As reported in its website, the project development cost had ballooned from RM0.87 billion in 2001 to nearly RM2.43 billion by 2008. The development cost variation of nearly 180 percent was remarkably too high to slip away from the detection of the board of PKA. Surprisingly, most of PKA board members did not come forward to explain how this oversight was possible.
I was told that nearly 15 contracts worth billions were signed by the PKFZ general manager even when it was obvious that the authority was facing a difficulty to meet all its financial obligations. As a result, the ex-ministers of transport (Ling Liong Sik and Chan Kong Choy) had between them endorsed and signed four letters of support to allow the authority to raise corporate bonds.
Another procedural problem had surfaced regarding the validity of these letters. It was obvious that the ministers cannot issue any letter of guarantee on the behalf of the Malaysian government. The only ministry allowed to issue a letter of guarantee was the ministry of finance after procuring an approval from the cabinet.
A remedy for the project must seek to address this procedural flaw to ensure that a strong check-and-balance mechanism is in place to prevent any such flaw from happening again. Members of the administration must be held accountable to the promise of protecting public's interest.
Interesting, by claiming that this project was a national interest, the cabinet approved a soft loan worth RM4.3 billion (at 4% interest) to the PKA to fund the project. It appears that the authority may have some difficulty making the interest payment worth RM2.51 billion by 2036. On top of this, the authority needs to pay the contractor, Kuala Dimensi Sdn Bhd, a total interest of RM1.45 billion by 2017.
Even with the most aggressive projection, the company's cash flow may not be enough to keep this project afloat and viable. The company still need to factor in the maintenance cost which is easily 10% of the total development cost annually.
Another mind boggling inconsistency was its land acquisition cost. It was stated by the cabinet decision that this project was a national interest. The land was purchased by PKA at price of RM1,088 million (that is RM25 psf including Infrastructure Works with land fully reclaimed) instead of through compulsory acquisition which would have cost RM442 million (that is RM10.16 psf for land partly reclaimed and no infrastructure works).
The cabinet made the decision based on the recommendation of Selangor State Government that compulsory acquisition was not possible because PKFZ is not a public interest project; and the Land had been issued with development order in 1995.
This inconsistency was glaring when the cabinet later contradicted itself by offering a soft loan of RM4.3 billion to the company and claimed that it was a national interest. A probe must be done and someone must be made accountable for the irresponsible recommendation.
What's next? The probe must identify all parties and individuals involved in the project. People who were involved in making unscrupulous decisions or acted beyond their official boundaries must be taken to task and reprimanded. Like Minister Ong Tee Keat had promised us, the investigation will not leave any stone unturned.
It was announced yesterday that the government has established three committees to deal with the scandal-plagued Port Klang Free Zone (PKFZ), including one headed by the country head of global anti-graft body Transparency International (TI).
Datuk Paul Low, president of TI Malaysia, will head an ad-hoc committee of corporate governance which will look into ensuring that weak practices of the past are not repeated.
Ong also announced that a special task force of legal, accounting and project development experts has been appointed to provide Port Klang Authority (PKA) with recommendations on how to recoup some of the RM7.5 billion already sunk into the industrial zone. Heading this team is Vinayak Pradhan, from prominent law firm Skrine, who is a former commissioner with the United Nations Compensation Commission and member of the Permanent Court of Arbitration, and assisted by two directors of PwC.
A third team, called the executive committee, will take charge of PKFZ’s business development.
It is to be co-chaired by PKA chairman Datuk Lee Hwa Beng and Tan Sri James Alfred, a PKFZ director who is also chairman of the Federation of Malaysian Manufacturers.
Ong has given the committees and special task force a period of two months to come out with an action plan.
Ong must remember that ultimately the responsibility of fixing this gigantic scandal falls on his shoulder. He must deliver the following:
- Identify the main problems, causes and culprits which had contributed to the financial fiasco of PKFZ and find ways to recover all ill gotten monies
- Identify all procedural flaws and propose a check-and-balance mechanism which can be replicated for all public projects involving public money
- Stop the financial bleed, work on the viability of the project or restructure/reorganise/reinvent the project to ensure it is a viable project which can support the development of Port Klang in the next 50 years
- Review the financial projection to ensure that the project displays all hidden costs
- Review all contracts to ensure that there is no one-sided contract signed by the company on behalf of PKA
- Identify the right people through a merit based system to run and revive the project. Stop all political appointees and replace all board members who did not contribute to the running of the company
- Stop any draw down for the project until it is clear that the fund is going into something purposeful and all legal reviews have been conducted
The tasks above are not exhaustive. A fiasco this size may have more things up its sleeve which are hidden to us.
The public should support Ong to do his best. He should be noted that the outcome of the investigation may possibly implicate a number of people from his party but he must ensure there is no cover up and action must taken against those who are found guilty.
Imagine, more than 5 ministers in the Gordon Brown cabinet had resigned due to some expense claims controversy. The size of PKFZ financial fiasco would have brought down the Labour Party.