This article first appeared in The Edge Malaysia Weekly on February 24, 2020 - March 1, 2020
TNB Fuel Services Sdn Bhd (TNBF), a wholly-owned unit of state-controlled utility giant Tenaga Nasional Bhd (TNB), has come up with a new set of rules and regulations that requires companies bidding for its coal carriage contracts to also own vessels.
TNBF, which has the mandate to import coal for power plants in Malaysia, is understood to have met about 40 executives from 15 companies late last month to explain its plans. The actual implementation date is set for later this year.
In an email response to The Edge, TNB says, “All vendors participating in TNBF’s long-term freight tender exercise will be required to be a member of the Malaysia Shipowners’ Association (MASA), in a new rule planned to be introduced this year. The exact [implementation] date of this rule will be announced by TNBF in due time.
“This initiative, among others, is to support the Ministry of Transport’s latest Malaysia Shipping Master Plan 2017-2022, which focuses on bulk shipping companies.
“In ensuring the planned rule can materialise, TNBF is currently collaborating and working hand in hand with MASA with the aim [of achieving] the following objectives — to promote the employment of genuine Malaysian shipowners, to promote the employment and development of Malaysian seafarers, to allow the companies to have more control over [their] ship operations and to provide more opportunities for local players to participate in their trade activities by using local ships to contain the outflow of funds.”
Industry players are understandably unhappy.
One player says, “In order to qualify as a member of MASA, a shipping company must own a Malaysian-flagged ship. Currently, there are an estimated 18 Malaysian shipping companies that pre-qualified through a stringent previous process by TNBF. Of these companies, about nine hold TNBF coal shipping contracts and of the nine companies, only five own ships and, therefore, can qualify to be MASA members.
“The new TNBF requirements, in effect, means that only the five ship-owning companies can participate in all future tenders for coal carriage and, in one clean sweep, cancel the participation of the 13 other companies.
“TNBF imports around 30 million tonnes of coal a year and, with this new requirement, only a limited number of shipping companies can participate in the carriage.”
According to industry players, TNBF currently offers three types of contracts — a two-year contract, a 10-year contract that a company with second-hand bulk carriers can bid for, and a 15-year contract, which generally requires a company to acquire new ships for the job.
While it is understandable that companies awarded 10 and 15-year contracts should have their own vessels, a company awarded a two-year contract usually just forms a joint venture with a vessel-owning company to undertake the contract.
In general, when a company secures a contract, it acquires a bulk carrier using financing from a financial institution, with the contract as security.
“The cost of a ship can go up to several million US dollars. With a two-year contract, it will be difficult to obtain funding to buy a ship,” a shipping company executive says.
Checks by The Edge indicate that in April 2018, there was a contract of affreightment for about nine million tonnes, but there was little news on the award.
In late April 2016, TNB in a Bursa Malaysia announcement said TNBF had signed five long-term contracts of affreightment valued at US$537 million (RM2.3 billion) for shipments of coal from Indonesia.
The contracts, which had tenures of 10 years for second-hand vessels and 15 years for new ones, were with PNSL Bhd (a unit of Pos Malaysia Bhd), Prima Shipping Sdn Bhd, Duta Marine Sdn Bhd and Malaysian Bulk Carriers Bhd (Maybulk).
In a press release, TNB says, “The awarding of the long-term contract of affreightment reflects TNBF’s commitment in promoting and nurturing the growth of Malaysian-owned shipping companies, which eventually will allow them to own and/or operate Malaysian- flagged vessels.
“As the long-term contract of affreightment commences, the total allocated 7.5 metric tons per annum (MTPA) is actually less than 30% of the total shipping services required by TNBF in 2016, that is, 27 MTPA.”
This would indicate that there are many carriage contracts for two-year durations and they can be quite large and lucrative.
Pos Malaysia has two bulk carriers or vessels used to transport coal, but it is understood that the company does not manage its vessels and has outsourced the job.
Pos Malaysia is 53.49% controlled by DRB- Hicom Bhd, a flagship company of businessman Tan Sri Syed Mokhtar Albukhary.
Syed Mokhtar has a 55.92% stake in DRB- Hicom.
Pos Malaysia makes the bulk of its earnings from postal services. It has changed its financial year-end from end-March to end-December. For the six months ended September 2019, it suffered a net loss of RM44.44 million from RM1.12 billion in revenue.
According to Maybulk’s website, it has at least 17 vessels, either owned or controlled by it via charter. The company’s largest shareholder is billionaire tycoon Robert Kuok Hock Nien, with a 48.46% equity interest.
For the nine months ended September 2019, Maybulk suffered a net loss of RM19 million from RM199.98 million in sales.
It is not clear from Duta Marine’s website how many vessels the company has, but industry sources say it could have two at most.
Checks on CTOS show that Duta Marine is 76.72% controlled by privately held Duta Associates Sdn Bhd, 13.97% by Mahyudden Abdul Wahab and 9.31% by Siti Zubaidah Abdul Wahab.
For the year ended December 2018, Duta Marine registered an after-tax profit of RM6.11 million from RM115.70 million in revenue. As at end-December 2018, the company had total assets of RM110.58 million and total liabilities amounting to RM58.14 million.
Prima Shipping is understood to be linked to Halim Mazmin Bhd, a shipping company that was publicly traded until July 2009, when it was privatised by Tan Sri Halim Mohammad.
Halim and his wife, Puan Sri Mazmin Noordin, own Prima Shipping on a 60:40 basis. There were no financials or information on its assets or liabilities available.
Prima Shipping is understood to have close ties to Kawasaki Kisen Kaisha, or K-Line, a Japanese shipping company.
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