THE Port Klang Free Zone (PKFZ) has finally shed its “white elephant” tag and is now poised for further expansion, following recent years of profitability, chairman Lawrence Low said.

“The free trade zone office building area that has used to be called an ‘empty city’ is now fully occupied with its four commercial buildings, exhibition centre, and multi-storey and outdoor carparks.

“All of these were leased out in May,” he told The Malaysian Insight.

There were 18 companies vying to rent the last plot of land measuring seven acres within the free trade zone, Low added.

“Many other companies are on the waiting list once the current lease contract is over.”

In the second half of 2020, he said PKFZ had almost reached its targets, including revenue exceeding RM100 million. The occupancy rate of the entire free trade zone also reached 100% at the beginning of this month.

With full occupancy, the PKFZ board of directors plan to propose a second zone (PKFZ2) to the Perikatan Nasional government, said Low.

Profits have increased every year for the past six years, from RM42.7 million in 2015 to RM56.4 million in 2016, then RM59.7 million in 2017, RM68 million in 2018 and RM77.8 million in 2019.

For 2020, its revenue has already reached RM105 million. After deducting RM21.7 million in expenses, the surplus reached RM83.3 million.

The 950 acres of leased industrial units are a major source of revenue for PKFZ, bringing tens of millions of ringgit to the Port Klang Authority (PKA) every year.

In order to promote Port Klang’s role as a re-export hub, and to develop the manufacturing industry focusing on the production of export commodities, the government established PKFZ as the first comprehensive free trade zone, near Westports, in 2007. It covered an area of 1,000 acres and 640 acres of vacant industrial land.

Its proximity to Westports was seen as an advantage and a draw for many multinational companies and local enterprises.

The free trade zone also has a road leading directly to Westports, so that companies can unload their containers into the zone within minutes of arriving at the port.

PKFZ is also cheaper than Singapore and many regional companies can save up to 30% by setting up warehouses here, Low added.

171 companies

To date, PKFZ has attracted 171 companies operating in the area.

Among them include petroleum and petrochemical services company Aker Solutions, oilfield services company Baker Hughes, oilfield technology services company Schlumberger, power grid management company Alstom, and multinational companies with diversified food, agricultural, financial and industrial products and services, Cargill.

One of the largest petrochemical companies in the Middle East, Gulf Polymer Distribution Corporation, has also moved its southeast Asia distribution centre to PKFZ.

The largest customer in PKFZ is the London Metal Exchange (LME), which is also one of the main sources of income for the free trade zone, Low said.

The institution has hundreds of delivery warehouses around the world for spot delivery and storage of metals. PKFZ is its largest delivery warehouse in southeast Asia storing aluminium ingots.

Low said that the LME approved the listing of two storage units in the PKFZ two weeks ago, adding that this confirmed PKFZ’s rapid rise as a major storage centre for the company.

“As of the end of July, PKFZ held 1.01 million tons of registered metal, accounting for 43% of the exchange’s total inventory of the global delivery network.”

Low hopes that PKFZ2 will attract high-end, global enterprises, and turn it into a distribution centre for multinational companies.

“I hope that during my tenure, I can see the creation of PKFZ2 and PKFZ3, making them an important base for the entire oil and gas industry chain.”

He said that the location of PKFZ2 has not yet been identified, but there is a 318-acre plot of land nearby, which was formerly owned by 1Malaysia Development Bhd.

The land has now been transferred to the Ministry of Finance. It is currently being re-tendered and may be an ideal location.

“We have other land options. At present, many landlords have come to offer proposals. One plot covers 500 acres and the other covers 700 acres.

“PKFZ is not a white elephant. The future here is a comprehensive trade development zone. The development of PKFZ should not be restricted by politics.”

Scandalous history not to be repeated

Approved by the Barisan Nasional cabinet in 1999, PKFZ was to be modelled after Dubai’s Jebel Ali Free Zone.

A major scandal erupted in the mid 2000s involving the Ministry of Transport and leading figures from MCA.

The scandal centred on how the project’s initial cost of RM1.96 billion ballooned to RM4.95 billion, including interest accrued due to deferred payments.

In the spotlight was the dubious pricing for land PKA bought to develop PKFZ from Kuala Dimensi Sdn Bhd (KDSB), a subsidiary of Wijaya Baru Holdings Sdn Bhd, the main shareholder of which was then, and still is, Bintulu MP Tiong King Sing.

In 2002, PKA agreed to buy 1,000 acres of land on Pulau Indah from KDSB for RM1.09 billion or RM25/sqft.

However, KDSB had bought the land for far less, from Pulau Lumut Development Co-operative for RM95 million or RM3/sqft.

PKA then appointed KDSB to develop PKFZ for RM1.32 billion. Supplemental agreements for additional works valued at RM510 million were subsequently signed.

By November 2006, PKFZ was launched but the cost had gone up to RM4.6 billion.

Parliament’s Public Accounts Committee subsequently found that PKA had been overcharged. In 2007, the Finance Ministry gave a RM4.6 billion soft loan to PKFZ.

Following allegations of misappropriation, then Transport Minister Ong Tee Keat commissioned an audit conducted by PriceWaterhouseCooper that later revealed the project would have cost taxpayers RM12.5 billion after factoring other finance costs.

Although corruption charges were brought against six people – including two former transport ministers, Ling Liong Sik and Chan Kong Choy, as well as former PKA chairman OC Phang – no one was ever convicted.

When asked about PKFZ’s past scandals, Low said that he would rather talk about the future than the past.

“Everything is over. We are moving to new heights. The free trade zone concept was put forward in 1997 and is a unique concept for our country. It is a tax-free hub for regional distribution and procurement.

“Unfortunately, the benefits of PKFZ were completely obscured in its earlier days by financial controversies. At that time, it was criticised as a useless project. The media even described it as a ‘ghost city’. However, its feasibility today has been proven.

“We hope that through good management and prudent financial management, PKFZ can be protected and the mistakes of history will be avoided.” – September 6, 2020.