Ririn Radiwati Kusuma & Reuters – An Energy Ministry official urged legislators on Wednesday to rethink the cabotage law as it could hurt oil and gas production in a nation already straining to keep up with demand.

Evita Legowo, director of oil and gas at the ministry, warned members of House of Representatives Commission V, which oversees transportation, that Indonesia's offshore oil and gas output could plummet if the law were implemented in May.

"We will not able to meet our oil and gas target of 2.4 million barrels of oil equivalent per day this year," Evita said. "There are 156,020 barrels of oil per day and 2,549 million standard cubic feet per day of gas that will not be produced if foreign vessels are not allowed to operate."

She said the country would likely lose more than $7 billion in oil and gas production if the law took effect.

The cabotage law requires all maritime vessels operating in Indonesian waters to register as Indonesian-flagged vessels. It also requires oil and gas rigs to be registered here because the law considers them to be foreign shipyards. The law was enacted in 2005, but enforcement was delayed for years.

Foreign investors in Indonesian shipping companies face a cap of 49 percent ownership, with the local partner holding 51 percent. Under the law, all domestic commodity shipments must be made by Indonesian-flagged vessels.

Diplomats and foreign companies have complained the change is simple protectionism and Indonesian companies are poised to gain from the changes.

Evita suggested revising Article 341 of the Law on Shipping, which says foreign vessels are not allowed to transport goods here, to allow all foreign vessels to operate in Indonesian waters until their current contracts expire.

"Brazil and Australia have the cabotage rule, but with exceptions for offshore exploitation and exploration ships," she said. "Nigeria and Angola are having problems with ships getting permission and it has taken a high toll on their economies."

She also said the law would delay $188 million in seismic surveying activity in the country and $2.8 billion in planned drilling.

Offshore activity makes up 48 percent of Indonesia's oil and gas industry, Evita said, with offshore business expected to see more expansion than onshore business in the coming years.

Raden Priyono, head of upstream oil and gas regulator BPMigas, said the number of ships transporting goods through Indonesian waters was expected to increase from 138 this year to 235 by 2015.

However, Indonesia cannot provide the necessary vessels for offshore activities because of the huge investment involved. "One ship costs more than $200 million, and local banks cannot provide that amount of money," he said. "We still need ships from abroad."

While Priyono said he was unsure of the consequences of the cabotage law, he said he had a report of one ship leaving the country because of uncertainty over the law.

Sunartoyo, a lawmaker from the National Mandate Party (PAN), said revising Article 341 was necessary to provide certainty for offshore oil and gas companies.

Sadarestuwati, a member of the opposition Indonesian Democratic Party of Struggle (PDI-P), said the government must trust local companies to provide ships. "Don't underestimate them," she said.

The Energy Ministry also proposed a ministerial decree to regulate the operations of all vessels involved in the oil industry.