Special Report: PKFZ — no conviction after eight years and six criminal cases

This article first appeared in The Edge Malaysia Weekly, on January 25, 2021 - January 31, 2021.
PKFZ, modelled after the UAE’s Jebel Ali Free Zone project in the Middle East, was first mooted during Tun Dr Mahathir Mohamad’s administration in 2002 (Photo by Kenny Yap/The Edge)

PKFZ, modelled after the UAE’s Jebel Ali Free Zone project in the Middle East, was first mooted during Tun Dr Mahathir Mohamad’s administration in 2002 (Photo by Kenny Yap/The Edge)

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SIX criminal prosecutions in eight years over the scandal-ridden Port Klang Free Zone project with nothing to show for it is difficult enough to fathom. But to add insult to injury, on Jan 13, the Federal Court threw out the prosecution’s bid to seize RM37.8 million worth of cash and properties involving the purported ill-gotten gains from the cost overruns that caused the PKFZ’s development cost to hit RM7.86 billion from an initial estimate of RM2 billion.

The apex court dismissed the prosecution’s appeal on the grounds that it had failed to relate how the purported breaches of the law led to Kuala Dimensi Sdn Bhd (KDSB) — the owner and main contractor of the project — and its then CEO and Member of Parliament for Bintulu Datuk Seri Tiong King Sing acquiring the properties and cash.

This was the prosecution’s last attempt to bring anyone to justice or obtain some form of compensation in the multibillion-ringgit scandal that tarnished the reputation of a number of politicians from the then ruling Barisan Nasional coalition, apart from Tiong. In the end, it all came to naught.

Datuk Lee Hwa Beng —  who led the probe into the irregularities at PKFZ when he was chairman of the Port Klang Authority (PKA) — is  disappointed with the outcome. He claimed that the prosecution could have done a better job had they taken the trouble to read his book that was published several years ago.

In dismissing the forfeiture case, the apex court had some scathing comments for the prosecution, taking it to task for its lack of preparedness in presenting its case. The 30-page judgment by Federal Court judge Datuk Seri Hasnah Mohamed Hashim, who was part of a three-member bench, was telling.

In her judgment, Hasnah rebuked the prosecution for merely stating the facts with scanty documentary evidence. “There must be more cogent documentary evidence to support the averments made and that all facts necessary to prove their case must be presented and are probably true.

“The affidavits in support left much to be desired as there are serious gaps and they are devoid of any linkages to the commission of the offence when considered in the light of the mandatory requirements as provided under Section 56 (1) Anti-Money Laundering and Anti-Terrorism Financing Act (the precursor to the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act).”

Hasnah said the prosecution had failed to provide the names, identities and sources of information that it had relied on, the reasons for its belief in the information or the involvement of each of the eight respondents: Tiong and KDSB, Transshipment Megahub Bhd, Coastal Skyline Sdn Bhd, Wijaya Baru Aviation Sdn Bhd, Wijaya Baru Sdn Bhd, Wijaya Baru Construction Sdn Bhd, Law Ka Hieng and the Selangor State Development Corp (PKNS).

The judge stressed that the prosecution needed to prove that an offence had been committed on the balance of probabilities — the civil standard of proof. “The burden of proof in civil proceedings, unlike in criminal cases, is on a balance of probabilities. And since this is a civil forfeiture case, this standard of proof is adopted to prove or disprove the case, whereby the court must be satisfied by at least 51% that an offence had been committed.

“On the factual matrix of the case, it is patently clear that the prosecution failed to link the properties to the purported illegal transaction and/or illegal activity that the proceeds are as a result of the predicate offence (to which the court may rule forfeiture is allowed),” Hasnah pointed out.

Coming a few years before the 1Malaysia Development Bhd (1MDB) scandal, the PKFZ project had many of the same conditions that resulted in financial mismanagement and collusion, and ultimately taxpayers were left to shoulder billions of ringgit in debt: a complete disregard for the board of directors, government rules and regulations and a lack of checks and balances by the relevant bodies or agencies tasked with oversight.

Two former transport ministers, one former general manager of a statutory body and three individuals connected to the construction of the PKFZ were charged between 2009 and 2011. All were acquitted.

Although purported breaches were discovered, which resulted in a sharp escalation of project cost, no one has been found criminally liable. This leads to questions as to who should be held responsible for the additional costs incurred.

