Published May 29, 2009

Audit on PKFZ finds poor governance

PwC report suggests restructuring RM4.6b govt loan to avoid default

By PAULINE NG
IN KUALA LUMPUR

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AN INDEPENDENT audit by PriceWaterhouseCoopers (PwC) on the scandal-tainted Port Klang Free Zone (PKFZ) has cast doubts as to whether its owner-operator Port Klang Authority (PKA) had obtained any value despite spending billions on the project, which it found to have been weakly managed with poor levels of governance.

The report, made public yesterday, suggested that immediate action be taken to restructure a government soft loan of RM4.6 billion (S$1.9 billion) to avoid a default by 2012, but noted that by deferring scheduled instalments to match PKA's projected cashflows, the project would incur an additional RM5 billion in interest costs, ballooning its total outlay to RM12.5 billion.

The massive cost overruns for a project that was initially expected to cost about RM2 billion - and even then, PwC noted that it could have been done for less if normal processes had been followed - and indications that Barisan Nasional politicians may have been involved in conflicts of interest, is certain to add to the government's political woes. The long-awaited report also appears to confirm what many dread - that the PKFZ could well turn out to be another costly white elephant, given that it is only 14 per cent occupied.

PwC observed that contracts were entered into without competitive bids, on the basis of estimated amounts and without detailed building plans. The entire project was also completed in two years ,contrary to the masterplan which recommended that it be built in phases. Other findings include the bypassing of government checks and balances, including vetting of the agreement by the attorney-general despite the significant amounts involved and PKA's lack of experience in projects of such nature; treasury guidelines were not adhered to; and letters of support (taken as guarantees) by the Transport Ministry were issued without the approval of the Ministry of Finance.

The report did not directly pinpoint the individuals responsible for the project which was to serve as a regional hub for the export and transhipment of manufactured goods, and was jointly marketed and promoted by Dubai's Jebel Ali Free Zone Authority (Jafza). Jafza pulled out half-way, citing political interference and bureaucratic red tape, according to a letter leaked to a media group.

But its findings disclose what it described as 'potential conflicts of interest' arising from the involvement of parties who had prior association with either the land sold to develop the PKFZ or Kuala Dimensi - the company to which PKFZ paid RM25 per square foot (psf) for the land after having earlier acquired the same for RM3 psf from a fisherman's cooperative.

It named Umno state assemblyman Abdul Rahman Palil - a member of the PKA board from 1997 to 2003 and president of the cooperative - who yet queried a proposal to compulsorily acquire the land for the PKFZ although it would have benefited PKA.

It also pointed out that PKA's board was not advised that the authority's previous chairman Chor Chee Heung - a Malaysian Chinese Association (MCA) politician - was at one time also deputy chairman of listed Wijaya Baru Global, a company related to Kuala Dimensi which was appointed as the main sub-contractor to develop PKFZ.

Another person named was Tiong King Sing, chairman of Parliament's Backbenchers' Club and a lawmaker from Bintulu, who is the controlling shareholder of Kuala Dimensi. The report noted that Kuala Dimensi and Wijaya Baru Global are related through a common shareholder and director - Mr Tiong, who controls 32 per cent of Wijaya Baru Global and 70 per cent of Wijaya Baru Holdings (the PKFZ turnkey developer) which in turn is the parent of Kuala Dimensi.

Incidentally, Azim Zabidi, former treasurer of the politically dominant United Malays National Organisation (Umno), is also a director of Kuala Dimensi.

The debacle has already snuffed out the political career of former transport minister Chan Kong Choy who opted not to contest in the general election last year, citing 'health reasons'.