KUALA LUMPUR: The financial viability of the Port Klang Free Zone (PKFZ) is extremely uncertain, as the project is not generating sufficient revenue to cover its operating expenses, the PricewaterhouseCoopers (PwC) report said.

This is indicated by the current low occupancy rate of 14% of the project’s lettable area. Further, based on the Port Klang Authority’s (PKA) projection that full tenancy will be achieved by 2018 based on current rental rates, the estimated gross rental income of RM112 million (RM61 million after taxes), the project on its own will not be able to recoup its development cost of RM3.522 billion (excluding interest cost).

“The government will therefore need to undertake a concerted effort involving a number of agencies in order to turn PKFZ into a financially viable venture,” the report said.

This was necessary, it said, to face the project’s many commercial challenges that include marketing, the current economic climate, a multi-agency approval environment, and domestic and regional competition.

Not surprisingly, the PwC report notes: “The PKA has projected that it will be in a cumulative cash deficit position in 2012 and will not be able to repay the Ministry of Finance’s (RM4.632 billion) soft loan instalments from that time on.”

PKA had not developed a solution to address the projected cash deficit, the report said, and assuming that the cash shortfall would be addressed by deferring repayment at the current interest rate of 4%, the ministry’s loan would be fully repaid in 2051 instead of 2036. The additional financing cost is estimated to be about RM5 billion, PwC said.

Further, the report noted, the Port Klang Free Zone Sdn Bhd (PKFZSB) has been incurring losses since its incorporation and has negative shareholders’ funds as at Sept 30, 2008.

PKFZSB’s only source of income is the service and operation fee payable to PKA,the report said.

“Shareholders’ funds turned negative in FYE 2007 (RM300,000). PKFZSB has been in net current liabilities position since its first financial period, FPE 2006. Therefore, without continuing support from PKA, PKFZSB would be insolvent.”