Modelled after the UAE’s Jebel Ali Free Zone project in the Middle East, PKFZ was first mooted during Tun Dr Mahathir Mohamad’s administration in 2002, when an agreement was inked with the Arabs. The project ambitiously aimed to make Port Klang among the top three busiest ports in the world and contribute substantially to Malaysia’s GDP.

Initially, Putrajaya planned to develop the project in two phases but it later decided to frontload the investment. About 1,000 acres of land owned by KDSB was acquired by PKA and the government for RM1.09 billion or RM25 per sq ft (psf).

Tiong, who was KDSB’s chief executive, owned 70 % of the company. Interestingly, KDSB had acquired the same parcel of land for RM95 million or RM3 psf from Pulau Lumut Development Cooperative Bhd.

Not only did KDSB benefit from the land sale, it was also appointed the turnkey contractor for PKFZ, with development costs subsequently morphing to RM7.85 billion from an initial budget of RM1.088 billion to RM2 billion after further refinancing in 2018, as revealed by then transport minister Anthony Loke.

Land bought at inflated prices after which interest was added

Among the senior cabinet ministers to be charged was former transport minister Tun Dr Ling Liong Sik. During his trial, it was revealed that the price of the land at RM25 psf included a calculation of interest made by the Valuation and Property Services Department (JPPH), which comes under the Ministry of Finance (MoF).

However, Ministry of Transport (MoT) papers tabled to the cabinet stated that the RM25 psf price did not include the 7.5% interest charged. As a result, Mahathir’s cabinet approved a much higher land acquisition and development cost of RM2.44 billion.

Charged with deceiving the cabinet and two additional charges of cheating the cabinet, Ling — the former president of the Malaysian Chinese Association (MCA) who was transport minister from 1996 to 2003 — maintained in his defence that ministry officers had prepared the documents and that he was not involved in the preparation of the cabinet papers.

Mahathir, former culture and tourism minister Tan Sri Abdul Kadir Sheikh Fadzir and former human resources minister Datuk Dr Fong Chan Onn were among the witnesses called by Ling’s defence. They told the court they were aware of the 7.5% interest charged, thereby negating the prosecution’s argument that Ling had deceived the cabinet. The High Court ordered Ling’s acquittal as the defence had raised a reasonable doubt.

Tan Sri (then Datuk Seri) Chan Kong Choy, who replaced Ling as transport minister, was charged in 2011 with three counts of deceiving Tun Abdullah Ahmad Badawi’s cabinet between 2004 and 2006. But the trial did not proceed as all charges were withdrawn in 2014, following Ling’s acquittal a year earlier.

The former MCA deputy president was alleged to have misled Abdullah in 2004 into approving KDSB as the turnkey developer for Pulau Indah at an estimated cost of RM1 billion and deceiving the then prime minister of RM510 million in further development work at PKFZ a year later. Chan’s final charge was related to cheating the cabinet over infrastructure work in early 2006 that amounted to RM336 million.

According to documents released by WikiLeaks last week, a cabinet memorandum from the MoF dated June 22, 2007, showed that the government had to cough up more than RM4.63 billion to rescue the over-budgeted project and that approval had to be given retrospectively after the agreements had been signed.

The rescue package included raising RM4.63 billion in government-guaranteed bonds through letters of support issued by the MoT.

Lee, who helmed  PKA from 2008 to  2011, alleges that the modus operandi at PKFZ was almost similar to that at 1MDB, with the use of government guarantees to secure mega loans to fund various projects at inflated costs and, ultimately, passing on the debt burden to taxpayers.

Phang found liable but already a bankrupt

By Hafiz Yatim

 

Datin Paduka O C Phang has been the only person found responsible for the mega cost overrun in the 2006 Port Klang Free Zone (PKFZ) project, whose initial estimated cost of nearly RM2 billion finally ballooned to RM7.85 billion.

The conclusion, however, did not stem from a criminal suit, but a civil suit filed by the Port Klang Authority (PKA) against its former general manager. Even so, the court’s finding of liability in 2018 has proved scant consolation as Phang was declared a bankrupt a year later, court documents uncovered last week show.

Court documents show a bankruptcy petition was filed by 23 former directors of PKA in September 2019 after Phang failed to pay them RM80,000 in costs as ordered by the court after her attempt to make them jointly liable was thrown out by the judge.

In 2018, the Shah Alam High Court found Phang responsible for 11 of 15 purported breaches of duty alleged by PKA. Subsequently, it directed her to pay PKA damages assessed at RM2.644 billion plus nearly RM210,000 in costs — sums PKA is unlikely to receive given that she has been declared a bankrupt.

