Wee Ka Siong’s fight for cabotage policy

This article first appeared in The Edge Malaysia Weekly, on February 8, 2021 - February 14, 2021.

"To me, this is not something that you threaten me [with, you have to] convince me … Some of their arguments are illogical.” — Wee (Photo by Sam Fong/The Edge)

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LAST week, on a blisteringly hot Tuesday afternoon, adhering to strict social distancing rules, The Edge met up with Transport Minister Datuk Seri Wee Ka Siong — who is only the second minister from the Perikatan Nasional government to meet us for a full-fledged interview.

Wee was late owing to a meeting of the National Security Council, possibly to discuss the impact of the extended lockdown. But when he arrived, he was cool and collected and in high spirits, despite this paper’s criticism of him and his ministry’s handling of recent issues involving cabotage.

Much of the grouses concerning the minister had to do with the unhapppiness of tech giants Google, Facebook and Microsoft at Wee’s exercising of his powers under Section 65U of the Merchant Shipping Ordinance 1952, which in a nutshell revoked an exemption from the country’s cabotage policy involving submarine cable repair vessels. This reversed a decision by former Minister of Transport Anthony Loke Siew Fook — part of the previous Pakatan Harapan government — who had approved an exemption for submarine cable repair vessels in March 2019, after complaints of delays in the repair of undersea cables by the tech giants.

The delays, which the tech giants say average 27 days, stem from claims that the Malaysia Shipowners’ Association (MASA) was looking to protect its members. Briefly, MASA has the right to block the use of a foreign vessel if there is a local company — a MASA member — which has a vessel capable of undertaking the required task. This has resulted in much back and forth and time wasted, which the tech companies find unacceptable.

One of them had gone so far as to say that it might review its future cable investments in Malaysia.

“To me, this is not something that you threaten me [with, you have to] convince me … Some of their arguments are illogical,” Wee says during the hour-long interview.

At the outset, he explains that prior to any request for a domestic shipping licence (DSL) from the Ministry of Transport, the foreign shipowner needs to get clearance from both the Home Ministry and the Ministry of Domestic Trade and Consumer Affairs.

Nevertheless, the picture Wee paints of the current goings-on is very different from that given by the tech giants’ executives.

The tech companies’ stand is that most of the world’s coastal countries do not treat submarine cable installation or repair as cabotage, and most countries define cabotage as the transport of cargo or passengers between two domestic coastal points. Submarine cable installation and repair, however, does not involve the transport of cargo or passengers, but the installation and repair of long-term infrastructure on the sea floor. The cable and repair material is deployed, rather than transported to another port.

Since the tech companies feel that undersea cables should not be governed by cabotage, they also believe that any vessel from any country can be used to undertake repairs.

Wee, however, says 80% of the world’s coastlines (within the United Nations maritime states) have cabotage laws. He pointed out that in countries such as the US, South Korea and Japan, undersea cable repairs are not allowed to be carried out by all and sundry, but are limited to a few and, in some cases, to only one company even.

“This is all part of digital sovereignty, and our digital sovereignty is very important,” he points out.

Wee’s side of the story

“The cabotage policy has been here in Malaysia for years ... since the 1980s when I was a young boy in school. The crux of the issue is not about the relaxation of the exemption from the cabotage policy,” Wee notes.

“We are actually giving them (the tech giants) a better deal. The Lodbrog is a Malaysian-flagged vessel; don’t you think they would prefer to have a Malaysian-flagged vessel to support them?” he asks.

The CS Lodbrog Wee is referring to is an undersea cable repair and maintenance vessel, only recently flagged in Malaysia and controlled by privately held OMS Group Sdn Bhd (previously Optic Marine Services Sdn Bhd).

Although OMS only acquired the Lodbrog recently, it has another Malaysian-flagged vessel, Cable Orchestra (previously known as Fu Xing) — a barge that has been handling some of the repairs for submarine cables locally for some time.

OMS has come under fire as it owned the only Malaysian-flagged vessel — the Cable Orchestra — until recently.

As the Cable Orchestra is a barge, it needs to be towed by a tugboat to locations where cable repairs and maintenance work are carried out. Some of the tech giants were unhappy about that as using a tugboat increases costs. Further, the Cable Orchestra is a vessel with dynamic positioning (DP) 1 capabilities, as opposed to DP2 competencies, as required by the tech giants.

DP is basically a computer-controlled system which maintains a vessel in strict position despite wave movements. The tech behemoths wanted DP2 capability ships, citing insurance requirements, as they are perceived to be less risky when the waters turn choppy.

Wee brushes these concerns aside. “If you talk to the players (undersea cable repair vessel operators), if you ask them whether you can’t use a DP1 vessel (in Malaysian waters), they will tell you it’s not true,” he says.

“How cables get cut is usually due to one of three causes — earthquake, anchoring (of vessels) and fishermen — we are talking about cables repaired in shallow waters, (Malaysian waters are largely shallow), we are not talking about deep (international) waters where there is a need for a discussion of DP1 and DP2.” He adds that globally, 50% of all cable ships have DP1 specifications, and questions why the tech giants are unhappy when the Lodbrog had carried out maintenance work for them in waters outside Malaysia.

