Shipping & Maritime Update: ESG Aspect on Indonesia’s Maritime Industry

Table of Contents

1. IMO Initial Strategy
2. General Principle of GHG Limit in Indonesia
3. Decarbonization Efforts in Indonesia’s Shipping Industry
4. The Fulfilment of Seafarer’s Rights
5. Modernizing Port Service
6. ARMA Law Commentary

Indonesia, as one of the countries with great potential for the maritime industry, aims to become a front liner of the world's maritime industry and must be able to adapt to the development of the global maritime industry, including the adoption of Environment, Sustainability, and Governance (“ESG”) criteria on the global maritime industry. The term ESG consists of several active measures and corporate strategies that focus on environmental, social, and corporate governance issues.

The Indonesian government has taken several measures through the issuance of policies and regulations to encourage the fulfillment of ESG aspects in the maritime industry, including the obligation to use low sulfur in order to reduce emissions produced from shipping operations. From the ‘Sustainability’ point of view, as one of the member states of the Maritime Labor Convention 2006 (“MLC”), the Government of Indonesia has also ratified the MLC in Law No.15 of 2016 Concerning MLC Establishment (“Law 15/2016”) including its derivative regulations to increase the welfare of Indonesian seafarer.

Meanwhile, the Indonesian Ministry of Transportation (“MoT”) also have utilised information technology in order to provide better port services through ‘Inaportnet’, a single service system for Vessel and other vessel-related activities in port, which is expected to provide more optimised vessel services, as well as to improve the competitiveness of port services throughout Indonesia. On the top of that, in order to construct the harmonised enforcement of ESG, the enforcement of ESG aspects in Indonesia’s maritime industry ought to be in line with the critical legal basis of decarbonisation laws in Indonesia such as the Presidential Regulation No. 98 of 2021 regarding the Implementation of Carbon Economic Value for Achieving Nationally Determined Contribution (“NDC”) Targets and Control of Green House Gasses (“GHG”) Emissions in National Development (“PR 98/2021”) and the Minister of Environment and Forestry (“MOEF”) Regulation No. 21 of 2022 regarding the Guidelines of Carbon Economic Value Implementation (“MOEF Reg 21/2022”).

This ARMA update will discuss Indonesia’s effort to adopt and implement the recent development of ESG policies, particularly in the Indonesian maritime industry.

IMO Initial Strategy

The International Maritime Organization (“IMO”) discovered that the maritime industry contributed a significant amount of carbon dioxide to the atmosphere, which was approximately 938 million tons of carbon dioxide, equivalent to the annual greenhouse gas emissions from millions of cars. IMO through the Marine Environment Protection Committee (“MEPC”) has set out visions, goals, and strategies to prevent the maritime industry from more contributing pollution to the atmosphere, or at least reducing the amount of carbon dioxide released by vessels by initiating an Initial Strategy in 2018.

The Initial Strategy for reducing the GHG emissions from vessels has been implemented by establishing several benchmarks and objectives confirmingthe international community’s commitment to reducing GHG emissions on international shipping and to phasing them out as soon as possible (“IMO Initial Strategy 2018”). Various member states of IMO (including Indonesia) have now adopted the IMO Initial Strategy 2018 into their implementing regulations, which stipulate the principles, technicality, and strategy of the decarbonisation efforts in the maritime industry.

In general, the IMO Initial Strategy 2018 has structured a fundamental measurement action for the short, medium, and long term. In the short term (2018–2023), a first suite of measures will be adopted, and the initial strategy will be revised and adopted as changed in 2023 with proposed measures for the medium term (2023–2030) and long term (2030–2050 and beyond).

General Principle of GHG Limit in Indonesia

PR 98/2021 and the MOEF Reg 21/2022 introduce the GHG emission limit along and the basis for the relevant minister to determine its sub-sectors and business activities for the maximum GHG emission level for a certain period.¹ The GHG emission limit shall be determined based on (i) the sectoral GHG emission baseline, (ii) the sectoral NDC target, (iii) the GHG inventory results, and/or (iv) the time period of the target achievement. Pursuant to the MOEF Reg 21/2022, the relevant minister will determine the Emission Limit Technical Approval (Persetujuan Teknis Batas Atas Emisi or “PTBAE”), which is defined as a technical approval regarding the GHG emissions maximum limit in Sub-Sectors or Sub-sub Sectors.² On the other hand, the Emission Limit Technical Approval for Business Entity (Persetujuan Teknis Batas Atas Emisi untuk Pelaku Usaha or “PTBAE-PU”), shall be given to each business entity, which may be utilised in carbon trading through the emission trading mechanism. Further, the relevant minister will assess and supervise the implementation effort of the business entities to reduce GHG emissions in accordance with their PTBAE-PU that have been determined by the relevant minister (Periode Penaatan or “Compliance Period”).

Decarbonization Efforts in Indonesia’s Shipping Industry

The MoT through the DGST Circular Letter No. 35/2019 regarding The Obligation to Use Low Sulfur Fuel and The Prohibition of Transporting or Carrying Fuel that does not comply with the Requirements as well as the Management of Waste Resulting from Exhaust Gas Recirculation from Ships (“DGST CL 35/2019”) stipulates the threshold for vessel operation to use fuel with a maximum sulfur content of 0.5% m/m. Further, DGST CL 35/2019 also specifies that the ship owner and operator shall take into consideration the cleanliness of the remaining residue (bunker with a sulfur substance greater than 0.5% m/m) in accordance with IMO MEPC.1/Circ.878 guidelines. However, the DGST CL 35/2019 further stipulates that Indonesian-flagged vessels that still use bunker with a sulfur content greater than 0.5% m/m, shall be equipped with an exhaust gas cleaning system (scrubber) with a certain type approved by DGST.

