Port subsidies disguises competitiveness
THE much-vaunted port privatisation policy in Malaysia may have
sent its first distress signal.
Recent reports that the Malaysian government is considering direct
financial subsidy to ports is an ominous sign that all is not well
in the aggressive stance adopted in promoting private sector
investments in ports.
Ports that blazed the trail in diverting container traffic away
from Singapore amid pomp and fanfare, are said to be seeking
financial assistance from the government.
In fact, one of the major ports is understood to have secured cash
subsidies while another is known to be busy trying to make out a
case for itself.
The move for the government to come to the aid of private sector
investors in distress in the transport sector is not without
precedent.
The government decision to take over the capital investments made
by the private sector in the development of the urban light transit
system, the monorail, and taking over the privatised national
airline are persuasive examples of the priority it places in
protecting transport infrastructure investments.
Arguments advanced for subsidy by the ports are not unbelievingly
simple: As they are an instrument of the government's policy to
redirect trade away from Singapore, it is the responsibility of the
government to see to it that they are not financially distressed
(even if the situation was brought about by themselves through
price distortion).
Although recent attempts have been made to revise the port tariff,
the shipping industry - the liner sector in particular - has warned
that it may not be a good time.
Several liner shipping companies are counting huge losses - the
Singapore-owned Neptune Orient Line, for instance, recorded losses
topping US$330 million (S$574 million) last year, while closer to
home, Malaysia International Shipping Corp noted a loss of about
RM150 million (S$69.5 million) in its liner sector.
Current market reality dictates it may be inopportune. Singapore,
which has lost a substantial share of its market to the Malaysian
ports, is fighting back.
Taking the threat to its economic lifeline seriously, last July,
the cash-rich Singapore port slashed its charges - by as much as 50
per cent for transshipment traffic - in a bid to stop the migration
of shipping lines to Malaysian ports.
Under the new discount and incentive package by PSA Corporation,
customers will be granted an across-the-board additional 10 per
cent rebate on all bills at PSA Corp's cargo terminals.
PSA Corp also slashed by half the charges on empty container
handling, which is understood to account for 15 per cent of its
local container handling. It is expected that the one-year cuts
will amount to about $300 million.
PRICE OF FOOLISHNESS
PSA Corp also announced brand new 'customer-focused' flexibility,
which its customers said would give them better longer-term
negotiating leverage, including the much-talked-about offers of
dedicated berths through joint ventures or long-term leases.
Shipping lines in Port Klang said the initiatives by Singapore to
slash its rates and the offer of new terms have narrowed the
differences with Malaysian ports.
The ports, which are most pressured to raise the tariffs, are those
that gave unprecedented discounts, priding themselves as the
cheapest in the world. With the price now being paid for the
generosity, government subsidy is being sought to defray their
foolishness.
Subsidy, while not entirely objectionable to promote specific
national or strategic agenda or policies, may raise important
questions over national port policy objectives and direction.
Financial subsidy has an in-built deficiency and brings with it an
inherent weakness to market economies as it distorts prices and
encourages inefficiency and wastefulness to the economy.
Financial subsidy may, in this specific case, disguise
competitiveness of the ports and ultimately, financial subsidy may
benefit only foreign shipping lines and cargoes of foreign
countries that are transshipped at the local ports.
Why should the benefits of the financial subsidy go towards a
Chinese or a French shipping line that transships Indonesian cargo
to Japan at the local ports? Should Malaysia subsidise the handling
of Indonesia exports, or from Thailand, India?
This Ports World article was carried in the New Straits Times on
Feb 3.