“What is the problem? To my understanding, the difference between DP1 and DP2 is the redundancy of software; 95% of the physical development of the (DP1 and DP2) vessels is the same except that there is a back-up to the existing software … that’s all.”

As for complaints that the undersea cable companies have to wait a long time, on average 27 days, to get a vessel to undertake repairs, Wee says starting from Dec 2, 2020, MASA had limited the time frame for its members to object to the use of a foreign vessel for undersea cable repairs to 48 hours.

He acknowledges that, in the past, there were issues regarding delays, with the undersea cable shipowners stressing their ability to carry out repairs and the tech giants emphasising their need for a DP2 ship.

According to Wee, the issue is not the delay in obtaining permits for foreign ships to undertake repairs in Malaysian waters but the general scarcity of vessels. He explains that an application for a domestic shipping licence (DSL and the online application eDSL) takes less than 10 days. The repair time frame, meanwhile, is anywhere between seven and 10 days.

But this has not been the case with applications by the likes of Asean Cable Ship Pte Ltd (ACPL).  Over the past two years — 2019 and 2020 — ACPL applied for DSLs a total of 11 times, and the applications ranged from 29 to 48 days.

The ACPL story

Somehow, OMS seems to be pitted against ACPL, which operates three vessels — Asean Explorer and Asean Protector (both flagged in Indonesia) and Asean Restorer (flagged in Singapore).

Under the South East Asia, Indian Ocean Cable Maintenance Agreement (SEAIOCMA), a co-operative organisation managed by 46 cable owners (spanning Djibouti in the west, Perth in the south, Guam in the east and Taiwan in the north), the provision of repair of submarine cables that carry international telecommunications traffic is contracted out to cable ship operators ACPL, Indian Ocean Cable Ship Pvt Ltd (IOCPL) and Global Marine to repair cables within the area of coverage.

ACPL was set up by the Asean Telecommunications Authorities — Telekom Malaysia Bhd, CAT Telecom Public Co Ltd, Eastern Telecommunications, PT Indosat Tbk, Telekom Brunei Bhd and Singapore Telecommunications Ltd — and the companies that own the three vessels are registered in Singapore, which means that they cannot operate in Malaysia unless a DSL exemption is obtained. Meanwhile, OMS is part of the Asia Pacific Marine Maintenance Service Agreement (APMMSA) and has six cable-laying vessels — four ships and two barges, and three anchor handling tugboats.

“I talked to OMS, they are very big in Indonesia. They are doing very well in Indonesia, they are the top, and this was acknowledged by the tech giants during my meeting with them. So, my point is, if they are doing so well in Indonesia, why can’t our own country give them a chance?” Wee asks.

Privately held OMS is wholly-owned by the Lim family, with patriarch Datuk Lim Soon Foo holding 51% equity interest in the company.

For its financial year ended December 2019, OMS chalked up after-tax profits of RM7.61 million from RM53.3 million in revenue.

As at end-December 2019, OMS had RM214.46 million in assets and RM130.28 million in total liabilities. It is understood that OMS has large businesses abroad as well, and that Lim has been in the undersea cable business for 40 years.

While Microsoft, Google and Facebook have been at loggerheads with Wee, there have been other cable investments coming in.

Arus Restu Sdn Bhd, a 49% unit of OMS, announced that it had secured a contract from Orient Link Pte Ltd to construct a new cable landing station in Cyberjaya, Selangor that forms the last-mile link of the Myanmar, Malaysia, India, Singapore Transit submarine cable system, which spans 8,100km and is slated to be completed by the fourth quarter of CY2022.

Orient Link is a strategic joint venture company comprising NTT Ltd, Fund Corp for the Overseas Development of Japan’s ICT and Postal Services Inc and WEN Capital Pte Ltd.

For perspective, there are more than 400 submarine cables in service worldwide, spanning some 1.2 million kilometres.

In the past, submarine cables were owned by telecommunications companies, which formed consortiums to reduce costs, but now, with internet giants Google, Facebook, Amazon Web Services, Microsoft and Netflix making up 70% to 80% of global internet traffic, these companies have been directly investing in cables.

Reports also have it that more than 95% of the world’s data is transmitted through submarine cables, and analysts say global submarine cable capacity is forecast to grow 143% by 2022.

As at end-2019, Malaysia had 16 international cables and nine domestic cables at various landing stations in Malaysian waters, with many tech companies looking at increasing capex in this area.

Grand View Research, in a report last July, says the global submarine cable market was valued at US$21.3 billion in 2019, and sees it growing at a compound annual growth rate (CAGR) of 7.1% from 2020 to 2027.

Excerpts from the research read, “Most of the economies consider submarine cables as a vital component of the economy and have set regulations to protect it from threats.”

According to the report, Google, Facebook, Amazon and Microsoft are the primary influencers of the submarine cables, with Google owning 16,790km of submarine cables internationally, and 102,362km in consortium with Facebook, Amazon and Microsoft. Facebook, meanwhile, owns 92,874km, Amazon 30,557km and Microsoft 6,605km of submarine cables.

A few weeks ago, The Edge had written that the tech players had met Minister of Science, Technology and Innovation Khairy Jamaluddin in mid-January and he had agreed to help solve their problems.

When questioned on the Cabinet’s stand on the matter, Wee says, “We are willing to listen to any best solution.”

 

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