By: Adrian Tan
First published: 14 January 04, TODAY

The disputes over the price of water, who owns those rocks, the site of the immigration and customs post, how to develop Malayan Railway's land here, the proposed bridge and the CPF monies of West Malaysians are not easy to resolve.

Both Malaysia and Singapore believe that they are right because there are principles of law, good neighbourliness, sovereignty and so on at stake.

But whatever the complexities, third parties are not beneficiaries of these disputes.

But there is one issue where both countries are, in the jargon, "not optimising their returns", while third parties are the main beneficiaries - I am referring to the rivalry between Singapore and Malaysia over port facilities in the region.

Within three years of its opening, the Port of Tanjung Pelepas (PTP) won over two of PSA Corporation's biggest users, Maersk and Evergreen - with Maersk taking a stake in PTP.

These two shipping lines accounted for about 17 per cent of PSA's container throughput.

Privately-owned with strong government links, PTP has the potential to seriously challenge Singapore's historical position as the region's premier transhipment hub, because although it can handle only about five TEUs (20-ft equivalent units), PTP has, in the long-term, enough land to handle 75 million TEUs annually.

PSA, Singapore's dominant port operator, has, by comparison, a capacity of about 20 million TEUs annually but can grow this to 40 million TEUs only.

The constraint is the lack of space.

Both sides are right. Malaysia is right in wanting to capture more of the value of its exports. It has a deficit on services.

Singapore is right in wanting to remain the premier transshipment centre in this region.

By one measure, the port contributes five per cent to Singapore's Gross Domestic Product.

In theory, both sides could win from this port rivalry. But it hasn't happened. At present, both are losers.

Singapore has had to cut rates and give other concessions to prevent more defections, while PTP has had to spend more money to develop its facilities to optimise revenue.

The winners are the shipping lines. Maersk and Evergreen got great deals to switch to PTP while those that remained with PSA have benefited from PSA's response to PTP's actions.

An almost similar situation once arose in Europe.

The Port of Rotterdam in Holland was concerned that Germany would further develop its port facilities, thereby affecting Rotterdam's transshipment business to and from Germany.

A deal was struck giving the Germans a 20 per cent stake in the port.

This gave the Germans an incentive to continue using Rotterdam, instead of building rival facilities.

But with so many unresolved issues between the two countries, giving a stake in PSA to Malaysia is a non-starter. Malaysians would suspect being given a lemon, while Singaporeans would be indignant at giving anything to Malaysia.

But cash for use may be different.

Singapore and Malaysia may want to explore the possibility of Singapore paying its neighbour a fee based on the value or volume of Malaysian exports that pass through Singapore's ports.

In return, Malaysia could agree to freeze or put a cap on the development of its ports.

It wouldn't be cheap for Singapore, but it would be cheaper than having to match, or better, PTP's rates.

It would also allow the ports here to increase their charges to pre-PTP levels.

But hasn't Malaysia gone too far ahead in developing its port infrastructure to want to pull back?

Conventional wisdom may be wrong.

Despite denials, rumours persist that the person behind PTP is talking to Temasek Holdings on some kind of port tie-up.

After all, he has other projects that need funding.

The Malaysian government is reviewing infrastructure spending and some projects have already been postponed.

It may be receptive to some kind of deal that increases the revenue from exports.

Isn't it satisfying to get paid for not spending money and doing nothing, especially if Singapore is paying?

Sure, cutting a deal along the lines suggested is going to be complex, contentious and time-consuming.

Think of the role of PTP, how to calculate the fee or ensure the other side doesn't cheat, and so on.

But think of the rewards. Both sides can "optimise revenue", with Malaysia also being able to cut back on infrastructure spending.

And for Singapore such a deal can serve as a model for dealing with Indonesian exports.

To end, let me misquote a character from the Matrix films: "Is it not something worth striving for?"

Adrian Tan is a freelance financial writer.