Regulatory Issues in Port Business and Operations in Malaysia

Introduction

In Malaysia, ports are either established under the state legislation as state ports or under the act of parliament as federal ports. Under the Federal Constitution of Malaysia¹ ‘port’ is one of the subject matters listed in the concurrent list, which gives power to enact legislation on the matters involving federal government and states.

Federal ports are under the jurisdiction of the Maritime Division of Ministry of Transport while state ports are under the state jurisdiction.

Currently, there are 8 federal ports in Malaysia (“Federal Ports”)². The list of Federal Ports, administrative body³ and governing acts (“Federal Port Acts”) are as tabulated under Table 1 below. The Federal Port Acts established the above port authorities, the function of which is to operate and maintain the port⁴.

TABLE 1

In 1990, the privatisation of the port undertakings of a port authority to licenced operator was initiated by the introduction of Port Privatisation Act 1990 (“PPA”). ‘Port undertaking’ is defined under the PPA as the undertakings of the port authority that relate to the provision by the port authority of any facility or service of any description in connection with the exercise and performance of its powers and duties under any written law and includes any movable and immovable property and the rights of port authority that relate to such facility or service. Licensed operator is defined under the PPA as any person or body of persons licensed under Part III of the PPA.

Some of the advantages of privatisation of ports are as follows:

• improve efficiency and productivity of the port operations due to the strength of the private sector, for example stronger management capability of the private sector;
• promote private sector involvement in the economy;
• increase revenue for the port authority, for example by way of profit sharing arrangement with the port operator or receiving revenue from the lease payment.

The following Federal Ports have been privatised by the respective port authorities to the following licenced operators⁵:

TABLE 2

The duration, types of services or facilities to be provided and particular duties of the port operator are all provided under the licence issued by the port authorities to the port operators⁶.

Issues and Challenges

Some of the issues and challenges in the business and operation of the ports are as follows:

1. Extent of management power of port operator

In the case of Northport (Malaysia) Berhad v. Palmbase (M) Sdn Bhd⁷, the tariff rates for dry bulk cargo was increased by the Kelang Port Authority via amendment to the Port Kelang Authority (Scale of Rates, Dues and Charges) By-Laws 1966. Following such amendment, the plaintiff, a port operator then issued a circular informing all port users including the defendant on such increase.

The defendant refused to pay the increased tariff rates and contended that its cargo palm kernels did not fall under the category of dry bulk cargo as prescribed by Kelang Port Authority.

One of the issues raised is whether the plaintiff has independent authority to designate or assign any of its terminals/wharves as a terminal/wharf discharging dry bulk cargo.

It was held by the High Court that the plaintiff has the independent authority to designate or assign any of its terminals/wharves as a terminal/wharf discharging dry bulk cargo at all times because the assigning of the terminals/wharves is operational and management matter granted to it by the port authority.

2. Land ownership

In Malaysian port privatisation practice, the port authority remains as the landlord and landowner of the port⁸ who leases the port to the port operator for the port operator to manage and operate.

Usually, such lease arrangement prohibits the creation of any encumbrance on the port (including the creation of a charge in favour of the port operator’s financier).

One of the challenges for the port operators in this situation is for them to find collateral that is required by the financier before a financing is granted to the port operator in relation to the port.

Although land ownership may be seen as a challenge to the port operator when it comes to financing (amongst others), there are numerous ways to draw the financing contract to ensure that the right of the port operators and their financiers are well protected.

3. Non-performance of port operator

The port authority has regulatory functions in respect of the conduct of port activities and the running of port facilities and services in the port by licensed operators including the determination of their performance standards, standards of the facilities and services provided and the enforcement thereof⁹.

If it appears to the port authority that the port operator fails to carry out any of its duty, the port authority may engage any other person to perform such duties and all the cost and expenses incurred by the port authority in respect thereof shall be on demand be immediately reimbursed by the licenced operator¹⁰.

In this regard, the parties should ensure that the privatisation agreement is drafted in consistent with this provision.

5. Port Security Forces

The port authority is empowered under the Federal Port Acts to establish port security force, to keep order and security within any premises vested or deemed to be vested in, or in possession or under the control of the port authority¹¹.

The power is also given to the security forces to arrest without warrant any person found on any premises of the authority or in any premises in the possession or under control of the port authority without lawful excuses.¹²

It is a usual practice in the privatisation of ports in Malaysia that the port will be leased by the port authority to the port operator so that the latter can occupy the same to perform the port undertakings disposed of or transferred to it by the port authority.

The security of the port could be an issue to the port authority and the port operator as the Federal Port Acts and PPA are silent on the power/obligation of the parties to keep the port secured if there is a privatisation.

In this regard, the role of port authority and the port operator as an owner/lessee in respect of the security of the port should be defined clearly in the privatisation agreement or lease agreement.

5. Foreign investment or control issues

There may be restriction of foreign controlling interest in port operator company in the licence granted by port authorities. However, if some foreign involvement (e.g. in terms of capital or expertise) is required, it could still be sought in a minority shareholder role of the foreign investor or under a management contract together with other private investors.¹³

———–

1. Articles 73-75 of Federal Constitution 1957
2. http://www.mot.gov.my/en/maritime/portof-malaysia
3. http://www.mot.gov.my/en/maritime/portof-malaysia
4. Section 58 of Penang Port Commission Act 1955, Section 3 Port Authorities Act 1963 and Section 5 Bintulu Port Authority Act 1981
5. http://www.mot.gov.my/en/maritime/ports-in-malaysia/development-andadministration-of-ports
6. Section 9 (4) PPA
7. CLJ [2001] 1 LNS 814
8. Overview of Malaysian Shipping by Philip Teoh Oon Teong CLJ[2005] 35i
9. Section 8 PPA
10. Section 11 PPA
11. Section 14a(1) Penang Port Commission Act 1955, Section 13a(1) Port Authority Act 1963 and Section 22(1) Bintulu Port Authority Act 1981
12. Section 14a(3) Penang Port Commission Act 1955, Section 13a(3) Port Authority Act 1963 and Section 22(3) Bintulu Port Authority Act 1981
13. http://www.unescap.org/sites/default/files/Pub_1855_Ch4.pdf

Written by:

Suhara Mohd Sidik (Partner) suhara@azmilaw.com

Nur Farahin Abd Manaf (general@azmilaw.com)