OREANDA-NEWS. April 28, 2016. Indonesia's proposed regulation of application-based transport service providers will put them on a level playing field with other four-wheeled transport providers and benefit conventional taxi operators, Fitch Ratings says.

Conventional taxi operators, such PT Express Transindo Utama Tbk (A-(idn)/Negative), and their drivers have raised objections to app-based ride providers, saying the app companies are operating illegally, which allows them to charge significantly lower fares. In late March, drivers of several conventional taxi companies caused massive traffic jams in Jakarta during public demonstrations against the app-based transport providers.

The transport ministry's proposed regulations, which are likely to come into effect by September 2016, aim for fair competition in the four-wheeled transport provider sector. The new rules include requiring service providers to be incorporated, hold licenses to operate as public transport service providers, have at least five vehicles registered under the entity's name, and own pools and garages for their vehicles. Operators' vehicles must also be registered and pass periodic proper function tests, while drivers must hold driving licenses. Fares must be set via meters, with all rates falling within minimum and maximum levels, which have yet to be determined.

The proposed rules will benefit conventional taxi providers as they introduce hurdles for app-based taxi providers, which have been able to undercut conventional taxis by taking advantage of legal loopholes. For example, app-based providers use their drivers' personal cars, which save them the substantial capex needed to build their own fleets. In addition, taxation of the app-based providers would be aligned with that of conventional taxis operators. Once the regulations take effect, app-based providers will be left with only the efficacy of their apps to provide them an edge over regular providers.

Apart from the above, the proposed regulatory changes also allow taxi providers to co-operate with app-based providers should they lack the expertise or scale to develop their own, provided the app providers do not provide their own transportation services. Fitch believes this offers an opportunity for conventional taxi providers, some of which have not had success in launching user-friendly applications, to gain external know-how in this area.

The proposed changes, however, do not address app-based providers of two-wheeled transport, such as Grab Bike and Gojek, which operate in a legal grey area. Two-wheeled transport providers are not explicitly banned, but a 2009 Ministry of Transportation statute does not include two-wheeled vehicles as a means of public transport, citing safety concerns. Conventional taxi operators complain that app-based two-wheeled transport providers have also been stealing their market share, although to a lesser extent than their four-wheeled counterparts.