The public disclosure of the PricewaterhouseCoopers (PwC) report on the Port Klang Free Zone (PKFZ) project last Thursday marks an important milestone on the road towards full accountability for that colossal fiasco.

It is simple enough to identify who should bear primary responsibility for the financial and management disaster that has occurred. The buck stops with the board of the Port Klang Authority (PKA), which entered into a number of agreements with Kuala Dimensi Sdn Bhd (KDSB) to purchase the land and develop the project on a turnkey basis.

A typical textbook definition of the duties of the board makes it clear that it is effectively the governing body that is accountable for the performance of the organisation and the legal entity that is liable for the outcomes of any undertakings involving the organisation.

Not surprisingly therefore, PwC, in its report, places before the board 20 issues that require the attention of the authority. In other words, it is the board’s responsibility to take the necessary steps to address immediate concerns such as the potential of the PKA’s default in 2012 of the RM4.632 billion soft loan from the Ministry of Finance (MoF).

It also means the board must answer for the weak management of the PKFZ project by the PKA, such as its heavy reliance on KDSB as the turnkey developer, which led PwC to note that “it cannot be ascertained with any degree of certainty whether PKA has received value for money for the amount spent on developing the project”.

Certainly, the board has a lot of explaining to do on why PKA did not try to lower the cost of financing for the project by issuing government-guaranteed bonds. Had this been done, the report notes, potential savings of RM532 million (over half a billion ringgit) could have been made on the total estimated outlay for the project land alone.

Further, it is the board that needs to justify why the Cabinet’s approval was not sought for the development proposals that followed after the proposal to purchase the land was approved by the Cabinet, although the total development costs of RM1.846 billion (excluding interest) exceeded the cost of the land of RM1.088 billion (excluding interest).

In addition, the general lack of board oversight and governance over the project shows that the board had failed to exercise a core responsibility for which it exists. As noted in the report, several matters indicated that the board had limited involvement in implementing the project.

Key agreements were not submitted to the board for approval. Variation orders were accepted by the PKA management without reference to the board. Key project consultants were appointed without the prior approval of the board, and the board was not consulted on acceptance of the land without the completion of infrastructure works. These lapses of duty by senior public officials entrusted with the  important responsibility of running a statutory body warrant public accounting at the highest level.

As the report notes, the core functions of the PKA are port planning and development, regulatory oversight of privatised facilities, trade facilitation, asset management and free zone authority. It would be perverse for board members to try and absolve themselves of these duties by saying that they were not aware of developments that occurred under their watch.

They may not be briefed of the project. But certainly, the board members knew of the project, considering it is done on a piece of land they had approved for purchase!

By virtue of holding that public office, they are duty-bound to see that the interests of PKA is taken care of at all times.

Indeed, the report emphasises this point when noting that several checks and balances were bypassed, including vetting of agreements by the Attorney-General and the MoF’s stipulations for government-guaranteed bonds to be issued for the development of the project.

“We should also mention PKA’s apparent reliance on approvals by senior government offices such as the Cabinet, Ministry of Transport and the prime minister. While such approvals are important, the board still retains the overall responsibility to run PKA in a professional and sustainable manner. This would include the responsibility to not enter into agreements which may threaten PKA’s long-term financial viability,” said the report.

While the PKA answers to the Ministry of Transport, the Cabinet and Parliament in the bigger picture, it is the board that must now answer for the RM12.453 billion albatross that the PKFZ folly is threatening to become. The board cannot play dead to its public responsibilities when the game is up.

This article appeared in The Edge Malaysia, Issue 757, June 1-7, 2009