KUALA LUMPUR: The Port Klang Authority (PKA) board was not privy to many of the decisions made by the PKA management. Also, PKA or the transport minister failed to alert the cabinet of PKA’s inability to finance the Port Klang Free Zone (PKFZ) project.

Further, the management went against the recommendations of the finance ministry (MoF) on certain matters. These were among the findings of the PricewaterhouseCoopers (PwC) report on the project.

In 2002, after the PKA board endorsed the proposal to purchase the land from Kuala Dimensi Sdn Bhd (KDSB) for RM1.08 billion, the transport minister tabled the matter in the cabinet. Approval was given on the condition that PKA must self-finance the project from its funds, including future returns of the project.

PKA then purchased the land and entered into a series of development agreements with KDSB, starting with an agreement in February 2003 to develop 400 acres for RM400 million, the PwC report said.

In March 2004, a supplemental agreement was entered into for the development of the entire 1,000 acres for RM1 billion while another agreement costing RM510.38 million was signed in November 2005 for additional development works such as junction improvement, a business-class hotel and electrical infrastructure. Another contract for additional works costing RM335.8 million was struck in April 2006 for concrete trenching, electrical works, civil and infrastructure work, and direct access road and link to Westport Container Terminal 4.

The PwC report noted that after the transport minister made his recommendations, the prime minister agreed to the project, but from 2004 onwards, contracts were awarded to KDSB without being tabled in the cabinet. The transport ministers during the material period were Tun Dr Ling Liong Sik, who tendered his resignation in January 2003, and Tan Sri Chan Kong Choy, who succeeded Ling in July 2003.

The board members from 2001 to 2007 included former MCA secretary-general Tan Sri Dr Ting Chew Peh, then PKA general manager Datin Paduka O C Phang, Westport executive chairman Tan Sri G Gnanalingam, Sementa assemblyman Datuk Abdul Rahman Palil, Treasury representative Abdul Rahim Mokti, Port Klang Workers Union representative Ahmat Abu, former MCA vice-president Tan Sri Yap Pian Hon and former Selayang Umno division head Datuk Ahmad Bhari Abdul Rahman.

Since the development agreements amounted to RM1.846 billion, which was more than the land purchase price of RM1 billion, the matter warranted deliberation by the cabinet, the PwC report pointed out.

By 2004, PKA was aware that it could not meet the cabinet’s condition of self-financing. The Auditor-General’s Report 2003 had stated that PKA did not have sufficient funds to finance the project.

PwC also found that the PKA board failed to exercise oversight and adequate governance in many key matters. For example, no approval was sought from the board when:
•    the common seal of PKA was affixed to all the agreements in question;
•    delivery of land was accepted without KDSB completing the infrastructure works specified in the agreement of Nov 12, 2002;
•    RM45 million was set as benchmark for deeming the incomplete infrastructure work as completed by KDSB for the purpose of delivery;
•    variation orders were accepted under additional development works and new additional development works totalling RM62.6 million;
•    Rashid Asari & Co were appointed legal adviser; and
•    when the PKA management appealed for Perunding BE Sdn Bhd to be appointed as the sole quantity surveyors for the project despite the finance ministry’s instruction to appoint a consortium of four quantity surveyors.

“The agreements mentioned in Table 8 were not submitted to the board for prior approval. The PKA management did not have the benefit of the views of the board on various terms contained in the agreements. This conflicts with good corporate governance,” said the report. Table 8 in the PwC report lists 13 key agreements entered into by PKA in relation to the project.

The report noted that the project was led by the general manager and a steering committee, which was set up in December 2002, and progress reports were provided to the board as and when it convened.

However, it was found that the steering committee was not established by a resolution of the board, nor was it subjected to the board’s supervision.

“The general manager and the committee did not have formal terms of reference, nor did they have specified limits of authority. The general manager had only an operational authority limit of RM50,000. We have not noted any evidence that the board gave authority to the general manager of the committee to implement the project,” said PwC.

It noted that PKA relied on the cabinet, transport minister and prime minister for approvals, which were important from the standpoint of corporate governance, but the board still has the responsibility to run PKA in a professional and sustainable manner.

“This would include the responsibility not to enter into agreements which PKA cannot afford, or which may threaten its long-term financial viability,” it said.

PwC also said that PKA failed to seek the views of the auditor-general before the agreements were entered into.

Referring to Laporan Ketua Audit Negara Mengenai Badan Berkanun Bagi Tahun 2006, the auditor-general reported that given the scale of the project, advice from the Attorney-General’s (AG) Office should have been obtained to safeguard the interests of PKA and the government.

Several key matters had been omitted from the agreements entered into with KDSB, including defect liability and performance bonds.

“The commitment made in LA1 (the land purchase agreement of Nov 12, 2002) to appoint KDSB as contractor for the development of the project did not comply with financial regulations and was made without the approval of the finance ministry.

“Variation orders (VOs) were not contracted according to the provisions of Arahan Perbendaharaan 202, which stipulates that a statutory body is only able to approve VOs up to 20% of the contracted sum of RM4 million, whichever is lower. Any higher amount must be approved by the finance ministry,” said PwC.

The PKA management also failed to seek the AG’s views in accordance with Arahan Perbendaharaan 204 but instead relied on the advice of Rashid Asari & Co, a firm of two partners and 12 legal assistants as of November 2002, for all the contracts entered into with KDSB.

Main cast of the PKFZ drama