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PKFZ Timeline

Contributed by adminFriday, 11 September 2009 11:39

By Hakim Joe

This timeline starts from the moment PricewaterhouseCooper (PwC) released its report until today. First, before weeven start, it must be noted that the PwC report is a position review and not a comprehensive evaluation of the PKFZ.That the Transport Minister had limited the scope by restricting the terms of reference, PwC is therefore in no position toformulate an accurate assessment of this debacle.First and foremost, the pertinent question remains how a 2002 RM1.8 billion project had snowballed to a staggeringRM12.5 billion venture, a seven-fold increase over its initial estimation. Financing interest, the inflation rate, raw materialprice increases and normal costs overruns could not possibly have contributed to it alone. Even extremely poorestimation skills by those involved in the preparation of the project plan could not be solely held responsible for thismadness. Somewhat and somehow, someone (or rather a group of people) has taken advantage of the alleged sloppymanagement by the owners to greatly benefit financially from it. Someone audacious and influential enough to disregardthe consequences and someone who thinks that he (or she) can get away with it. To even contemplate theft on such a

massive scale, a lot wheeling and dealing must have been pulled off where the benefactors would have agreed toprotect one another, if ever discovered. This was not a simple con job entailing a couple of thousand bucks, nor is it anelaborate scheme involving a few million bucks but a daylight robbery where billions are siphoned off. The overt playersalone are impressive. Tun Dr Ling Liong Sik (former MCA president and Transport Minister) Datuk Seri Chan KongChoy (former MCA VP and Transport Minister), the three former Port Klang Authority (PKA) Chairmen, Tan Sri TingChew Peh, Datuk Yap Pian Hon, Datuk Seri Chor Chee Heung (deputy Finance Minister) and the developer cumBarisan Nasional Backbenchers Club Chairman Datuk Seri Tiong King Sing. We must of course not forget the currentMCA president, Datuk Seri Ong Tee Keat (OTK). If these are the people that are out in the open now, what about thosethat remained covert? Would you believe it if someone told you that these are the only people involved in the nation'slargest "so-far-revealed" scam?To OTK, this was the definitive "Sword of Damocles" where it is a case of "die-if-you-do-and-die-if-you-don't". To have

a reasonable chance of winning the MCA presidency, OTK had resorted to becoming the devil's advocate, threateningto reveal the PKFZ scandal and thus hoping to become the new champion of the Chinese in Malaysia. Well, OTK did

eventually win the MCA presidency but if he had thought that his words and deeds were going to be quietly forgotten, hehad another think coming. The matter of fact is that the PKFZ issue gained national interest after he brought it up.(Ronnie Liu had spent the last 4 years attempting to nationalize this subject but was perceptibly unsuccessful.) Tosatisfy the appetite of the public, OTK had commissioned PricewaterhouseCooper (PwC) to conduct a position reviewwith a very limited term of reference, hoping that this restriction would prevent the auditors from coming out with adamning report. Well, he thought wrong (again). In retrospect, he could have done a Semi-Value "gua tak tahu" or aTDM "I cannot remember" but those lines were purely reserved for entrenched party presidents and not a newly mintedone. Bad luck. He could still have quoted OSA (Official Secret Act) when the PwC report was ready but that's reservedfor Umno cadres only. Doubly bad luck. Going into the record books as the shortest ever serving MCA president wasnever really on his agenda and henceforth the "limited" and "regulated" release of the PwC report to the public. So, what really did happen? Was the writing already on the wall even then? The RM3 million dollar PwC report

exposed more from its restricted audit results than its limited findings. If a picture paints a thousand words, the "missing"audited sections revealed that this was evidently going to be a cover-up job (after all). Hell, even the header says it all,

"The Report is limited in scope". Would the taxation department accept my company's audited report that is "limited inscope"? Perhaps OTK erred badly when he presuppose that all readers who took the time to digest the PwC reportwere incapable of comprehending the financial gibberish as adopted by high-paying accountants and auditors throughtheir usage of grandiloquent financial language. However said, there was no withholding the facts when the PwC reportwent online. What was not reported was more "obvious" than the items that were reported and the public actuallyunderstood the findings of the PwC report. Triply bad luck. Let's take a look at the damning PwC report, section 4 to beprecise "Matters for the Attention of the Board". Issue 1 The proposal to purchase the Land wasapproved 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 internalfunds. 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 priorassociation with either the Land or KDSB. 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 willincrease to RM12.453 billion. Issue 7 PKA could have reduced its funding costs had it complied with MOF'srecommendation to issue government-guaranteed bonds and developed the Project in phases. Issue 8 TheLand was acquired at special value which exceeded market value. Issue 9 KDSB may have overcharged PKAfor interest by between RM51 million and RM309 million in connection with the purchase of the Land. Issue 10