Phang filed an appeal to the Appeals Court against the High Court’s decision, but as she was already adjudged a bankrupt, in January 2020, the director-general of the Insolvency Department filed to withdraw her appeal, which resulted in the upholding of the High Court’s decision .

Initially, Phang had faced criminal charges. In 2009, she was charged at the Klang Sessions Court with three counts of criminal breach of trust committed between Oct 1, 2004 and May 9, 2006 involving RM254.85 million, entrusted to her as PKA general manager.

But the charges were withdrawn in November 2016, following the Attorney-General’s Chambers’ acceptance of her representation to withdraw the charges. Subsequently the Sessions Court granted her an acquittal.

A month later, in December 2016, PKA instituted a civil suit against her. After two years, the High Court found Phang, who had served as the authority’s general manager for 11 years (September 1997 to June 2008), liable for 11 breaches.

15 breaches listed in suit

PKA counsel Datuk Lim Chee Wee said as general manager, Phang was bound by the Statutory Bodies (Discipline and Surcharge) Act 2000 and the PKA Financial Rules, as well as Treasury Department circulars and guidelines which, among other things, stipulated that she must act honestly, in good faith and exercise her powers for PKA’s benefit and interest.

Lim, who appeared with Khoo Guan Huat, pointed out that Phang should not put herself in any situation of conflict of interest, or act for her own benefit or that of a third party.

The 15 purported breaches included non-compliance with Treasury guidelines and failure to ensure that material terms to safeguard PKA’s interests were included in eight key agreements.

 

Other breaches included:

•     Failure to ensure the independent appointment of a quantity surveyor for the PKFZ project,

•    Failure to not refer key agreements to the PKA board members for deliberation and approval,

•    Not adhering to conditions of self-financing, and

•    Failing to act in PKA’s interests on the issue of deferred payments versus government-guaranteed bonds, resulting in a loss of RM532 million to PKA.

In addition, Phang was alleged to have failed to act in PKA’s interests in that the authority had overpaid Kuala Dimensi Sdn Bhd (KDSB) for land acquired (RM25 psf plus interest). She had also failed to ensure that PKA was not overcharged interest by KDSB (simple interest versus compound interest), as well as failed to conduct open and competitive tenders and entered into a contract of no commercial value and incurring an additional liability of RM49.367 million.

Under her watch, PKA signed eight agreements with KDSB, which was the owner of the 1,000-acre land as well as the key contractor for the PKFZ project, which began in 2002 under then Prime Minister Tun Dr Mahathir Mohamad and continued under his successor Tun Abdullah Ahmad Badawi.

In his opening statement, PKA’s lawyer Lim said: “However, Phang had failed to refer any of the key agreements to the PKA board members for their deliberation and approval, prior to their execution. In her defence, she says she had the approval of the PM.”

Phang acted before obtaining cabinet approval

The PKA chairman at that time, Datuk Lee Hwa Beng, told the court of how Phang had disregarded the board of directors and agreed to purchase the land from KDSB even before the cabinet gave its approval.

Phang informed PKA management on Oct 10, 2002 that the land purchase was still awaiting the Ministry of Transport’s (MoT) decision. However, on Nov 6, she issued a letter of offer from PKA to KDSB to purchase the site.

The cabinet only approved the purchase two weeks later after Dr Mahathir gave the green light.

There was yet another breach of fiduciary duty in 2006, Lim contended, when Phang agreed to increase the interest charged on additional development work, which included improving the construction of the PKFZ junction, as well as electrical infrastructure and a hotel, totalling RM726.49 million.

Again, she bypassed the board, going directly to then Transport Minister Datuk Seri (now Tan Sri) Chan Kong Choy.

Former PKA chairman Lee told the court, “Phang has breached her statutory duty as PKA GM, resulting in the increase in interest charged from 5% to 7.5% calculated on a yearly basis, which involved additional interest of RM49.367 million incurred, without first presenting [the matter] to PKA members for consideration. This resulted in PKA bearing the additional liability.”

Lee also contended that in a letter dated Feb 24, 2006, Phang had sought Chan’s instructions over KDSB’s request for the additional works. In her letter, she told Chan that the PKA board viewed KDSB’s request to be reasonable when in fact the board had not been consulted.

“On March 28, 2006, Chan had to write a letter to Abdullah requesting the PM’s approval to increase the interest chargeable by KDSB from 5% to 7.5%. The next day, the PM consented to the Transport Ministry’s proposal and PKA was informed of the PM’s approval.”

