Expensive lesson in corruption and lack of transparency

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PORT KLANG: The Port Klang Free Zone (PKFZ) started taking shape in March 1999 after an approval by the Cabinet and was to be modelled after Dubai’s Jebel Ali Free Zone, with a projected cost of almost RM2 billion.

In 2002, the Port Klang Authority (PKA) signed an agreement with Kuala Dimensi Sdn Bhd (KDSB) to buy almost 400ha of land in Pulau Indah for RM1.09 billion or at RM25 per sq ft (psf).

KDSB is the subsidiary of Wijaya Baru Holdings Sdn Bhd (WBHSB), whose main shareholder is Bintulu Member of Parliment Datuk Seri Tiong King Sing.

KDSB had bought the land from Pulau Lumut Development Cooperative Bhd for only RM95 million or RM3 psf. Following this, the PKA appointed KDSB to develop PKFZ at a cost of RM1.32 billion.

The PKA and KDSB signed supplemental agreements for additional development works valued at RM510.38 million. In November 2006, PKFZ was launched but the cost had gone up to RM4.6 billion.

Controversy surrounded the project when it emerged that the PKA had been overcharged.

In 2007, the Finance Ministry gave a RM4.3 billion soft loan to PKFZ for further development.

In May 2008, PKA chairman Datuk Lee Hwa Beng announced that an independent audit by PriceWaterhouseCoopers had been commissioned for PKFZ and findings were released the following year.

Then transport minister Datuk Seri Ong Tee Keat set up a special task force to make recommendations to the PKA on its failures and legal actions against guilty parties.

After recommendations by the task force, the PKA lodged a police report over financial irregularities against KDSB and project consultant BTA Architect on possible fraudulent claims.

The PKA later filed two suits against KDSB and another two against PKA general manager Datin OC Phang and BTA Architect.

In December 2010, Phang and two others were charged with criminal breach of trust and making false claims in the Klang Sessions Court.

Ong was later dropped as transport minister and replaced by Tan Sri Kong Cho Ha, who said there was no need to relook at the PKFZ scandal.

The PKA decided not to make any final payment to KDSB’s special-purpose vehicle Free Zone Capital Bhd but Kong overrode the decision.

Former transport ministers Tan Sri Chan Kong Choy and Tun Dr Ling Liong Sik were charged in court.

Ling was acquitted by the High Court of a charge of cheating the government and the Cabinet involving the purchase of a 335.8ha parcel of land totalling RM1.08 billion.

Charges against Chan were withdrawn. He was charged with three counts of cheating then prime minister Tun Abdullah Ahmad Badawi by deceiving the latter into approving KDSB as the turnkey developer and renovation works between 2004 and 2006.

Chan was accused of not disclosing to Abdullah that the project was to be funded by a KDSB bond supported by him.

The first KDSB suit, which is now being withdrawn, disputes the computation of interest that could amount to RM720 million.

The PKA had sought a declaration that the interest charged on the balance purchase price of the land was wrongly imposed.

It said KDSB had sold the land to the PKA for RM1.088 billion on a “special value” basis. The contention was that the valuation had already taken the interest into consideration and that it should not charge any additional interest.

In the second suit, the PKA is seeking a rescission of all development agreements and declaring that KDSB is only entitled to be paid a reasonable value of work done.

The PKA alternatively wanted a declaration that all notices of payments issued by KDSB were null and void.

It also wanted a declaration that KDSB was not entitled to almost RM837 million in claims, which it made for the monsoon drain and water supply works, preliminaries, professional fees and variation works under the development agreements.

It was also seeking almost RM34 million in damages for the remedial cost of defective works.

In the suit against BTA Architect, the PKA sought damages for fraud and negligent misrepresentation, with interest and costs.

The PKA also wanted a declaration that the interest rate increase from 5% to 7.5% for additional development works was null and void.

In October 2009, the PKA sued Phang for breach of duty during her tenure.

It said Phang had failed to ensure that key agreements had adequate terms to safeguard its interest.

She had allegedly appointed a quantity survey firm linked to KDSB, resulting in a conflict of interest.

The PKA also claimed that Phang had caused the PKA to enter into further key agreements, without referring to board members for deliberation and approval.

The PKFZ issue remains a thorn on the government’s side, with allegations of cronyism, conflict of interests and now a cover-up.

At one point, former housing and local government minister Tan Sri Chor Chee Heung held the positions of PKA chairman and WBHSB deputy executive chairman.

 

This article first appeared in The Edge Financial Daily, on November 24, 2014.