Indonesia: What Comes Next After Pelindo Port Reforms

The reforms undertaken by state-owned port operator Pelindo is a step in the right direction but other stakeholders must follow this example in order to benefit the whole industry.  

Indonesia will see massive reforms in the port business sector when four state-owned port companies that have operated for four decades merged into a single entity.  The State-owned Enterprises Ministry, assisted by scores of top consultants that money can buy, is currently making preparations to complete the merger by the end of the year.  With this move, the existing businesses (container, non-container, marine services) currently managed by Indonesia Port Corporations, locally known as Pelindo, will be clustered into new subsidiaries. 

According to the ministry’s plan, Jakarta-based Pelindo II will be the sole surviving company and will consequently be in charge of all the new subsidiaries after the merger. The other three, namely Surabaya-based Pelindo III, Makassar’s Pelindo IV and Medan’s Pelindo I, will be tasked with heading each of the new subsidiaries. 

The media reported that the Surabaya unit, for instance, is going to be tasked to manage all container terminals which were previously operated by all Pelindos across the nation. The Medan unit will be the base of non-container terminals (break bulk, general cargo, etc.) and the Makassar unit is assigned to handle marine services.

Bringing in more transparency

The four Pelindos are public conglomerates with massive business interests including property, hospital, IT solution, shipbuilding, port investment, among others. After the merger, however, it is not known what is the strategic roadmap moving ahead and because of this lack of clarity, there is worry that the merger will lead to a monopolistic practice in the port-related business sector.  For example, when the parent company is holding tenders, there is concern that subsidiaries will be favored over more qualified competitors.  

Therefore, it is imperative for the government to disclose a clear and transparent roadmap to dispel these allegations and instill confidence and competitiveness into the industry.  Nonetheless, Minister of State-owned Enterprises Erick Thohir dismissed such worry and insisted that the merger will improve the country’s logistics performance and will eventually raise the gross national product.

There are several advantages that may arise from the port reforms. The merger will enable the Pelindo units, leveraging on their combined resources and with a total container throughput of approximately 16.7 million TEU, to go global, lessen bureaucracy, simplify coordination, enhance maritime trade efficiency and increase State’s revenue. 

Additionally, the reforms, which value-add to the industry by offering an integrated inter-island hub and spoke network, will consequently attract more foreign direct investment. Importantly too, the government estimated that there will be more jobs created and available to the people after the merger.

More reforms needed by other port operators

The total number of state-owned port companies is 95, consisting of 16 managed by Pelindo I, 12 by Pelindo II, 43 by Pelindo III and 24 by Pelindo IV. Around 2,000 of the nation’s ports are semi-commercial ports run by the Ministry of Transport. Moreover, there are scores of private terminals/ports owned by independent business entities. And basically, all of these non-Pelindo facilities are under-performing. 

To uplift the whole industry, the government must make a concerted effort to be fronted by a lead agency to push for reforms by other port operators.  This way, the port business will then be able to increase its contribution to the country’s GDP.  According to the World Bank, the logistics industry contributes 23 percent to Indonesia’s GDP consisting 2.8 percent from port business, 8.9 percent from warehousing, 8.5 percent from trucking, and 2.7 percent from trade administration/documentation.

Although the Pelindo reforms are a step in the right direction for the good of the country’s national interests, there is a concern that they are not deep and far enough as Pelindo is only one part of the whole ecosystem.  There are other ports as well and moreover, the port business is interconnected to the wider logistics industry.  Therefore, more efforts by other stakeholders are needed to truly benefit the whole port industry.  

Siswanto Rusdi, maritime columnist and director of The National Maritime Institute (NAMARIN), Indonesia.

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