PKFZ audit report: Damning disclosure
by R. Nadeswaran and Terence Fernandez, The Sun
The independent audit report on the Port Klang Free Zone (PKFZ) which is expected to be released this week is a damning disclosure of mismanagement, clandestine deals, conflicts of interest and a total disregard for transparency and accountability for a project which was supposed to cost RM1.845 billion but ended up at RM4.6 billion.
Sources told theSun that among the findings of PricewaterhouseCoopers (PWC) are that:
» No proper studies were undertaken before embarking on the project;
» Major decisions on the project were made without prior approval of the Port Klang Authority (PKA) board;
» The PKA chairman and general manager entered into agreements without seeking the advice of the relevant government authorities;
» There was a failure to exercise adequate governance and implement checks and balances in the implementation of the project.
PWC was commissioned by PKA to probe the troubled project a year ago following an expose by theSun in 2007.
The audit report also detailed a series of conflict of interest situations:
» Sementa assemblyman Datuk Abdul Rahman Palil was both the Pulau Lumut Development Co-operative (KPPL) chairman and a PKA director in 2002 when the land for PKFZ was sold by KPPL to PKA;
» Rashid Asari & Co, the legal firm retained by PKA, was also the same firm overseeing the inking of the sales and purchase agreement between KPPL and turnkey contractor Kuala Dimensi Sdn Bhd (KDSB). A point to note is that its senior partner, Datuk Abdul Rashid Asari, was the deputy chief of Umno’s Kapar division, where Tan Sri Onn Ismail is an exco member. Onn was the KPPL chairman and his son-in-law Faizal Abdullah, the then Kapar Umno division youth chief, is also the deputy CEO of Wijaya Baru Global Bhd (WBGB), the firm appointed by KDSB as the main subcontractor;
» Perunding BE Sdn Bhd, appointed by PKA as the independent quantity surveyor for PKFZ, was also a quantity surveyor for KDSB;
» PKA’s board of directors were not advised that the chairman of the PKA at one time was also the deputy chairman of WBGB;
» KDSB directors Omar Latip and Idris Mat Jani are also directors and shareholders of WBGB.
One contributory aspect to the PKFZ mess, the sources added, was that several Finance Ministry regulations on transparent accounting practices were not complied with and that the advice of the attorney-general (A-G) was not sought.
“The agreement between PKA and KDSB was not even vetted by the A-G,” said one source.
The A-G had suggested the government acquire the 404ha for the development of the free zone instead of purchasing it from KDSB at an inflated rate of RM25 per sq foot, although KDSB had purchased the land from KPPL for only RM3 per sq foot.
The source goes on to reveal KDSB’s questionable conduct by overcharging PKA in interests of up to RM300 million, while hidden costs amounting to RM100 million were not revealed to PKA, hence the purchase price of over RM1 billion.
“There was an absence of competitive open tenders with KDSB being awarded the contract to develop the free zone even before the master plan for PKFZ was completed,” said the source, adding that the audit report showed that contracts were entered into merely on estimation of the projected costs.
The report, it is said, also specifies that while the intention of setting up the free zone was to transform Port Klang into a regional trans-shipment hub, cost escalations, poor governance by PKA coupled with weak project management had undermined the viability of PKFZ as well as PKA’s financial obligations where its reserves of RM500 million have been all but wiped out.
“If all these bases were covered, then PKFZ would have been a goldmine,” said another source.
The audit report also paints a troubling picture of officials in the Transport Ministry, noting that so-called letters of support signed by a former minister for the issuance of the bonds could be construed as a guarantee and that PKA would have to meet its financial obligations under such an arrangement.
Instead of complying with the Treasury’s recommendations of issuing government bonds and developing the project in phases, thereby benefitting from lower coupon rates, PKA decided to develop the free zone in one go, having to pay double the rate, estimated at about 8%. Hence, there are concerns the project cost could balloon further.
It is learnt that the report also noted that PKFZ only enjoys an occupancy rate of 16% to 19%.