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DA3 was not a 'fixed sum' contract and did not stipulate a rate for professional fees claimable by KDSB. Issue11 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 threeinfrastructure components in the Land purchase agreement. Issue 13 The RM1 billion development contractwas awarded to KDSB before a project masterplan was completed. Issue 14 PKA may not have received valuefor money due to its heavy reliance on KDSB as the turnkey developer. Issue 15 Project management andcontrol over the Project was weak. Issue 16 Project status as at 31 December 2008 only the LIU hasbeen 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 loaninstalments from that time on. Issue 18 Letters of support issued by MOT could not be construed as aguarantee that PKA would meet its obligations on a full and timely basis. Issue 19 The Project's actualoccupancy of 14% is low and it is not generating sufficient revenue to cover its operating expenses. Issue 20PKFZSB has incurred losses since its incorporation and has negative shareholder's fund as at 30 September2008. What was not said was that a lot of the Additional Development Works (ADW) contracts between PKA and KDSBwere signed under common seal and authenticated by the PKA top management and that the Cabinet's approval wasnot obtained. Datin Paduka OC "I-don't-know-what-is-projected-cashflow" Phang's signatures would have been on allthese contracts. As PwC's audit scope was not called to scrutinize these ADW contracts, and unless the federalgovernment look into it right now, it will remain a grey area where accountability is missing. But then again, the federalgovernment might not be actively looking for a scapegoat, let alone those responsible for it. Another point of viewrevolves around the buzz that these ADW contracts might not have been tabled in either the Parliament or Cabinet, butreceived formal approval directly from the PM. We are talking about a tidy sum of RM1.2 billion. What does an ADW

contract entails anyway? Well, basically it involves additional infrastructure work that will be undertaken by thedeveloper. These are work that was not specified in the original masterplan. However, the amount stated is staggeringowing to the fact that the original budget for the entire project only amounted to RM1.8 billion. RM1.2 billion is anadditional 66% of total project cost. (There were 2 ADWs and 1 NADW contracts signed between 30 November 2005and 26 April 2006.) The Transport Minister then was Tan Sri Chan Kong Choy, the PM was Tun Abdullah Badawi andthe PKA Chairman was Dato' Yap Pian Hon. These three ADW contracts were signed under common seal andauthenticated by Datin Paduka OC Phang. The entire PKFZ project reeked of (deliberate or otherwise) mismanagementand manipulation from the onset. First and foremost, the price of the procured land was higher than the market value.KDSB bought the 405 hectare (999.5 acres) land for RM95 million from Pulau Lumut Development Cooperative Bhd inthe late 90s. (First parcel of land at RM1.37 psf and the second parcel of land at RM2.98 psf.) They then resold thesame plot of land to PKA a few years later for RM1.09 billion (in 2002) thus making a 1147% profit in the process.Coincidentally, the PKFZ project was also conceived in the late 90s, just about the exact time when the land waspurchased by KDSB. KDSB henceforth made a paper profit of RM995 million. It was later revealed that the Attorney-

General had said that the land could have been acquired for a "public purpose" under the Land Acquisition Act at RM10psf rather than RM25 psf that PKA paid for. That is a premium of RM654 million (that just went into someone else'spockets). BTW, the Transport Minister then was Tun Ling Liong Sik, the PM was TDM and the PKA Chairman wasDato' Dr. Ting Chew Peh. Additionally, PKA appointed Rashid Asari & Co, a firm on KDSB's legal panel and not theirown, to handle the sale. Rashid is vice-chief of Umno Kapar. The head of Pulau Lumut Development Cooperative Bhd atthe time of sale was Tan Sri Dato' Seri Haji Onn Haji Ismail, who was also the Permanent Chairman of Umno Kapar.Faizal Abdullah (0.8% shareholder of Wijaya Baru) is the deputy CEO of Wijaya, the Kapar Umno Youth Chief and son-in-law of Tan Sri Dato' Seri Haji Onn Haji Ismail. The present Chairman of Pulau Lumut Development Cooperative Bhdis Dato' Haji Abd. Rahman Haji Palil, is the division chief of Umno Kapar. The situation turned almost comical whenPKA awarded the entire project back to KDSB (27 February 2003). The former landowner is now the sole turnkeydeveloper of the PKFZ project. Initial development of PKFZ was only limited to 400 acres at a RM585 million budget(Agreement DA1). This would be appended (later) by agreements DA2 (26 May 2003) and DA3 (27 March 2004) thatwould bring development to the entire 999.5 acres of land at a contract value of RM1.216 billion (QS4 assessment of the

