PETALING JAYA: The first piling works for the world’s largest ship-to-ship (STS) hub off the waters in Johor could start in the second half of this year.

STS operator and marine services provider KA Petra Sdn Bhd has started to tender out the works while awaiting the final green light from the government.

It requires approvals for the environmental impact assessment (EIA) and the social impact assessment (SIA) – both of which have been submitted to authorities – before physical work can start for the hub, which could accommodate the berthing of 30 vessels at any one time.

The company had recently obtained an approval in principle from the Transport Ministry for the development, which came with three conditions – rights to use the sea bed from the National Security Council, an EIA and an SIA.

While waiting for final go-ahead, KA Petra is concurrently running a tender for the construction work which ends this Thursday where a contractor will be shortlisted within a month.

The project is a joint venture between KA Petra and world-renowned Hutchison Ports Holdings Ltd in which KA Petra will hold 70% while the latter will hold a strategic 30%.

KA Petra executive chairman Datuk Shahrul Amirul(pic below) is almost certain that construction works could start after receiving the final approval as initial financing would be through self-funding.

“Even during the movement control order (MCO) period, we are working with the government towards making this happen very quickly after the MCO is lifted, ” he told StarBiz.

The project’s cost was estimated to be in the range of US$150mil (RM650mil) to US$180mil (RM785mil), which will be funded by equity from KA Petra and Hutchison and also bank financing.

There could, however, be a revision in construction costs in light of the declining steel prices.

KA Petra will provide its equity portion first, which will be sufficient for six months. It had also secured support letters from banks and the process is ongoing.

“Hutchison is a very notable name and they’re in 53 ports globally. They see potential in this business. We went to them because there is a strategic partnership, with them owning all these ports and having good ties with shipowners.

“These shipowners use bunkers and the STS hub caters for bunker business. So the strategic alliance is very important, ” he said.

Pre-MCO, it was estimated that the project would be completed in between 16 and 18 months.

But taking into consideration the feedback received and when it closes the tender, Shahrul said it could be stretched to 24 months for all 30 berths to be built.

The hub could very well come into operation as early as next year, starting with some completed berths.

KA Petra wasted no time in ensuring that the hub would be fully utilised upon completion by inking memorandums of understanding for all its berths with its prospective customers, which will be converted into long-term contracts once the company obtains the final approval.

The nature of the STS hub business and the engagement with the customers is in the form of long-term leases for the berth that may be extended up to 10 years.

That would be the fixed revenue for the business. The variable revenue will come from its services to cater for the increasing demand in the bunker market.

This will come from the increasing capacity of ports along the Straits of Malacca, including Singapore’s Tuas mega port which will be able to handle 65 million twenty-foot equivalent units per annum.

With the development in the oil and gas sector where oil prices have plunged and with the current economic downturn, the notion was businesses would be bad for marine-based companies such as the STS hub.

According to Shahrul, it is not exactly so, as the hub is basically a floating storage and it is something highly in demand in times like this, far exceeding what is available.

“People use STS to float their cargo so they can break bulk to go to places with shallow draft.

“We saw the West Texas Intermediate price went below negative and those who bought oil at the beginning of the year cannot sell because they would be making losses, so they need to store.

“And when this happens, all the tanks are full and the next alternative will be floating storage. Even the likes of Pertamina (Indonesia’s state-owned oil and gas company) are sourcing out for vessels, ” he said.

Asked if the STS might miss the boat when the supply and demand of oil is back to normal, Shahrul said the STS worked both ways, for storage and port services.

“The pilots, mooring master and tugboats, these are all part of our port services. So the STS is not only storage revenue, it’s also service revenue. The hub is basically to cater for the bunker market and demand is already there.

“In a nutshell, the STS business is something that can work when the oil price is up or down. When it’s at the peak, people will sell and you need the STS for the proximity and fast turnaround. When it’s low, they need to store and this is the fastest way, ” Shahrul said.

The STS hub, when completed, will be able to store up to 9 million tonnes of petroleum products at its 30 berths, which could cater up to 30 very large crude carriers with a 300,000 tonne storage capacity each.

Studies have shown that the hub and its spillover effect could create about 2,300 new jobs and the gross domestic product contribution from the hub itself would be about RM428bil over 30 years.

Asked if the STS might miss the boat when the supply and demand of oil is back to normal, Shahrul said the STS worked both ways, for storage and port services.

“The pilots, mooring master and tugboats, these are all part of our port services. So the STS is not only storage revenue, it’s also service revenue. The hub is basically to cater for the bunker market and demand is already there.

“In a nutshell, the STS business is something that can work when the oil price is up or down. When it’s at the peak, people will sell and you need the STS for the proximity and fast turnaround. When it’s low, they need to store and this is the fastest way, ” Shahrul said.

The STS hub, when completed, will be able to store up to 9 million tonnes of petroleum products at its 30 berths, which could cater up to 30 very large crude carriers with a 300,000 tonne storage capacity each.

Studies have shown that the hub and its spillover effect could create about 2,300 jobs and the gross domestic product contribution from the hub itself would be about RM428bil over 30 years.