Malaysia's Carey Island megaport plan stalls on lower demand

Container ships sit docked next to gantry cranes at Port Klang in Selangor, Malaysia on Jan 9, 2016. The Carey Island project, together with Port Klang nearby, was originally meant to challenge Singapore's dominant position as South-east Asia's maritime hub. PHOTO: BLOOMBERG

KUALA LUMPUR - An ambitious plan to build a RM140 billion (S$45.5 billion) mega port on an island off Selangor has been shelved for now by its main promoter, MMC Corp led by Malaysian tycoon Syed Mokhtar Albukhary.

The Carey Island project, together with Malaysia's main shipping hub Port Klang nearby, was originally meant to challenge Singapore's dominant position as South-east Asia's maritime hub. But falling volumes at Port Klang, largely due to global shipping alliances shifting operations to Singapore, have put paid to those plans for now, say industry and finance sector sources.

Stiff competition in the Strait of Malacca - one of the busiest shipping routes in the world - and wider options for transporting goods to and from Asia Pacific across the Indian Ocean has caused Malaysia's biggest maritime development to lose momentum, with both MMC Corp and the government hesitant to pour money into what may become a white elephant.

"With the government giving Klang rival Westports approval to double its capacity, the push for a third port in Klang is on the backburner," a source familiar with the project said. The other two ports are Westports - which controls 75 per cent of business in Klang - and MMC's Northport.

MMC did not respond to request for comment, but its managing director Che Khalib Mohamad Noh said in May that physical work on Carey Island's 10,000-hectare development would likely commence in 2020, despite earlier reports that it would begin by the end of this year.

"MMC is still presenting proposals on a third port in Klang but the government seems happy with the Westport expansion for now," an industry source said.

Sources told The Straits Times that MMC plans to go ahead with its long-delayed public listing of its ports business by early 2019, but the exercise will not include its Carey Island development. Going public could raise as much as RM3 billion. But an industry source said "the IPO (initial public offering) will be better without Carey as it will pull valuations down".

Port Klang has faced a challenging year, as new shipping alliances began shifting their scheduled dockings to call at PSA Singapore since April.

Industry officials told ST that MMC's Northport and Westports have been "competing on discounts due to the exit of customers".

After four years of increasing loads, Klang saw a flat first quarter this year before suffering a sharp 8.4 per cent drop in cargo throughput in the second quarter, after the new alliance deals took effect.

Both Westports and Northport were hit by double digit declines in the third quarter, leading to a year-to-date reduction of 8 per cent, or 9 million twenty-foot equivalents (TEU) against 9.8 million TEU in the first three quarters of 2016.

If it continues to perform poorly, Klang will only handle about half its full capacity this year. Singapore's PSA however saw growth, with volumes up 8.5 per cent as at October, compared to the same period last year.

The Carey Island "Maritime City", announced in Jan, would have housed a 30-million TEU-handling port, and was initially intended to be built by MMC and China Merchant Group. It has been reported that the government will finance basic infrastructure on the underdeveloped island.

But during Prime Minister Najib Razak's visit to New Delhi in April, it was announced that MMC would instead partner India's Adani Ports and state-controlled Sime Darby for the RM140 billion development.

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