administrator, they can again be handed over to a BUP based on a Joint Utilization Cooperation (Kerjasama Pemanfaatan). MOT Reg. 15/2015 provides the minimum contents of a Joint Utilization Cooperation Agreement, including scope of cooperation, initial tariff and adjustment, service standards, use and ownership of assets, and profit sharing scheme.

The New Regulation does not limit the period of the Joint Utilization Cooperation, as opposed to the Old Regulation, which regulated a maximum period of 30 (thirty) years.

January 28, 2016

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