Lessons from PKFZ
By P. Gunasegaram (The Star)
THE Port Klang Free Zone (PKFZ) scandal shows a shocking trail of how businessmen, top civil servants and professionals have colluded to cause multi-billion ringgit losses to taxpayers.
It is unfortunate that the issue has become mired in politics and politicking, because that masks the serious issues of governance, accountability and ethics that continue to blight the way business is done in Malaysia.
Tracking the entire project and looking at the things that happened along the way offers an astonishing study of how a badly planned and mismanaged billion-ringgit government project eventually benefited just one company – the one that sold the land to the project and undertook the turnkey development, Kuala Dimensi Sdn Bhd.
At every stage of the project, serious questions arise as to the conduct of the parties involved in this project, and why some of the most basic of controls and other procedures were not adhered to in terms of approvals and consents, and checks and balances.
The project has been beset with controversy right from the start – in fact questionable decisions happened even before the project started.
According to reports, Kuala Dimensi bought the 405ha land on which the project is sited in the early and late 90s at prices ranging from RM1.37 to RM2.90 a sq ft from a fishermen’s cooperative for a total of RM65mil.
In 2002, Kuala Dimensi sold this piece of land to Port Klang Authority (PKA), the owner of PKFZ, for RM1.09bil or RM25 a sq ft, more than 15 times what it paid for the land, according to reports.
Question: Was the RM25 a sq ft a fair price to pay for the land? Were PKA officials able to establish that Kuala Dimesi had added that much of value to the land? Was a proper valuation done?
In addition, Kuala Dimensi was appointed the sole turnkey contractor for the project without any competitive bidding.
The original cost of the land and project was estimated at RM1.96bil, but this escalated eventually to RM3.52bil under a series of supplemental agreements.
Including the cost of interest on deferred payments to Kuala Dimensi, the total costs came up to a staggering RM4.95bil.
Price-waterhouseCoopers Ad-visory Services (PwC), which was commissioned by PKA to look at the PKFZ project, has estimated that based on current projections of revenue and costs, including interest costs, the project could eventually cost RM12.45bil!
Question: Why was the project awarded to Kuala Dimensi without competitive bidding? Why wasn’t Cabinet approval obtained for all the additional charges and claims made under supplemental agreements?
The PwC report detailed a series of omissions by the PKA on the way the PKFZ issue was handled. They included:
1. PKA may not have received full value because of its reliance on a single contractor, Kuala Dimensi. It could have managed the project better by a number of ways, including open tenders and using its own monitoring process.
2. PKA could have saved on financing costs by issuing government guaranteed bonds and paying RM21 per sq ft upfront instead of deferring payment. It could also have spread out the whole project over eight years, as originally recommended.
3. PKA not only did not get further Cabinet approvals for increased costs but also did not inform the Cabinet when it became aware in 2004 that it could no longer self-finance the project – a condition for the Cabinet approving the project.
4. There was lack of board oversight as many decisions were taken without board approval and without the board being informed.
The board was not consulted on acceptance of the land without infrastructure being completed by Kuala Dimensi.
5. Government checks and balances were bypassed when agreements were not vetted by the Attorney-General’s chambers.
Treasury guidelines on vetting of agreements were not adhered to. Letters of support, that can be construed as guarantees, were issued by the Transport Minister then without the approval of the Minister of Finance.
These are serious mistakes – if indeed they were mistakes. Usually when there is such flagrant disregard of procedures and processes, there is likely to be much more than mistakes.
Under the circumstances, it is correct for current PKA chairman Datuk Lee Hwa Beng to make a report of possible conspiracy among five entities and persons to the Malaysian Anti-Corruption Commission.
The five are Kuala Dimensi, its CEO and major shareholder Datuk Seri Tiong King Sing, former PKA general manager Datin Paduka OC Phang, BTA Architect and the consultant for development work Bernard Tan Seng Swee.
There is already a lot of groundwork done to document many of the things that have gone so seriously wrong at PKFZ.
In the spirit of accountability that the current government has said it wants to uphold, those responsible for the scandal must be brought to account.
An allegation of a RM10mil payment to current Transport Minister and MCA president Datuk Seri Ong Tee Keat made by Tiong, who is also Bintulu MP and head of the Backbenchers Club, has no relevance to what has happened at PKA and PKFZ.
Other issues and the politicisation of the entire PKFZ scandal must not be allowed to detract from one thing – plugging the holes that allowed the Government and taxpayers to lose billions while enriching a single company and bringing those responsible to book.
f we do that, the chances of such a thing recurring diminishes. If we don’t, then we are not only condoning such acts but also encouraging others to do the same.
> Managing editor P Gunasegaram says we have to stop the disease if we don’t want it to spread.
