In an archipelago economy like Indonesia, ports fulfill a key role for many sectors. Efficient ports support a wide range of sectors, including trade, manufacturing, energy and tourism. A recent World Bank analysis also revealed its effect on people’s livelihood, an average decrease of inflation of 1.5% percentage points in areas around 13 ports that were upgraded in Eastern Indonesia.
There has been considerable development in Indonesia’s port infrastructure in recent years, and additional large investments are needed to fill the existing gap and effectively support the improved wellbeing of Indonesians. However, current investment capacity of the government and of state-owned enterprises (SOEs) is limited. Hence involving the private sector in the development of port infrastructure and operations would be essential to fill the gap, particularly international port operators which can bring international standards, technology and know-how in addition to much needed international financing. To that end the Indonesian government has launched a series of reforms to promote port development and operations, including measures to attract private sector investment.
In recent analytical work by the World Bank Group, port tariff setting mechanisms appeared as key bottlenecks to port development in Indonesia. Due to the lack of analytical work on port tariff governance in Indonesia, the World Bank Group commissioned a dedicated study to explore this subject and provide preliminary recommendations to the Indonesian government to improve of the key tools to promote investments in ports. This review benchmarked various types of port tariffs in Indonesia against international experience. The analysis suggests that binding constraints are present in the tariff ceilings and adjustment mechanism, as well as in port institutions. The tariff review is one of the most comprehensive to date and comprises ships services, cargo and passenger service for commercial and non-commercial ports in Indonesia.