THE PORT KLANG FREE ZONE (PKFZ) ISSUES

• Ong Tee Kiat setting up special task force
• PKA lodges police report over billing discrepancies
• Report lodge by Datuk Lee Hwa Beng against developer KDSB and BTA architect

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• PKA through lawyer filed suit against Phang
• Phang failed to exercise due care,diligence and skill in discharge her duties
• On 10 december 2009, OC Phang and two others charged with criminal breach of trust

BY THE COMPANY

SOLUTIONS THAT HAVE BEEN MADE

THE PKFZ ISSUES

PREPARED BY :

Issue 1  –  The proposal to purchase the Land was approved by the Cabinet. However, subsequent development proposals were not tabled to the Cabinet for approval.

Issue 2  – PKA failed to alert the Cabinet in a timely manner of its inability to finance the Project from its internal funds.

Issue 3  – The Board did not exercise oversight and governance over the implementation of the Project.

Issue 4  – Advice of the Attorney General was not sought and certain MOF regulations were not complied with.

Issue 5  – There could be potential conflicts of interest arising from the involvement of parties who had prior association with either the Land or KDSB.

Issue 7  – PKA could have reduced its funding costs had it complied with MOF’s recommendation to issue government-guaranteed bonds and developed the Project in phases.

Issue 6  – Interest from the MOF soft loan will increase the Project outlay from RM4.947 billion to RM7.453 billion. Unless the MOF soft loan is restructured, total outlay for the Project will increase to RM12.453 billion

Issue 8 – The Land was acquired at special value which exceeded market value.

Issue 9 – KDSB may have overcharged PKA for interest by between RM51 million and RM309 million in connection with the purchase of the Land.

Issue 10 – DA3 was not a ‘fixed sum’ contract and did not stipulate a rate for professional fees claimable by KDSB.

NURUL HIDAYYAH BINTI MUSA

BM16200044

BACHELOR OF BUSINESS ADMINSTRATION

WHAT IS PKFZ ?

Port Klang Free Zone or PKFZ is an integrated 1,000-acre Free Commercial and Industrial Zone providing facilities for international cargo distribution and consolidation centre. PKFZ is situated in Port Klang, adjacent to port, the world’s 11th ranked port in 2016 in terms of throughput volume.

THE PORT KLANG FREE ZONE (PKFZ) ISSUES

WHY DID THE FOREIGN PARTNER PULL OUT?

FINANCIAL MANAGEMENT (FIN2213)

Issue 11 – PKA incurred claims of RM95.256 million for general preliminary cost not expressly specified in the DA.

Issue 12 – The final account for DA3 did not include any deduction for value of work not done on three infrastructure components in the Land purchase agreement

.Issue 13 – The RM1 billion development contract was awarded to KDSB before a project masterplan was completed.

Issue 14 – PKA may not have received value for money due to its heavy reliance on KDSB as the turnkey developer.

Issue 15 – Project management and control over the Project was weak.

Issue 16 – Project status as at 31 December 2008 – only the LIU has been issued with CF; defect liability period has expired and certain defects remain to be rectified.

Issue 17 – PKA has projected that it will be in a cumulative cash deficit position in 2012 and will not be able to repay the MOF soft loan instalments from that time on.

Issue 18 – Letters of support issued by MOT could not be construed as a guarantee that PKA would meet its obligations on a full and timely basis.

Issue 19 – The Project’s actual occupancy of 14% is low and it is not generating sufficient revenue to cover its operating expenses

.Issue 20 – PKFZSB has incurred losses since its incorporation and has negative shareholder’s fund as at 30 September 2008.

Jebel Ali Free Zone Internation (Jafza), the Dubai-based company appointed to managed PKFZ terminated its 15 year-contract, withdrew from the project in July 2007, citing 'strategic purposes'.

A newspaper report on Jafza's pullout, which cited documents relating to the project, said the separation was acrimonious and due among others to interference by politicians and others with vested interests.

BOND LIABILITIES

The Port Klang Authority (PKA) paid RM1.09 billion for the land to be settled over 15 years in a deal that was backed by a government guarantee and Kuala Dimensi sold bonds worth 1.3 billion ringgit. Kuala Dimensi sold 1.4 billion ringgit of bonds, again backed by a government guarantee to develop the site.

Two more tranches of bonds with a total face value of more than one billion ringgit were then sold.

HOW DID SCANDAL UNFOLD ?

RECOMMENDATION

POLITICAL DEMINSION

Land for the project was acquired by a company, Kuala Dimensi, whose shareholders include senior politicians from the ruling United Malays National Organisation (UMNO), the lead party in the National Front coalition that has ruled Malaysia for 51 years, as well as politicians from other Front component parties.

The port authority reportedly ignored advice from the government chief legal adviser and bought the land from the company in 2002 for 1 billion ringgit, or about 25 ringgit per square foot, compared with the 3 ringgit per square foot which the company acquired the land for.

The company was later awarded sole rights to develop the zone without competitive bidding. Kuala Dimensi later raised funds through the issuance of bonds backed by the Transport Ministry.

PricewaterhouseCoopers was later called in by the Port Klang Autrhority (PKA) to prepare a report amid mounting public anger.

PKFZ came under public scrutiny due to its escalating cost. Previously, the government had said the project would not cost more than 4.6 billion ringgit.

On 5 May, MPs briefed by the authority told reporters that the cost of the project could exceed 10 billion ringgit.

• Before sign a loan agreement, the company and the government should explain to public why they are qualified to take the loan.
• Tasks and responsibilities of the board of directors- BOD must ensure the strength of company management and make sure all every one that involve with the company have knowledge about the company and their works.
• The company should take further steps to prevent breach of trust and breach of duties.

The heads of the PKA have all been senior leaders from the Malaysian Chinese Association, the second largest party in the National Front coalition.

Among its board members, Kuala Dimensi has Azim Zabidi, who was a one-time treasurer of UMNO. Tiong King Sing is director of Kuala Dimensi and treasurer of the Sarawak Progressive ( PGR – news – people ) Democratic Party, another member of the coalition.

Also involved in the project are a former UMNO youth leader from Selangor state, Faizal Abdullah, whose father-in-law, Onn Ismail, is another influential figure in Selangor UMNO, was a former chairman of the cooperative that sold the land to Kuala Dimensi.