Arrests in Malaysian Port Scandal

ARCHIVES 2009

By MT Webmaster On Dec 10, 2009

Three down, more to come, although concerns abound that no big fish will be landed

The question is how far up the government chain the investigation will go, and how seriously it will be investigated. “It is going to be very difficult to prove,” said a lawyer with ties to the United Malays National Organization. “They have all covered their tracks, I’m sure.”

Asia Sentinel

Malaysian authorities Wednesday arrested Phang Oi Choo, the former general manager of the Port Klang Authority and two other persons in connection with a massive scandal in the construction of the Port Klang Free Zone, which has ballooned to RM4.6 billion from RM1.1 billion and could go as high as RM RM12.45 billion if the port defaults and is forced to pay interest on its debt, according to a report by PriceWaterhouseCoopers Advisory Services.

The arrests had been expected in the wake of a devastating report by the Public Accounts Committee of the parliament that found widespread conflicts of interest, corruption and cost overruns at the port. The three were expected to be charged with criminal breach of trust. More arrests are expected in the coming weeks, possibly including former Transport Minister Tan Sri Chan Kong Choy and Tiong King Sing, an influential Sarawak lawmaker and chairman of the parliament’s Backbencher’s Club, who holds 70 percent of the shares in Kuala Dimensi Sdn Bhd, the company hired to build the project.

Chan and Phang were found by the Public Accounts Committee earlier to have issued letters of support and undertaking for the project to cover massive loans without the approval of the finance ministry, in effect creating government guarantees for the loans, which resulted in vast cost overruns. The cabinet later ratified the letters despite their illegality. (see Asia Sentinel, Malaysia’s Growing Port Scandal, 27 November 2009 and Malaysia’s Port Storm, Aug. 24, 2009)

The 400-hectare Port Klang Free Zone was conceived during the reign of former Prime Minister Mahathir Mohamad as a multi-modal project for international cargo distribution and consolidation at Port Klang, 70 km. west of Kuala Lumpur. Unofficially, the development was entrusted to the Malaysian Chinese Association, the ethnic Chinese component of the national ruling coalition, the Barisan Nasional. From the start, with the original purchase of the land, the project was dogged with scandals. Requests to investigate it by the Malaysian Anti-Corruption Commission were turned down and the agency only reluctantly reversed itself as the scandal grew in proportion.

As the scandal has grown, contending factions in the MCA have charged each other with complicity, with the result that the party has been virtually paralyzed, exacerbating strains that grew out of the MCA’s debacle in 2008 national polls, in which the opposition Pakatan Rakyat made strong electoral gains.

According to the PriceWaterhouseCoopers report, Kuala Dimensi sold the land to the Port Klang Authority for RM1.09 billion, or RM25 per square foot although by using Malaysia’s Land Acquisition Act, it could have been purchased for RM10 per square foot. Kuala Dimensi acquired the land from the Pulau Lumut Development Cooperative for only RM3 per square foot. A flock of UMNO officials were involved in various roles including the party’s permanent chairman, Onn Ismail, his son-in-law Faizal Abdullah, the former party treasurer Azim Zabidi and others.

Others named in the PWC report included Umno officials Abdul Rahman Palil, Abdul Rashad Asari, Omar Latip and Idris Mat Jani, who served in various capacities either with the development cooperative, the supposedly independent surveyor, the law firm advising Kuala Dimensi or as shareholders in allied companies.

Kuala Dimensi, having acquired the land for the free trade zone, was appointed to develop it as well. That resulted in cost overruns mounting to the hundreds of millions of ringgit. According to The Sun, a Kuala Lumpur newspaper, the Dubai-based Jebel Ali Free Zone, originally appointed to manage the port, gave up and pulled out in 2007, allegedly because of interference from politicians and figures with vested interests, deliberate falsification of minutes, attempts at tax evasion by Malaysian negotiators and other issues. It appears that management was so substandard, according to a report by the Public Accounts Committee, that the port didn’t even have revenue or cost projections.

The Public Accounts Committee alleged that although the government had intended the port to be self-financing, Phang, who had headed the port authority since 1997, had issued a letter of undertaking to OSK Securities Bhd stating that the government would remit funds from budget allocations to a special reserve account for the authority. The port did not have the approval of either the Transport or the Finance Ministries.

Chan, who had served as transport minister of transport for five years beginning in 2003, was alleged in the Public Accounts Committee report to have failed to seek approval for loans from the cabinet, rather seeking approvals directly from then-Prime Minister Abdullah Ahmad Badawi.

The Public Accounts Committee found a wide range of conflicts of interest involved in decision making. Perunding BE Sdn Bhd, under the Quantity Surveyor Consortium appointed to determine the port development’s actual cost, was also Kuala Dimensi’s surveyor. The law firm Rashid Asari & Co, which was involved in two of the four development agreements signed between the authority and Kuala Dimensi, was also involved in the sales and purchase of the original land in 1995.

The port authority in October filed civil charges against Phang, alleging that she had had failed to comply with Treasury guidelines and safeguard PKA’s interest when entering into agreements for the construction of the PKFZ project. The authority has also filed a RM920 million lawsuit against Kuala Dimensi and other parties.