by Pang Hong Yee

29-11-04 Plans by KIC Oil & Gas to make Port of Tanjung Pelepas one of the world's top five bunker ports are going smoothly as the company strives to reduce the country's need to import fuel oil, diesel and motor gasoline from Singapore. KIC is a company incorporated in Labuan.
President and CEO Abdul Rashid Mohd Isa Al-Qadiry said that while Malaysia had been a net exporter of crude oil for many years, the country until today still lacked comprehensive oil terminal facilities to meet its requirements for fuel oil and other petroleum products.
"According to numbers from Singapore's Department of Statistics, as of last year, our country imported about RM7.5bil worth of petroleum products while current projection shows that the number is expected to grow at 3 % to 4 % per year," Rashid told.

He said state-owned oil company Petroliam Nasional (Petronas) had been leasing tankage facilities for black (fuel oil) and clean (diesel and gasoline) products from Singapore due to a shortage of oil storage and blending facilities in the region.
"The existence of an oil terminal facility equipped with storage and blending capabilities is key to support the bunker requirements and development of Malaysian ports as well as to capture the business of logistics and trading of petroleum products in this region," Rashid said.

KIC Oil and Gas' proposed development of a regional petroleum hub in Johor Port Authority's reclaimed 100-acre island at Tanjung Pelepas (JPA (TP)), a Government-backed $ 400 mm project, is expected to see a 1.2 mm cm multi-product petroleum storage and blending and distribution facility by 2007, making Malaysia self-reliant in terms of fuel oil and bunker.
The proposed petroleum hub will benefit Malaysia immensely in terms of storage space for the country’s requirements to keep strategic oil reserves, attract foreign direct investments, reduce foreign exchange outflow and providing competitive bunker prices.

Rashid said Malaysia would be on the map of major oil traders in the world by then, supplying bunkers (fuel oil for ships) at competitive prices compared with those offered by Singapore, which today has a combined storage capacity of 14 mm cm and confirmed new capacity of 0.93 mm cm by 2006.
"The strategic location of JPA (TP) at the Port of Tanjung Pelepas within the Western Anchorage of Singapore, which is the centre of petroleum activities in this region, will attract main shipping lines to call at Malaysian ports as well as to obtain bunker at competitive prices," he said.
Currently, the dearer cost of bunkers at Malaysian ports, which are brought over from Singapore's oil storage facility, is the result of high "terminalling" (this covers storage, blending and other value added activities) and freight charges (referred to as double-handling cost) incurred during the distribution process.

Rashid said besides JPA (TP), the company was looking into acquiring petroleum storage and blending facilities of up to 200,000 cm for the distribution of bunkers in Port Klang.
"Our confidence lies in the commendable performance of Kadriah 1 (a floating fuel oil processing terminal) which was stationed some 11 km south of Tanjung Ayam, off Pasir Gudang in Johor, between March and July this year, where oil traders from Singapore travelled a total of eight hours (to and fro) to obtain bunker from us," he said, adding that the main push was the competitive price offered for its high quality fuel. "While we were serving oil traders in Singapore, we also supplied to Petronas Dagangan on average 60,000 tons of blended fuel oil per month since March," Rashid Isa said.

KIC was the first company in Asia to adopt the IFA blending technology from Germany, which has revolutionised the industry by allowing the blending of highly viscous feedstock and boasting a rapid turnaround time that translates into improved cost savings. It was reported that since mid-August, Kadriah 1 was relocated to the Port of Tanjung Pelepas with the approval of the Johor Port authorities.
Until now, the 270,000-ton floating fuel oil processing terminal had loaded and blended an average of 300,000 tons of fuel oil per month, of which 240,000 tons was exported to Singapore and within the ASEAN region. In addition, the Kadriah 1 also received and loaded an average of 24 coastal tankers and six oil tankers per month.
"Our competitive price was due to our network with fuel oil suppliers in the Arabian Gulf, Baltic and Latin America, which were our direct source of cheaper raw materials," Rashid said.

To accommodate the "mega expansion plans", as Rashid puts it, KIC is in the process of merging with shipping firm PDZ Holdings, a company involved in domestic and coastal feeder services, for an enlarged transportation division covering long haul, domestic and the bunkering segment.
PDZ announced to Bursa Malaysia a new conditional sale of shares agreement for its proposed acquisition of the entire issued and paid-up capital of KIC due to a change in the shareholding structure of the latter. The purchase consideration of RM 180 mm will now cover four more KIC subsidiaries -- KIC Trading (S), KIC Trading (M), KIC Oil Terminals and KIC Logistics -- which will be satisfied via the issuance of 120 mm new PDZ shares at RM 1.50 each.
"The inclusion of the four new companies into the agreement is to facilitate future business and assets injections into PDZ at a later stage," Rashid said.

PDZ is guaranteed a profit after tax of RM 30 mm, RM 40 mm and RM 50 mm for the three financial years ending Dec. 31 2005, 2006 and 2007, respectively. The vendors of KIC will collectively hold a 52 % stake in the company, resulting in a reverse takeover of PDZ.
"Our business will include the blending, supply and trading of crude, fuel oil, and provides bunker, terminal and shipping logistics with enlarged capacities," he said, adding that new vessels including a Kadriah 3 of between 200,000 and 250,000 deadweight tons for basic blending and "terminalling" was expected to be delivered next year.
"We would like to bring the (motor gasoline, fuel oil and bunker) business back to Malaysia while complementing the development of ports in the country," he said.