“However, one is confident that with the new team at the helm the project is salvageable,” said another source, attributing the disclosure of the PKFZ fiasco to efforts by Transport Minster Datuk Seri Ong Tee Keat and the “clean-up crew” of PKA chairman Datuk Lee Hwa Beng and PKFZ general manager Lim Thean Shiang, who took over from Datin Paduka O.C. Phang last year.
It is learnt that Lim briefed government backbenchers on the audit report yesterday.
An MP, when contacted, said the closed-door briefing was meant to keep them abreast of the issues before the audit becomes public.
Ironically, current Backbenchers’ Club chairman, Bintulu MP Datuk Seri Tiong King Sing holds a controlling stake in KDSB. Former Umno treasurer Datuk Abdul Azim Zabidi is also a director of KDSB.
The PKFZ fiasco: Chronology
2002
Kuala Dimensi Sdn Bhd (KDSB) and Port Klang Authority (PKA) sign deal on Nov 12 in which the former sells 999.5 acres in Pulau Indah to the latter for RM1.09 billion or RM25 psf. KDSB, which is 70% owned by Datuk Seri Tiong King Sing, had reportedly bought the land from Pulau Lumut Development Cooperative Bhd for only RM95 million or RM3 psf.
2003
PKA appoints KDSB to develop PKFZ to include office blocks, transshipment facilities light and medium industry facilities and warehouses. The total project cost, excluding land cost, is estimated at RM1.32 billion. KDSB in turn appoints Wijaya Baru Global Bhd as main sub-contractor. Both companies are controlled by Tiong.
2005
PKA and KDSB sign supplemental agreement for additional development works, including building a business class hotel. Total contract value is estimated at RM510.38 million, excluding variation order.
2007
July 18: Dubai-based Jebel Ali Free Zone (Jafza), which was to manage PKFZ, pulls out on July 18, citing “strategic purposes”.
Aug 13: theSun exposes correspondences between Jafza and PKFZ indicating the former quit due to red tape, bureaucracy, interference by politicians and those with vested interests, deliberate incorrect minuting of meetings, issues pertaining to the chain of command and even attempts at tax evasion by Malaysian negotiators.
Then Prime Minister Datuk Seri Abdullah Ahmad Badawi asks Transport Minister Datuk Seri Chan Kong Choy to explain why concerns by Jafza addressed to Chan were not entertained.
Aug 20: theSun reveals that the Transport Ministry had issued four “letters of support” between 2003 and 2006 which were used by turnkey contractor KDSB to raise bonds and get an AAA rating from the Malaysia Rating Corporation Bhd. The documents were, in fact, letters of guarantee which only the Treasury can issue.
Aug 28: Transport Minister Datuk Seri Chan Kong Choy denies allegations that PKFZ is a failure. He tells Parliament that since Nov 1, 2006, it had attracted 30 investors bringing in investments of RM725 million and 809 jobs.
Sept 6: PKA general manager Datin Paduka O.C. Phang and officials from the Transport Ministry appear before the Public Accounts Committee (PAC) but PAC chairman Datuk Shahrir Abdul Samad is not satisfied with answers pertaining to the project’s financing.
Oct 18: PAC visits PKFZ but again comes away with more questions than answers.
2008
March 25: Selangor Mentri Besar Tan Sri Abdul Khalid Ibrahim proposes that the state government take over PKFZ at book value of RM1.
May 5: Newly-appointed PKA chairman Datuk Lee Hwa Beng tells theSun that an independent audit has been commissioned for PKFZ.
June 6: Lim Thean Shiang takes over from O.C. Phang as PKA general manager and executive chairman of PKFZ.
April 29: Following declassification of the independent audit report, Transport Minister Datuk Seri Ong Tee Keat orders that the PriceWaterhouseCoopers findings be made public in a week. He said he intends to submit the report to the Malaysian Anti-Corruption Commssion (MACC) and PAC.