In order to build an effective regulation, the DGST has managed to provide the availability of the fuel with a maximum sulfur content of 0.5% m/m, in several Indonesian ports, including, among others at Tanjung Priok Port in Jakarta or at the Floating Storage in Balikpapan effective from January 1 2020.³

The Fulfilment of Seafarer’s Rights

As one of the member states of the MLC, the Government of Indonesia has ratified the MLC through Law No. 15 of 2016 concerning MLC Establishment (“Law 15/2016”), as well as the enactment of its derivatives regulations such as Government Regulation No. 31 of 2021 regarding the implementation of the Shipping Sector (“GR 31/2021”) and the MoT Regulation No. PM 58 of 2021 concerning MLC Certification (“MoT Reg 58/2021”).

According to the MoT Reg 58/2021, several fulfilments of rights must be given to seafarers, including but not limited to:

• Young seafarer has the maximum working hours of 8 (eight) hours a day and 40 (forty) hours a week, and overtime work can be carried out if there are unavoidable conditions for shipping safety reasons;⁴
• Young seafarers must be given a break time of 15 (fifteen) minutes after 2 (two) hours of continuous work;⁵
• Bedrooms shall not have direct openings from cargo spaces, mess rooms, kitchens, storage rooms, drying rooms, or shared sanitation areas; the part of the insulation separating the premises from the bedrooms and the external insulation shall be constructed of steel or other water-resistant and gas;⁶
• Separate beds shall be provided for each seafarer;⁷
• The vessel owner or operator shall provide recreational facilities in accordance with the needs of the crew who live and work on the vessel;⁸
• Food and catering facilities shall be provided by the vessel owner or operator that are good quality and quantity and hygienic.⁹

The above provisions align with MLC policies to ensure that seafarer’s basic human rights are fulfilled, such as the elimination of all forms of forced or compulsory labour and the abolition of child labour, as a form of implementation of the social aspect of ESG.

Modernizing Port Service

Inaportnet, as a centralised system for vessel services in port, aimed to improve vessel services with the utilisation of technology as well as to conduct efficient bureaucracy for all business entities and port stakeholders. Further, Inaportnet is intended for services requested from vessels, except war vessels and state vessels operated for non-commercial activities. The vessel services are implemented in several sites, as follows:¹⁰

• Ports and their anchorage areas that have not been commercialised;
• Terminals and their anchorage areas;
• Specific Terminals and their anchorage areas;
• Terminals for Own-Purpose;
• Specific Areas in Waters functioning as Ports; and 6. Utilisation of Coastline.

Furthermore, parties that can be qualified as a business entity based on the MoT Regulation No. 8 of 2022 concerning Ship Service Procedures through Inaportnet (“MoT Reg 8/2022”) are as follows:¹¹

1. Ship-owner;
2. Ship operator;
3. Traditional shipping company (pelayaran rakyat);
4. Ship agent;
5. Stevedoring company;
6. Port Business Entity that manages terminals and its anchoring area;
7. Port Business Entity that has been delegated the authority to carry out guiding and/or towage
8. of vessels;
9. Management of Specific Terminal;
10. Management of Terminal for Own Purpose;
11. Management of Certain Areas in Waters functioning as Ports; l2. Management of Shoreline Utilization Activities;
12. Other Business Entities are operating in Ports to support ship activities.

Not only encouraging the efficiency of port service, which has been a long overdue problem, but Inaportnet also signifies the Indonesian government's commitment to practising good governance in public service. With the existence of Inaportnet, any physical contact between the public officer and business actors, which may lead to corruption practices or any illegal activities, can be avoided. In addition, the data storage in the database of Inaportnet is an important tool for Port Authority to monitor and maintain the safety of the port.

ARMA Law Commentary

The IMO Initial Strategy 2018 through the MEPC regulates that there will be follow-up actions towards the development of the revised strategy as a consequence of the implementation timeline. In 2023, the IMO shall finalise the revisions to the report and the implementation schedules to be carried out collectively by the member states. After the revised strategy is adopted in this mid 2023,¹² the revised strategy should be subject to review five years after its final adoption .¹³

Suppose the revised strategy of the IMO Initial Strategy 2018 has been finalised, as the member state of IMO. In that case, Indonesia may have to ratify such a strategy into implementing regulations and laws as well as to be implemented immediately. Through the collective ratification of the revised strategy of the IMO Initial Strategy 2018 by the other member states, the global maritime industry shall contribute to reducing GHG emissions worldwide.

Moreover, the GHG Emission limit for Indonesia’s maritime industry that shall be determined by the relevant minister are expected to be enacted within this year, as well as such GHG Emissions limit are supposed to be in line and harmonises with the IMO Initial Strategy 2018, to achieve and actualise Indonesia as the front liner of world’s maritime industry.

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1. Article 25 (5) of PR 98/2021↩

2. Article 9 (3) MOEF Reg 21/2022↩

3. Article 2 (g) DGST 35/2019↩

4. Article 27 (1) MoT Reg 58/2021↩

5. Article 27 (2) MoT Reg 58/2021↩

6. Article 31 (1) (f) MoT Reg 58/2021↩

7. Article 31 (1) (k) MoT Reg 58/2021↩

8. Article 34 (1) MoT Reg 58/2021↩

9. Article 36 (1) MoT Reg 58/2021↩

10. Article 2 (4) of MoT Reg 8/2022↩

11. Article 5 (3) of MoT Reg 8/2022↩

12. Article 7.1 of the IMO Initial Strategy 2018↩

13. Article 7.2 of the IMO Initial Strategy 2018↩

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1.  Article 87 of the Environmental Law

2.  Article 92 of the Environmental Law

3.  Article 91 of the Environmental Law

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Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

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