Malaysia Cabinet Said Port Klang Loans Were Legal

Written by Our Correspondent

Thursday, 05 August 2010

Exhaustive secret 2007 cabinet memo details approval of billions in loans for ill-starred port project Malaysia's cabinet, according to a secret June 22, 2007 memorandum, retroactively approved the legality of billions of ringgit in supposedly illegal loans for the increased cost of development at the scandal-scarred Port Klang Free Zone for which a top Malaysian Chinese Association nonetheless has been charged with fraud. Some websites first uploaded the memo, which Asia Sentinel obtained in translation, as the scandal grew in proportion starting last August. The memorandum is marked "Rahsia" or "Secret." Since cabinet documents come under Malaysia's stiff Official Security Act, passed in 1972, which allows for imprisonment up to 14 years for violating the statute, they have taken it down. Ling Liong Sik, the 67-year-old former head of the MCA who retired in 2003, has been charged with deceiving the Malaysian cabinet in 2003 over the affair. Ling pleaded not guilty and was freed on RM1 million ringgit bail. Four other individuals have been arrested as well. In addition, sources in Kuala Lumpur say, Ling's successor as transport minister, Chan Kong Choy, an MCA deputy president, was at the center of issuing guarantee letters for bonds for the company building the massive port project before he left office in 2008, despite the fact that cabinet approval was required. There has been no indication yet that he would be charged, although sources in the United Malays National Organization, the leading component of the ruling national coalition, say others may well be pulled in. Certainly, the 2007 cabinet memo is clear on Ling's actions, but appears to go along with them retrospectively: "To finance development projects, bonds issued by Special Purpose Companies (Special Purpose Vehicle) which was created by [Kuala Dimensi, the entity given authority over the project]," the memo says. "The bonds have been given AAA rating and attracted the attention of many investors. It is because the previous YB Minister of Transport [Ling] issued a letter of support saying the government will at all times ensure that Port Klang Authority will meet all its obligations according to the duration and number of loans set." The memorandum indicates that the cabinet knew most of the details about the vast cost overruns, giving a detailed description of the overages on Kuala Dimensi's part, which catapulted from RM 1.088 billion (US$343.05 million) RM 4.63 billion during the course of the project. The port, whose ultimate cost could dwarf any of former Prime Minister Mahathir Mohamad's previous projects, was conceptualized by Mahathir as a multi-modal development modeled on the Jebal Ali free zone in Dubai , presumably capable of rivaling Singapore, whose efficiency and organizational expertise make it Southeast Asia's regional shipping hub: "PFKZ has planned to attract foreign investors to Malaysia, to enhance national competitiveness and to make Port Klang as the main load in the region. This project will be a major catalyst in the development of economic activities and development in Pulau Indah," the memorandum says. However, Port Klang, hundreds of kilometers up Malaysia's west coast, is now being rivaled by the Iskandar Development Authority, better situated geographically, next to Singapore itself. Unfortunately, in addition to the other problems, as Asia Sentinel reported on Aug. 24 and Nov. 27, 2009, the free zone project appears to have turned into a massive scandal, with politicians of all stripes helping themselves to vast amounts of money through artificially inflated land prices, contacts for surveyors and a myriad of other methods. While the prevailing impression in Kuala Lumpur is that the country's leaders knew little or nothing about the port's development, the secret memo gives the impression that it was closely watched by top government leaders: "A series of Cabinet meetings have been held since 1999 to consider the implementation of the project PKFZ especially in terms of land acquisition issues and financial allocations," the memo says. "The Ministry of Finance and the Department of the Attorney General have raised concerns about the financial need to be borne by the government and the status of land prices and land ownership issues involved with the project. "On October 2, 2002, the Cabinet agreed to the purchase of land in Klang for PKFZ after having been informed that the project is viable without government financial assistance and legal issues of land had been settled. A review by the Department of the Attorney General regarding the issue of land acquisition was also presented." After a lengthy description of the situation, the report concludes: "The Economic Planning Unit, Prime Minister and the Ministry of Transport have no objection to the proposed retrospective approval for the increased cost of development projects PKFZ, Pulau Indah, Selangor and the provision of soft loans to the Port Klang Authority and the government guarantee in relation to the issuance of bonds by Kuala Dimensi Sdn. Ltd." Significantly, the legality of the retroactive guarantee appears to have been approved by the attorney general, Abdul Ghani Patail as well: "The Department of the Attorney General has no such objections to the proposed terms of paragraph 19 of the Memorandum." Ultimately, the guarantee of the RM4.63 billion led to potential liability to the Malaysian government of nearly triple that amount – RM12.45 billion if the Port Klang Authority defaults – which a report the port authority's own directors say is inevitable because the port can't generate enough revenue to meet the obligations. Read more.

