Indonesian firms need $6.5 billion for tanker fleet

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 24 -- Indonesian shipping firms, eyeing favorable new legislation, need $6.5 billion to purchase 127 ships to replace foreign-flagged tankers currently carrying oil and gas in that country's waters.

"We need around 5-year $6.5 billion loans to build new ships to substitute for the foreign ships," said Johnson W. Sutjipto, chairperson of the Indonesian National Ship-owners' Association (INSA).

According to Johnson, who spoke before a conference on ship finance, foreign shipping firms earn $1.385 billion/year from the operation of 127 ships for oil and gas transport, as well as offshore activities.

Johnson spoke in reference to changes in Indonesian law regarding the transport of oil and gas in domestic waters. Under the new legislation, which comes into effect in January 2010, foreign ships will not be able to operate in Indonesian waters and must be replaced by Indonesian-flagged ships.

"This offers opportunities for national banks to finance new ship procurement for oil and gas transportation," said Johnson, who also noted key difficulties for local shipbuilders.

"The problem is the national shipping industry still faces difficulty in getting domestic financing since the banking industry demands a long-term transportation contract and a 30% equity financing from a shipyard company," he said.

While foreign banks are ready to finance the ship procurement, Johnson said they are hesitant because Indonesia has not yet ratified international legislation that would enable them to recover their investment through the arrest of ships.

Meanwhile, the state Bank of Indonesia released data showing that shipping loans as of February still represented just 2% of the bank's total loans, despite an 80% increase in shipping loans year-on-year.

BI Deputy Governor Muliaman D. Hadad said the small loan percentage was due to uncertainty in the banking sector over the lack of transparency in the shipping industry. "If there is no transparency regarding the business risk, it will be difficult for banks to give loans," Muliaman said.

Contact Eric Watkins at hippalus@yahoo.com.

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