Cross-examined by Phang’s counsel Matthew Thomas Philip, Lee agreed that decisions related to the PKFZ project were made by the MoT and Ministry of Finance (MoF), and that KDSB had made the initial offer to MoT and not to PKA.

In his summation, Philip argued that his client had no case to answer as PKA had failed to call vital witnesses, including Datuk Yap Pian Hon and Tan Sri Ting Chew Peh — both former chairmen of PKA.

Court rejects ‘no case to answer’ argument

Justice Gunalan, now a Court of Appeal judge, rejected the defence’s contention.

He said it was not for the court to make a specific finding of breaches of duty by Phang and that it would suffice if a prima facie case had been made out on the alleged breaches.

He added that the crux of PKA’s case remained unrebutted in view of Phang’s failure to call important witnesses, such as the transport minister, to prove that she was merely acting on the instructions of MoT or MoF, or the PM, in executing her duties and the various agreements, without referring to the board.

Gunalan said Phang owed her duty to PKA, a statutory body, as its general manager, and as such, could not bypass the board and rely solely on sanctions from MoT, MoF and the PM to enter into the agreements, which were binding on PKA.

“It is erroneous for Phang to contend that the treasury guidelines were not binding or applicable to her or that she had not known of the same. Phang cannot in principle rely solely on the protection of the MoT for her actions,” Gunalan said in finding that she had breached her duties as PKA general manager by entering into agreements without first consulting the board.

Some segments contend that Phang was made a scapegoat in the scandal, and following the judgment, she attempted to make the PKA directors also liable. But the judge dismissed her suit and ordered her to pay costs of RM80,000 to them.

The directors filed a notice of bankruptcy against her following her failure to pay.

PKFZ after 15 years

By Syahirah Syed Jaafar

 

Port Klang Free Zone (PKFZ) is currently undergoing a redevelopment of its 1,000-acre industrial and commercial facilities as Port Klang Authority (PKA) — the statutory corporation established to manage Port Klang — seeks to repay over the next 29 years, a RM3.8 billion loan extended by the government for the development of the zone.

Former transport minister Anthony Loke announced a transformation master plan in October 2019 aimed at fully utilising PKFZ’s 380ha (950-acre) industrial zone and transforming its 20ha commercial components.

PKA said as at Oct 31, 2019, the occupancy rate at PKFZ was 97.8% for the open land and 80.7% for the light industrial units.

PKFZ is in its 16th year of operations, and last year, its new chairman, Datuk Lawrence Low, alluded to short- and long-term plans, including future expansion and development.

PKFZ is currently the world’s 12th busiest port in terms of throughput volume

“There is still a lot of room to grow despite the almost full utilisation of the land. We have a strategic location and are very competitive,” news reports quoted him as saying last year.

Low was appointed in May 2020 on a two-year contract until 2022, replacing Chan Leng Wai, who stepped down from the post in April of the same year.

Low said he would apply his 20 years of experience in government and business and leverage his network to bring investments and businesses from abroad, especially in the logistics industry.

Situated in Port Klang, PKFZ is regarded as Malaysia’s first integrated free zone, providing facilities for international cargo distribution and consolidation.

It has been designed to promote entreport trade and manufacturing industries involved in producing goods primarily for export. Gazetted as a free zone, PKFZ incorporates both commercial and manufacturing activities that are further supported by quality and value-added services, its website states.

It also offers consolidated facilities where factories and logistics firms can be located in the same zone to allow for easier co-ordination and smoother supply chain management.

The zone is currently ranked 12th on the world's busiest ports list in terms of throughput volume.

PKA said Port Klang recorded a decrease in container handling of 2.5% to 13.2 million twenty-foot equivalent units (TEUs) last year, compared with 13.5 million TEUs in 2019.

The decline, it said, was due to the impact of the Covid-19 pandemic, as trade demand was weak due to the implementation of the Movement Control Order and the closure of national borders.

This was despite import container throughput recording a growth of 0.4% or 2.55 million TEUs in 2020, compared with 2.54 million TEUs in 2019.

Total export container handling grew 3.2% or 2.56 million TEUs last year, compared with 2.48 million TEUs in 2019.

In terms of transshipment volume, Port Klang handled 8.11 million TEUs last year, down 5% from 8.54 million TEUs in 2019.

PKA chairman Datuk Chong Sin Woon said following the expected economic growth driven by continued export activity and increased momentum in consumption and investment, PKA is targeting Port Klang to handle 13.5 million TEUs this year, with a potential increase of 2.3% in total container handling.

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