Designer Crooks

Hantu Laut

The purchase of a single laptop for RM42,300, a nine-inch computer monitor for RM8500 and screwdriver costing over RM200.Malaysia Boleh!

A project budgeted at RM1.1 billion snowballed to RM4.5 cost overrun and projected to snowball to over RM12.5 billion, yet the government approved such horrendous increase without due care.

To add salt to the wound, the government even approved a soft loan of over RM4 billion when logically the project should have been terminated to cut any further losses.

Project given to the same people who sold the land to the government at highly inflated price.Willing seller, willing buyer with bad intentions.

A prime minister supposedly approved project of this magnitude without approval of his cabinet.Land purchased at exorbitantly higher than market price approved by the cabinet.Board members sleeping on the job and failing in their duties to exercise fiduciary control over the PKA management giving them carte blance to do what they like.

A baffling preference for higher costs of financing, going against the advice of MOF (Ministry of Finance) to consider government-guaranteed bonds bearing lower interest rate.

Giving project of this magnitude to a single turn-key contractor when a more prudent approach should have been used by slicing the cake into different portions and giving them to different contractors.

The shroud of dishonesty and attempt to cheat the government hung in the air from the day the project was conceived.

In its investigative audit Price Waterhouse reported:

Issue 1: The proposal to purchase the Land was approved by the Cabinet.
However, subsequent development proposals were not tabled to the
Cabinet for approval

Issue 2 : PKA failed to alert the Cabinet in a timely manner of its inability to
finance the Project from its internal funds.

Issue 3: The Board did not exercise oversight and adequate governance over
the implementation of the Project.

Issue 4: Advice of the Attorney General was not sought and certain MOF
regulations were not complied with.

Issue 5 : There could be potential conflicts of interest arising from the
involvement of parties who had prior association with either the Land or
KDSB

Issue 6 : Interest on the MOF soft loan will increase the Project outlay from
RM4.947 billion to RM7.453 billion. Unless the MOF soft loan is
restructured, total outlay for the Project will increase to RM12.453 billion

Issue 7 : PKA could have reduced its funding costs had it complied with MOF’s
recommendation to issue government-guaranteed bonds and
developed the Project in phases

Issue 8 : The Land was acquired at special value which exceeded market value

Issue 9 : KDSB may have overcharged PKA for interest by between RM51
million and RM309 million in connection with the purchase of the Land.

Issue 10: DA3 was not a ‘fixed sum’ contract and did not stipulate a rate for
professional fees claimable by KDSB.

Issue 11 : PKA incurred claims of RM95.256 million for general preliminaries cost
not expressly specified in the DA.

Issue 12 : The final account for DA3 did not include any deduction for value of
work not done on three infrastructure components in the Land purchase
agreement

The whole shipload of them including Pak Lah should be hauled up to answer to the people how their money was lost to a crooked deal chiefly designed by those in power.

Does the AG need more proof to send all these vermin to the slammer.The final figure of the the cost overrun could reach MR12.5 billion, a mind-boggling more than 1100 percent increase.

Prime Minister Najib should make sure no guilty party is given protection from prosecution.All guilty party must face the music according to the severity of their crimes.

While the poor remains poor, the crooked powers that be live in sinful extravagance on money stolen from the people.

Arrests in Malaysian Port Scandal

Written by Our Correspondent

Thursday, 10 December 2009

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

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.

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."

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. Read more.