Port Klang Authority at the deep end

ARCHIVES 2009

By MT Webmaster On Jun 3, 2009

Worse still, we are informed in PwC's 45-page report that this huge loss could increase to RM7.4 billion with interest payments and even up to RM12.4 billion if PKA defaults on its repayments to the MoF for its soft loan, since PKA is expected to be cash flow negative until 2041.

Written by Tan Sri Ramon Navaratnam, The Edge

WHAT a shock it was for the public to learn of the Port Klang Free Zone (PKFZ) scandal that has put the Port Klang Authority (PKA) at the deep end!

It is therefore appreciated that Prime Minister Datuk Seri Najib Razak and his cabinet have made public the PricewaterhouseCoopers (PwC) report on the project. It would have been unacceptable to have the sordid affair kept under wraps.

As Malaysia slips into recession, with the economy likely to register negative growth rates of -4% to -5% this year, we are greatly saddened to think that some of our trusted leaders and officials have betrayed the public trust so badly. Why should we have to face the burden of PKA's loss due to the RM4.6 billion soft loan from the Ministry of Finance (MoF)?

The initial cost was only RM1.9 billion but was altered to RM3.522 billion (excluding interest costs) due to variation orders. This means that the original tender was awarded at a low price but the contractors managed to negotiate for increases that almost doubled the original cost. Why was this allowed to happen? Was the approval to vary the tender cost approved by the Treasury and was the basis for the variation in the tender price justified?

Experience has shown that even in an open tender exercise, a contractor can undercut the other tenderers and win a contract but then pay under-the-counter to get a higher price for the contract. This would amount to a serious breach of good governance and a major abuse of the tender system.

In the PKFZ case, the first issue that the Malaysian Anti-Corruption Commission (MACC) must investigate is whether the contract for the project was awarded in accordance with good governance practices.

The government has to be commended for commissioning the PwC report. But consistent with this spirit of transparency, the government should also reveal all the officials who were involved in the approval and implementation process and investigate them for any wrongdoings. The tax-paying public and indeed all Malaysians have to be made aware of who these persons are and how the wrongdoers will be punished.

The potential loss of RM12.4 billion means that the amount would be denied to the rakyat for development and anti-poverty measures. Why should they have to bear the brunt of these irregularities and wastage of public funds? The public will be waiting to see what the government, the MACC and the Public Accounts Committee will do to net the big fish who may be corrupt and to punish them severely.

Any sign of protection of important persons or attempt to placate the public will be seen as the condoning of wrongdoing, that could undermine the confidence of the public and voters in the government's aim of combating corruption and promoting good governance.

Indeed, the cause of this huge loss is, as the PwC report says, bad governance. The report has specified at least 20 issues of mismanagement, neglect and poor supervision by the PKA board and management.

What are these issues?

The cabinet was apparently not informed in a timely manner about the RM1.846 billion development costs of the purchased land of 999.5 acres in Pulau Indah although this was much more than the cost of the land at RM1 billion! The cabinet was also not advised that with these huge cost increases, PKA was unable to pay back its loan and that the viability of the whole project was threatened!
This poor standard of management and weak leadership is a stark example of bad governance. It is dreadful to think that this shameful quality of management could be widespread and that what we are witnessing could be the tip of the iceberg in the administrative system. We may well ask whether the rot has set in and what the government would do to remove the cancer of abuse and inefficiency in our economy.
What were the Ministry of Transport, the Treasury and other relevant agencies doing? The rot could have been arrested if the growing financial mess was brought to the attention of the cabinet or any of the ministers. The MACC would need to find out who was involved in this deliberate or careless lapse in responsibility, and why it occurred. Were some officials waiting to make hay while the sun shines while their seniors were kept in the dark?
The report states that the PKA board did not exercise oversight and adequate governance. There appears to be a complete breakdown of basic management practices in the implementation of the project. Again, was this purposely done or was the board absolutely negligent or incapable of fulfilling its fundamental functions?
It raises essential questions as to what criteria were used to appoint these board members. Were they political appointees who knew little about management or project implementation, or were they simply corrupt? One way to find out whether anyone on the board or the management gained materially from the variation orders, the appointment of key project consultants and the acceptance of the land before the contractor completed infrastructure works, is for MACC to check on the net worth of all the major officials involved, before and after this shameful abuse of public funds.
Financial regulations were not complied with, according to the PwC report. This is the first line of attack for any official, the PKA Audit Department and the external auditors to take. Was the board warned of these violations of Treasury rules and regulations on open tenders and other issues or was there a sense of indifference all round, and why?
Conflicts of interest were noted by the report and one wonders why these conflicts were not declared and dealt with at the very outset. Or was it done and then covered up and ignored to derive personal gain at public expense? This issue alone could land many officials in trouble and should be pursued vigorously, with no tolerance of lame excuses.
The turnkey contractor, Kuala Dimensi Sdn Bhd, is reported to possibly have "overcharged the PKA for interest in connection with the purchase of land". This possibility can be easily verified by checking on the market prices of this land at that time. We have to find out who would have gained from the overpricing and take action against them.

Corrupt officials should not be allowed to get away as the credibility of 1Malaysia is at stake. So is that of the government and MACC.

What should be the future of PKA?

The policy aimed to "transform Port Klang into a national load centre and regional transshipment hub" is still valid from the long-term strategic point of view.

However, like all strategic decisions, they are of no use to the nation if people see in them the opportunities to make money for themselves rather than for the nation and the public interest.

Transport Minister Datuk Seri Ong Tee Keat has laudably stated that the people's interests will be fully protected and that the government will walk the talk!

To ensure that justice is fully done, a Royal Commission of Inquiry should be established if necessary, so

that it would be free to require anyone involved to provide evidence.

Now the rakyat will wait to see whether the government will deliver on its promise or whether the whole miserable abuse of authority will be just white-washed and forgotten until another huge scandal breaks out.

The public will give its verdict on the quality of our governance — soon!

The writer is the chairman of the Centre for Public Policy Studies.