By Jose Barrock
Lumut Maritime Terminal
(Photo from: lumutport.com)
Lumut Maritime Terminal Sdn Bhd (LMT), the concession holder for Lumut Port, is planning to take legal action against Perak state claiming that the jetty being built by Brazilian mining giant, Vale SA in Manjung, Perak breaches the terms of LMT’s concession agreement.
Although the actual terms of LMT’s concession are not known, port sources say that Vale’s jetty is located only some 30 kilometres from LMT. This is a point of contention by LMT which maintains the Vale jetty it too close to its port.
An executive of LMT confirmed that the company was looking to commence proceedings for arbitration as per the terms of the concession agreement, but declined to elaborate.
“Yes we are planning to go for arbitration…but I’m not at liberty to discuss such issues with the press,” the executive said in a quick phone conversation.
Ironically, LMT is majority-owned, by one share, by a Perak state government entity but management is controlled by private interests. LMT and Lekir Bulk Terminal Sdn Bhd (LBT) make up Lumut Port.
Publicly traded Integrax Bhd controls 50% less one share of LMT and 80% of LBT. The Perak state via Perak Corp Bhd controls the remainder equity in LMT. While the Perak state has majority control, management control is under Integrax.
LMT has no available action against Vale as its concession agreement is only with Perak state. LMT’s concession agreement which was signed in February 1993 expires in July 2015, and requires disputes such as this to be settled via arbitration.
Kinibiz viewed several letters by LMT executives, sent to various state officials, and obtained the minutes of some meetings held between LMT and state bodies, indicating LMT’s unhappiness with Vale building a jetty. Some of the correspondence suggested the possibility of arbitration.
Vale’s plan in Lumut involves an investment of about RM4 billion, centred around the building of an iron ore pellet manufacturing facility in Teluk Rubiah. Out of this RM4 billion, some RM1.3 billion is slated to be set aside for the development of the jetty and storage yard.
Vale is slated to handle 30 million tonnes of iron ore initially, then 60 million tonnes a year and up to 90 million tonnes of iron ore per year under its Phase 1, II and III plans respectively, with values of about RM14 billion , RM28 billion and about RM50 billion per year.
Photo from: lumutport.com
Considering the large amounts of iron ore passing through the jetty, the diversion of cargo to LMT could be a lucrative proposition. Vale’s plan involves shipping down raw material, namely iron ore from Brazil, and processing it to pellets and exporting it to China.
“LMT’s concession agreement clearly states that Perak cannot issue consent for new jetties in the concession area… Vale’s actions make it seem that they are circumventing the concession agreement. The state is aware of this (issue) but has not acted,” another LMT official who spoke on condition of anonymity claims.
Documents viewed by Kinibiz indicate that LMT had attempted to prevent Vale’s setting up of a jetty as far back as 2009 – a year after the Brazilian company was given the green light by Perak to set up an iron ore pellet manufacturing facility, and a jetty to receive raw materials and ship its produce.
Interestingly enough Vale’s jetty is also located in the waterway very close to the Lumut Naval base, which begs the question why the Federal Government does not have any control or say on the jetty, on grounds of national security.
A check with the Companies Commission of Malaysia indicates that Vale Malaysia Manufacturing Sdn Bhd, the holding company for the iron ore pellet plant and jetty is wholly owned by Vale International SA, without the state or Federal Government having any equity.
In several other ports in the country, the state or Federal Government tends to take an interest via a golden share.
Even in Westports Sdn Bhd in Port Klang, where shareholders include tycoon Li Ka-shing of Hong Kong, the Government through Ministry of Finance Inc has a golden share.
Why Perak has allowed Vale a free hand is anyone’s guess.
Perak Corp in turn is 52.9% controlled by Perbadanan Kemajuan Negeri Perak (PKNP).
It is not clear why Perak state has not fought for their home grown companies to benefit, and instead seem to be giving Vale a free hand.
Both LMT and Vale had signed a Transhipment Agreement in 2009, for Vale to use LBT to provide the Brazilian company with transhipment services for iron for 10 years, but this fell through.
At one of the meetings, Integrax and Perak Corp officials had suggested a cargo sharing formula, but this was shot down.
In other countries where Vale has a presence the Brazilian giant has been more generous. For instance when Vale set up an iron ore stockyard in Oman, the Omani Government stipulated that 51% of the equity in the jetty was to have Omani equity.
Similarly, Vale spent billions constructing up to 19 giant ships in Chinese shipyards, but the ships were not allowed entry to China ports to protect Chinese ship owners from losing cargo.
Interestingly enough, the bulk of Perak Corp’s earnings come from its shareholding in LMT. For its nine months ended September, Perak Corp posted net profits of RM22.17 million on the back of RM96.39 million in revenue.
According to its notes which accompany its financials, its infrastructure arm contributed RM59.87 million or about 62% to revenue and RM29.35 million or about 65% of pre-tax profits.
The Perak state is also a substantial shareholder in Integrax, where it has about 15.47% via PKNP.
Integrax for its nine months ended September last year posted pre-tax profits of RM33.51 million from RM67.65 million in sales.
Other than Perak Corp, the only other listed entity linked to the Perak state is Majuperak Holdings Bhd, which is a loss making. Other than a surge in its trading volume in late 2010 and early 2011, there has been no interest in the loss making company.
Thus why Perak is not nudging its units or facilitating its units partnering Vale is anyone’s guess.
Vale’s aspirations to set up shop in Lumut had also met with resistance from several parties.
Last March, there was a protest organised by the Coalition of Concerned Citizens of Perak or CCCP, which attracted some 300 participants who were opposed to the Vale plant because of the impact on the environment and the economy.
More recently at an EGM in late January this year, several of Perak Corp’s shareholders it seems, were also very vocal, and voiced their hope that the state officials seek some form of benefit from Vale’s huge investment n Perak.
Integrax closed at RM1.27 yesterday while Perak Corp ended trading at RM1.32 sen. Majuperak closed at 28 sen.
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