In its 28-page report, PAC also implicated former transport ministry secretary-general Datuk Zaharah Shaari for ignoring directives from the Treasury to compulsorily acquire the 1,000-acre site for the mega transshipment hub.

Apart from the recommendations, the government also made public the entire transcript of the questions and answers between PAC members and parties involved in the PKFZ project that came under scrutiny after an audit firm’s position report showed its cost, initially estimated at RM2.9 billion, would balloon to some RM12.5 billion, if interest expense is taken into account.

In her testimony, Phang said she was not aware of any directive from the Treasury limiting the spending that PKA can approve to RM100 million and that any expenditure above that would have to be reverted to the Treasury. She also denied getting any directive from the Treasury instructing PKA to raise government-guaranteed bonds and not through a third party, in this case the turnkey contractor, Kuala Dimensi Sdn Bhd (KDSB).

Phang named former prime minister Tun Abdullah Ahmad Badawi and Chan as the persons responsible for directing her to carry out the development of the entire 1,000 acres in a single phase. The duo had apparently given the directive based on advice by Dubai-based Jebel Ali Free Zone International (Jafzi), the company that was supposed to manage the transshipment hub.

As for Chan, he had testified that the three letters of support that he signed to facilitate the fund-raising for the project was not tantamount to a government guarantee.

He said the letters were meant for the rating agency and not for KDSB to use to raise funds. In his testimony, Chan was not even clear as to which rating agency he had issued the letters to.

There are two rating agencies in the country — Rating Agency Malaysia (RAM) and Malaysian Rating Corp Bhd (MARC). The letters signed by Chan were used by MARC as the basis to give the top rating for bonds issued by KDSB to finance the project.  

In response, Prime Minister Datuk Seri Najib Razak promised at a press conference in parliament yesterday that there would be no cover-up of any weaknesses, wrongdoings or anything that violated the law.

Najib, who was asked to comment on the PAC report, said the special task force headed by Chief Secretary to the Government Tan Sri Mohd Sidek Hassan would take the PAC report into consideration.

PAC chairman Datuk Seri Azmi Khalid said the Malaysian Anti-Corruption Commission and police must conduct a thorough investigation into the matter because the set of letters were issued without the approval of the Ministry of Finance (MoF) as required under Section 14(1) of the Financial Procedure Act 1957.

It could also be construed as “criminal breach of trust under Section 409 read together with Section 409B of the Penal Code”, he said.

“The issuance of bonds did not follow proper procedures and resulted in the government shouldering massive losses because the funds that were obtained through government guarantee were not fully utilised for the implementation of the project.”

The report also asked the MoF to look into redeeming the government-guaranteed bonds issued by KDSB in the near future through its special vehicles as the bonds carry a 7.5% interest rate, compared with the usual rate of 4% for government-issued bonds.

Besides Chan and Phang, who has been sued by PKA for breaches of her fiduciary, contractual and common law duties to the port authority, several other high-ranking civil servants and the board members were also lambasted in the report.

PAC also recommended that the chief secretary to the government take action against civil servants who had sat on the PKA board and failed to carry out their duties as board members.

PKA chairman Datuk Lee Hwa Beng said the PAC report corroborated and confirmed many items highlighted in the PricewaterhouseCoopers (PwC) report and statements made by PKA. “We have done our job, PAC has done its job. Now it is for the government and the related authorities and agencies to do theirs to bring a closure to this issue,” he said.

The PKFZ project grabbed the country’s attention in May when PKA released the position report by PwC, which projected that the project's cost could swell to RM12.46 billion, if interest expense is taken into account and if the bonds were not restructured.

PAC conducted its investigation from June 11 to Sept 3. The committee comprises 13 MPs (including Azmi) from both the government and opposition.

This article appeared in The Edge Financial Daily, Nov 5, 2009.