The bailout of PKFZ will continue until 2036 at least

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 23rd of November 2014

In the 2013 Annual Report for the Port Klang Authority (PKA) which was given to Members of Parliament earlier this week, the office of the Auditor General stated the following:

“As disclosed in Note 15 to the Financial Statements, the long term liabilities of Port Kelang Authority as at 31 December 2013 amounting to RM4.24 billion. Based on the Port Kelang Authority’s current financial position, its ability to settle the long term liabilities are subject to the continuous financial support from the Government.”

PKA has been bleeding red ink as a result of the massive financial commitments linked to the development of the Port Klang Free Zone (PKFZ). In the four years since 2010, PKA has suffered a total net loss of RM674million. In 2013, the total finance costs paid by PKA amounting to RM203.8m was only slightly less than the total revenue of PKA which was RM217.4m.

The long term loans of PKA has increased from RM3.5b in 2010 to RM4.24b in 2013. The total loans for PKA, including short term loans, has increased from RM4.06b in 2010 to RM4.41b in 2013. RM3.81b of the RM4.24b of long term loans are from the Government of Malaysia.

In the 2013 PKA Annual Report it was stated that “on 19th December 2013, the Ministry of Finance has agreed to restructure the balance in Government Loan of LPK (Lembaga Pelabuhan Klang). Interest rate at 4% per annum together with penalty of 2% per annum on the outstanding balance. The grace period is 4 years starting 2014 until 2017. Repayment terms is 19 years starting 2018 until 2036.”

Even with this grace period and an interest rate of 4%, PKA has to make interest payments worth approximately RM285m per annum for 19 years starting from 2018 until 2036. Its current revenue is only RM217.4m. PKA also has to pay for other expenses such as staff costs and depreciation costs.

In addition, the ability of PKFZ to generate sufficient revenue to cover these interest payments is very much in question. PKFZ’s revenue for Financial Year 2013 was a mere RM10.1m and its profit a mere RM209,615. The former chairman of PKA, Lee Hwa Beng, in an interview in this week’s the Edge weekly expressed his doubt on whether PKFZ can ever be profitable given the huge investment costs. In this week’s the Edge Weekly, current CEO Chia Kon Leong said that PKFZ’s turnaround plan is contingent on securing one big deal with China based SM International Wholesale (China) Center Sdn Bhd to turn PKFZ into an international wholesale hub. Whether or not this investment can be secured and whether this investment can indeed help push PKA into profitability remains to be seen.

While we do not want to see PKFZ fail which would result in even more taxpayers money being spent to bail out PKA, it seems likely that the government will have to further restructure its loan to PKA. In other words, the taxpayer has to continue to suffer the consequences of the PKA scandal until at least 2036, if not beyond.