KL in a bind over Johor oil bunkering facility

Failure to resolve row over rights to project is stunting growth of ports
The Straits Times, April 26, 2007
By Leslie Lopez, South-east Asia Correspondent



KUALA LUMPUR - A PROTRACTED ownership tussle to develop Malaysia's largest bunkering facility to rival Singapore is presenting Prime Minister Abdullah Badawi's government with an awkward economic-policy dilemma.

Over the past two years, Seaport Terminal Sdn Bhd, the owner of two of Johor's main ports, and a little-known private company called KIC Oil and Gas Ltd have jousted over rights to develop a 40ha reclaimed island near the Tanjung Pelepas Port.

KIC insists that it is the rightful developer of the planned RM1.4 billion (S$620 million) petroleum hub after it won rights to lease the island in July 2005 from Malaysia's Transport Ministry.

Seaport, which is the majority owner of the Tanjung Pelepas Port and the Johor Port, is disputing the award on grounds that the Transport Ministry's move to lease the land to KIC violates an earlier privatisation agreement the company had with the government.

This little-publicised ownership saga took a fresh turn last week when Seaport presented a new appeal to senior government officials and the matter was expected to be discussed by Cabinet at its weekly meeting yesterday.

'We are hoping that the government will see our point and the benefits we can bring to the project,' says a Seaport executive who asked not to be named.

KIC executives did not respond to requests for comment.

The proposed bunker project is seen as crucial to Malaysia's long-stated plans to develop its ports and limit the huge trans-shipment trade that flows to Singapore.

The bunker fuel business in Malaysia is small and is nowhere as competitive as Singapore, the world's largest ship fuelling centre which last year posted record bunker sales of over 28.4 million tonnes, up 11.4 per cent from the previous year.

Industry officials say that bunker prices in the Tanjung Pelepas port, for example, are between US$1 and US$2 (S$3) higher than those in Singapore and the higher prices discourage ships from using the Malaysian ports.

By establishing a large and competitive bunker business, Malaysia, which is a net oil exporter, could make its ports more attractive to international shipping lines and develop a vibrant petrochemical sector, say industry officials.

The government's reluctance to deal decisively with the ownership dispute over the bunker plan is stunting the growth of the country's ports, analysts and industry executives say.

The bunker project was approved by former premier Mahathir Mohamad in 2003, just months before he handed power over to Datuk Seri Abdullah.

By late 2004, the reclamation of a 40ha island, located just 15 minutes from Jurong, was completed.

But problems soon surfaced as other politically powerful business groups began lobbying the government for the concession to build and operate the new bunker facility.

In late 2005, PM Abdullah's administration ruled that Seaport could lease the reclaimed island from the government, but on condition that it sub-leased the island to KIC, which had been given the green light to develop a fuel farm and other related petrochemical activities. KIC currently operates a small bunker operation in Port Klang.

Seaport has made several appeals to the government to reconsider the move to award the development rights for the bunker project to KIC.