Vessel-Owning JV Companies Must Have Indonesian Shipping Company as Majority Shareholder for Vessel Registration

Following the enactment of the Omnibus Law (Law No. 11 of 2020 on Job Creation) on November 2, 2020, the Government of Indonesia issued various implementing government regulations to regulate a wide array of sectors, including the shipping sector. On February 2, 2021, the Government of Indonesia issued Government Regulation No. 31 of 2021 dated February 2, 2021, regarding the Implementation of the Shipping Sector (“GR 31/2021”), which introduced a significant change relating to the registration of vessel ownership in Indonesia.

While there are a number of updates relevant to the shipping business in GR 31/2021, encompassing marine transportation, port affairs, navigation, shipping licenses and certificates, as well as ship security management, in this article we would like to highlight one particularly intriguing change that affects the shareholding of companies wishing to register their ownership of vessels in Indonesia.

Before GR 31/2021, vessel registration in Indonesia followed Law No. 17 of 2008 on Shipping (as amended by the Job Creation Law) ("Shipping Law") and Minister of Transportation Regulation No. PM 39 of 2017 on Vessel Registration and Nationality ("MOT Reg. 39/2017"). Article 158(2) of the Shipping Law and Article 5(2) of MOT Reg. 39/2017 stipulate identical criteria for vessels to be eligible for registration in Indonesia, as follows:

1. Vessels with a gross tonnage of at least 7 (seven gross tonnage);
2. Vessels owned by Indonesian citizens or legal entities established under Indonesian law and domiciled in Indonesia; and
3. Vessels owned by Indonesian legal entities that are joint ventures whose majority shares are owned by Indonesian citizens.

Specifically for letter (c) above, Article 5(3) of MOT Reg. 39/2017 elaborates the criteria of “Indonesian legal entity” as follows:

1. a private company with the requirement that the majority shareholder is an Indonesian citizen; and
2. a public company where (i) the foreign direct ownership of its shares does not exceed 49%, and (ii) the share ownership of a foreign individual or a foreign legal entity through the public market in the form of portfolio investment does not exceed 49%.

While Article 93 (2) (c) of GR 31/2021 contains identical wording as the Shipping Law and MOT Reg. 39/2017 on the criteria for vessels that can be registered in Indonesia, the elucidation of the Article elaborates that the majority of the shares of the joint venture must be owned by (i) a national sea transportation company whose shares are wholly owned by Indonesian citizens for commercial activities; and/or (ii) Indonesian legal entities whose shares are wholly owned by Indonesian citizens for non-commercial activities including social activities, tourism, sports (“Vessel Ownership Shareholding Requirement”).

This is a major change since Article 93 (2) (c) of GR 31/2021 now mandates that a shipping company with a vessel for commercial purpose be majority-owned by a wholly owned national sea transportation company (i.e., a wholly Indonesian company with a Sea Transportation Business License).

It is notable that GR 31/2021 lacks any express transitional provisions that might apply for vessel registrations prior to the enactment of the government regulation. Instead, Articles 229 and 230 of GR 31/2021 regulate transitional provisions for the “grandfathering” of Business Licensing (which is broadly defined as “the legality granted to business actors to initiate and conduct their business and/or activities”), stating that the provisions of GR 31/2021 are not applicable for business actors that obtained Business Licensing prior to the enactment of GR 31/2021 unless the provisions in GR 31/2021  are beneficial to the business actor.

Articles 229 and 230 of GR 31/2021 follow the general principle of non-retroactivity of a regulation. This means that new regulations should only be forward-looking in nature and should not as a matter of equity apply retrospectively to actions that have already occurred. This non-retroactive principle has been the longstanding policy of the government (including the Ministry of Investment / Indonesia Investment Coordinating Board) and has typically been included in licensing regulations, i.e., stipulating that if the business actor has obtained an effective business license for its business activity(ies) under the old licensing regime, these business actors will not be affected by the new licensing regime and their licenses shall continue to be effective.

Accordingly, it may be concluded that if a shipping company has obtained a grosse vessel registration deed for the ownership of a vessel prior to the enactment of GR 31/2021 and has also been granted a Sea Transportation Business License, then such shipping company should be grandfathered / exempted from complying with the aforementioned Vessel Ownership Shareholding Requirement. Nonetheless, it may be reasonable to expect that the grandfathering or exemption would not apply if the shipping company were to register a new vessel in Indonesia. Since GR 31/2021 does not contain express language on the “grandfathering” policy for vessel ownership, it remains to be seen what policy will be applied by the Ministry of Transportation in practice.

On a separate but related note, it is ambiguous whether the Vessel Ownership Shareholding Requirement also applies to the ownership of vessels by companies that are not shipping companies but own vessels and have a Special Sea Transportation Operation License (SIOPSUS) to utilize their vessels to support their core business activities.

As Indonesia's maritime regulatory landscape evolves, these changes underline the complexity business actors must navigate in the sector, particularly in structuring shareholding composition in order to comply with the Vessel Ownership Shareholding Requirement.

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