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PKFZ audit report: Damning disclosure

The Sun
by R. Nadeswaran and Terence Fernandez

The independent audit report on the Port Klang Free Zone (PKFZ) which is expected to be released this week is a damning disclosure of mismanagement, clandestine deals, conflicts of interest and a total disregard for transparency and accountability for a project which was supposed to cost RM1.845 billion but ended up at RM4.6 billion.

Sources told theSun that among the findings of PricewaterhouseCoopers (PWC) are that:
» No proper studies were undertaken before embarking on the project;

» Major decisions on the project were made without prior approval of the Port Klang Authority (PKA) board;

» The PKA chairman and general manager entered into agreements without seeking the advice of the relevant government authorities;

» There was a failure to exercise adequate governance and implement checks and balances in the implementation of the project.

PWC was commissioned by PKA to probe the troubled project a year ago following an expose by theSun in 2007.

The audit report also detailed a series of conflict of interest situations:
» Sementa assemblyman Datuk Abdul Rahman Palil was both the Pulau Lumut Development Co-operative (KPPL) chairman and a PKA director in 2002 when the land for PKFZ was sold by KPPL to PKA;

» Rashid Asari & Co, the legal firm retained by PKA, was also the same firm overseeing the inking of the sales and purchase agreement between KPPL and turnkey contractor Kuala Dimensi Sdn Bhd (KDSB). A point to note is that its senior partner, Datuk Abdul Rashid Asari, was the deputy chief of Umno’s Kapar division, where Tan Sri Onn Ismail is an exco member. Onn was the KPPL chairman and his son-in-law Faizal Abdullah, the then Kapar Umno division youth chief, is also the deputy CEO of Wijaya Baru Global Bhd (WBGB), the firm appointed by KDSB as the main subcontractor;

» Perunding BE Sdn Bhd, appointed by PKA as the independent quantity surveyor for PKFZ, was also a quantity surveyor for KDSB;

» PKA’s board of directors were not advised that the chairman of the PKA at one time was also the deputy chairman of WBGB;

» KDSB directors Omar Latip and Idris Mat Jani are also directors and shareholders of WBGB.

One contributory aspect to the PKFZ mess, the sources added, was that several Finance Ministry regulations on transparent accounting practices were not complied with and that the advice of the attorney-general (A-G) was not sought.

“The agreement between PKA and KDSB was not even vetted by the A-G,” said one source.

The A-G had suggested the government acquire the 404ha for the development of the free zone instead of purchasing it from KDSB at an inflated rate of RM25 per sq foot, although KDSB had purchased the land from KPPL for only RM3 per sq foot.

The source goes on to reveal KDSB’s questionable conduct by overcharging PKA in interests of up to RM300 million, while hidden costs amounting to RM100 million were not revealed to PKA, hence the purchase price of over RM1 billion.

“There was an absence of competitive open tenders with KDSB being awarded the contract to develop the free zone even before the master plan for PKFZ was completed,” said the source, adding that the audit report showed that contracts were entered into merely on estimation of the projected costs.

The report, it is said, also specifies that while the intention of setting up the free zone was to transform Port Klang into a regional trans-shipment hub, cost escalations, poor governance by PKA coupled with weak project management had undermined the viability of PKFZ as well as PKA’s financial obligations where its reserves of RM500 million have been all but wiped out.

“If all these bases were covered, then PKFZ would have been a goldmine,” said another source.

The audit report also paints a troubling picture of officials in the Transport Ministry, noting that so-called letters of support signed by a former minister for the issuance of the bonds could be construed as a guarantee and that PKA would have to meet its financial obligations under such an arrangement.

Instead of complying with the Treasury’s recommendations of issuing government bonds and developing the project in phases, thereby benefitting from lower coupon rates, PKA decided to develop the free zone in one go, having to pay double the rate, estimated at about 8%. Hence, there are concerns the project cost could balloon further.

It is learnt that the report also noted that PKFZ only enjoys an occupancy rate of 16% to 19%.

“However, one is confident that with the new team at the helm the project is salvageable,” said another source, attributing the disclosure of the PKFZ fiasco to efforts by Transport Minster Datuk Seri Ong Tee Keat and the “clean-up crew” of PKA chairman Datuk Lee Hwa Beng and PKFZ general manager Lim Thean Shiang, who took over from Datin Paduka O.C. Phang last year.

It is learnt that Lim briefed government backbenchers on the audit report yesterday.

An MP, when contacted, said the closed-door briefing was meant to keep them abreast of the issues before the audit becomes public.

Ironically, current Backbenchers’ Club chairman, Bintulu MP Datuk Seri Tiong King Sing holds a controlling stake in KDSB. Former Umno treasurer Datuk Abdul Azim Zabidi is also a director of KDSB. Idris Jani was/? still is the Kapar UMNO division treasurer.

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