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This article first appeared in The Edge Malaysia Weekly on April 10, 2017 - April 16, 2017

“YOU got to have the right key to fit the right lock,” Penang Port Sdn Bhd (PPSB) chief operating officer Sasedharan Vasudevan says, when describing the port operating company’s successful turnaround after more than 20 years in the red.

Not much had been going right for PPSB, which operates Penang Port and the ferry service between Penang Island and Butterworth, until tycoon Tan Sri Syed Mokhtar Al-Bukhary — through his private investment vehicle Seaport Terminal (Johore) Sdn Bhd — took over the company from Ministry of Finance Inc in January 2014.

PPSB eked out a small profit in the financial year ended Dec 31, 2014 (FY2014), posting a pre-tax profit of RM235,499 as against a pre-tax loss of RM9.17 million in FY2013.

It achieved its second straight profitable year in FY2015, with a pre-tax profit of RM11.33 million.

According to Sasedharan, PPSB’s pre-tax profit jumped to some RM47 million last year.

He points out that PPSB was able to grow its profit over the past three years even though the ferry operations continued to lose about RM20 million a year. The ferry service’s traffic volume has been on a decline due to motorists preferring to use the Penang Bridge.

“Stripping out the losses from the ferry service, we made a pre-tax profit of some RM67 million in FY2016,” Sasedharan says.

PPSB will be handing over the ferry service to Prasarana Malaysia Bhd, but it will continue to share losses in the operations for the next three years.

Sasedharan attributes the company’s successful turnaround to giving it to the right people to run the business.

“We [MMC Corp Bhd] manage ports for a living. Apart from Penang Port, we manage four other ports. That explains why we made money in the first year [FY2014],” he tells The Edge.

Seaport Terminal (Johore) is now in the midst of hiving off the rest of its stake in PPSB to MMC Corp after completing the sale of a 49% stake in March. MMC Corp is 51.76% owned by Seaport Terminal (Johore).

MMC Corp’s stable of ports — Port of Tanjung Pelepas (PTP), Johor Port, Northport in Port Klang, Tanjung Bruas Port in Melaka and Penang Port — are now combining to transform PPSB from a tale of woe into a comeback story.

For starters, PPSB has laid out a five-year expansion plan that includes spending RM200 million in capital expenditure (capex) to purchase new equipment such as rubber-tyred-gantry cranes, rail mounted gantry cranes and ship-to-shore cranes.

“Starting this year, we will spend RM70 million of the total capex for the next three years to buy new equipment to support the growth of our container traffic,” Sasedharan says.

He adds that the port aims to handle 4.6% more containers to 1.503 million TEUs (20-foot equivalent units) this year from 1.437 million TEUs in 2016. Last year, Penang Port saw a 9.1% increase in container throughput from 1.32 million TEUs in 2015.

“The growth will be driven by a 4% growth in Malaysia’s hinterland traffic, as well as an 8% to 9% growth in container traffic from southern Thailand,” he says.

However, he expects flat growth in its general cargo throughput this year owing to lower demand for petrol, maize, palm oil, sugar and steel. Penang Port saw a 3% contraction in cargo volume to 9.7 million tonnes last year compared to 2015.

Meanwhile, under the disposal agreement with MoF Inc, Seaport Terminal (Johore) was to undertake PPSB’s social obligations, which include settling the port’s debts of over RM1.2 billion and paying for the capital dredging cost (dredging of the seabed from 11.5m to 14.5m).

Sasedharan says PPSB will start paying off some of its RM1.2 billion debts this year after undertaking a clean-up operation of the company in the last three years, which includes reviewing PPSB’s procurement contracts, enhancing its processes and restructuring its staff force.

He adds that the company will put on hold plans  to dredge the channel as there is no need to accommodate bigger-size vessels for now.

“Last year, we asked all our major customers whether they are ready to bring in their big container ships to Penang and all of them said no. Today the big ships are calling at Port Klang and PTP.

“Global carriers are also forming shipping alliances, which means fewer port calls. As such, we see no point in undertaking dredging works until we have larger ships calling at the port,” Sasedharan says.

“But we will keep our finger on the pulse of the industry. We will continue to ask our customers this question every year.”

 

 

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