Tuesday, August 21, 2007

PKFZ - Inelegant Silence

Singapore newspapers and other media have been going to town with the story. The parliamentary Public Accounts Committee (PAC) is now worried that the Port Klang Free Zone (PKFZ) scandal may affect the confidence of foreign investors, in particular from Singapore and Dubai in the Johor Iskandar Development Region (IDR). But I believe we can kiss the IDR goodbye. We will face funding problems now that our reputation sucks big time.

I had asked a retired former port colleague of mine who is now a consultant to a major logistics company and a number of other organisations, to do some number crunching for me and he has sent me this very interesting email :

Capt, here are some figures for you to chew on.

The PKFZ total land area is 999.5 acres, purchased at RM25 per square ft.
Hence total cost of land is 999.5 x 43,560 x 25 = RM 1,088,455,500.

Assuming that only 80% of the land can be gainfully deployed, the average cost per acre is RM 1,360,570 or RM31.23 per sq. ft.

Say that one wants to lease the PKFZ land to construct a warehouse
Utilizing 3 acres of land would cost 3 x 1,360,570 = 4,081,710
Building a 60k sq.ft Whse at RM 100.00 per/sq.ft = 6,000,000
total RM = 10,081,710

Assumptions of 'holding cost'
i. interest at 8% p.a.
ii. repayment 8% of cost
iii. basic O/heads 4 % total 20% or RM 2,016.342 per/year
or RM 168,028 per/ mth
or RM 2.80 per sq.ft / mth

Compare, say with Northport Free Commercial Zone (FCZ) warehouse rental is RM 1.50 to RM 2.00 p.sq.ft/mth. Please bear in mind that the inter terminal transfer (ITT) cost to the PKFZ is said to be RM180.00 per TEU and in Northport it is only RM85.00 per TEU. Hence if one handles say 6,000 TEUs a year (or 500 boxes a month), the difference will be RM 570,000 !

On the other hand, if the total cost is spread out to the 800 acres of land available, then each acre would cost RM 5,750,000 or some RM132 per sq.ft! (Even the lots in Persiaran Raja Muda Musa sell for only $100 per/sq ft !)

Assuming that a 3 acre-plot is already inclusive of a 60,000 sq. ft warehouse,
The total cost would be 3 x RM 5.750 million = RM 17.250 million
At this cost, using the 20% factor, the 'holding cost ' per year would be RM 3,450,000.
Again based on the 60k sq ft warehouse, cost per sq. ft/mth would be RM4.79 ! So looking from all angles, the projected cost is definitely beyond current commercial rates, unless of course if Klang Port Authority wants to subsidize this project until doomsday.

It is note worthy to compare the project cost announced by Sembcorps of Singapore who has indicated that the cost to develop 750 hectares of land for similar purpose in Vietnam is only US$ 103.5 million or approx RM 357.075 million or an average of RM 192,264 per acre which equals RM 4.42 p/sq. ft.. Of course , it was not reported what was the land cost, but common sense will tell it won't be RM132 per sq.ft!

How do one expect our local company to compete say, in regional logistics hub with such a price tag?


  1. Its a pity that once highly respected LPK .... now has became a paria body.

    All hand on deck hose down the LPK pirates !!!

  2. With that kind of numbers, AAB's PFI can take a hike too.

    (Btw isn't JAFZA related to Dubai Port World, the outfit which bought over the management of six U.S. ports from P&O but the deal got 'vetoed' by the U.S. Congress for 'security' reasons).

    Meanwhile, the corridors of card houses are tumbling down at the potential costs of up to RM8.9 billion, not including NCER and the East Coast projects.

    Cap, you might want to get hold of a financial expert to evaluate the nation's SCR (sovereign credit rating) i.e. how much more would it now cost to finance any projects after this fiasco with borrowings from the World Bank, for example?

    Furthermore, I get the feeling AAB will approach China to 'jump on the bandwagon' with either soft loans and/or FDIs into the PKFZ which may be a good move to provide a distribution hub for China-made goods in this region. (Hey, they managed to conjure the 2nd bridge loan out of nowhere or is there more to it?). But they got to keep an eye on yuan appreciation on the mid and long term.

  3. for a start,all the privatized projects should have public hearings before they are allowed to increase their rates. I believe even in Phillipines, of all places, do have public hearing on their port rates before any change is allowed. We loke to remind the world that the ex-colonial masters screwed us with their manipulations, now we enslaved our own people through all these PIRATIZATIONS. All these in the last quater of a century!

  4. The whole project was a scheme to make a few well connected fellas (Kuala Dimensi anyone ?) very rich.

    The economics of the PKFZ was the last thing on their mind...

    By the way, Penang Port runs a very modest Free Commercial Zone on a shoestring. They simply refurbished some previously unused warehouses within the existing Butterworth port area, and its managed by a small administrative staff. How's that for "Small is Beautiful" ?

  5. my hats off to you Captain for your efforts to enlighten us. The numbers speak for itself unless the political cronies both UMNO/MCA can prove you wrong with their own numbers.
    Can our PM tell us whats going on now? or still I DONT KNOW?

  6. If our PM still don't know .... maybe Port Klang will change color next GE.

    The poor World Gateway town still remains the same after 50 years Merdeka. THe port is world class but the port klang town is low class. Just imigine what the town would look like if we spend RM 1 Billion for its redevelopment!!!!

  7. Dear Captain

    We are indebted to you for pursuing this PKFZ scandal. There are moves to scuttle a public discussion on this monstrous scandal of huge proportions, financially speaking.

    Those numbers and figures given by your colleague... could you summarise what it means and implications for the layman.. and the implications to the country.

    The reason is that we would like to followup from your lead to readch out to other readers...

    Thank you

    Malaysian Unplug

  8. Malaysian Unplug:

    The figures show that the land is now grossly overpriced and PKFZ can never hope to remain viable in the long term.

    Their defense will probably be that it is still cheap by say European, Middle Eastern or even Singapore standards but we are now competing with emerging economies in Asia.

    As for S'pore, the whole bloody island is a Free Zone ...


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