cost is only RM1.118 billion, a difference of RM98 million). Total PKFZ project price (2003) is now revised to RM2.306billion (including interest costs). Coincidentally, Dato' Seri Abdul Azim Zabidi (former BSN Chairman and UmnoTreasurer) joined the Board of KDSB on 18 July 2003. To finance the development of PKFZ, the Securities Commissionapproved the issuance of bonds by a bankruptcy remote special purpose vehicle, Special Port Vehicle Bhd (SPV), toacquire the future receivables from the PKA. This resulted in the issuance of RM1.31 billion asset-backed serial bondson 21 July 2003. (Abdul Azim Zabidi joined the Board on Friday and the issuance held the following Monday.) GreatProfile Sdn Bhd (fully owned by Wijaya Baru Global Bhd of which Datuk Seri Tiong is a 70% stakeholder) receivedRM820.1 million of this amount as full payment for the purchase of the land (which is minus the down payment alreadymade).Following the signing of the DA2 and DA3 agreements, KDSB (developer) appointed Wijaya Baru Sdn Bhd (affiliated

company) as the main subcontractor. On 24 October 2003, PKA appointed JAFZI as the project consultant to carry outthe masterplan and assessment studies for a fee of US$210,000. Additionally, Jebel Ali Free Zone International (JAFZI)was also appointed to operate and manage PKFZ for 15 years at a fee of US$12.3 million. The report was submitted toPKA on December 2003 but the Operation & Management agreement was terminated in 2007 owing to irreconcilabledifferences four years later. Agreement DA3 was a supplementary agreement to DA1 expanding the scope of work byKDSB from 400 acres to 1000 acres for RM1 billion on deferred payment basis. The actual contract was worth RM1.303billion (including interest) is payable over 8 years at 7.5% interest per annum. To facilitate the funding of thedevelopment costs, KDSB setup another special purposes company, Transshipment Megahub Bhd (TMB) which in turn

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issued RM1.095 billion fixed-rate serial bonds and up to RM360 million commercial papers/medium commercialpapers/medium term (CP/MTN) notes (to finance the development of the PKFZ) from November 2004 to August 2006.As part of the DA1 agreement, PKA paid RM100 million in 2004 to KDSB as initial payment for the development ofPKFZ with the balance being payable on a deferred basis, stretching up to 2017. The first of the ADW agreements(ADW1) was signed on 30 November 2005 for additional development works encompassing junction improvements andconstruction of electrical infrastructure and a business class hotel. To facilitate funding of these additional works,another KDSB company, Valid Ventures Berhad, was utilised to issue bonds worth RM510 million and up to RM85million CP/MTN (30 March 2006 to 12 December 2008). The total contract value is estimated at RM510.38 million,

excluding the variation order. The actual cost is in fact RM677.1 million inclusive of professional fees, variation orderand interest accrued on work done. Payments from the PKA is on a deferred basis, amounting to RM150 million perannum from 2007 to 2009, RM120 million in 2010 and the last payment in 2011. The payment comprises interestaccrued on balance payable to KDSB at 5% per annum. The second of the ADW agreements (ADW2) and the NADWagreement was signed on 26 April 2006 for additional development works at the PKFZ, comprising concrete trenchingfor electric cables, electrical works for 33KV power supply to designated precincts, civil infrastructure works to the mainintake station, direct access pad from the project site to Westport and a link road from the site's main access roads toWestport. To facilitate funding of these additional works, yet another KDSB company, Free Zone Capital Berhad, wasestablished for the purpose of issuing bonds worth RM410 million and up to RM 70 million CP/MTN. The ADW2 wasestimated to cost RM335.8 million, excluding the variation order and professional fees. The issuance of CP/MTN up toRM70 million was meant to finance the variation order and the corresponding professional fees for the additionaldevelopment works. Furthermore, ADW2 also specified that the interest rate is now being raised from 5% per annum to7.5% per annum.

The total amount raised so far by Special Port Vehicle Bhd (RM1.31 billion), Transshipment Megahub Bhd (RM1.42billion), Valid Ventures Bhd (RM545 million) and Free Zone Capital Bhd (RM410 million) amounts to RM3.685 billion.Four bond issues, four illegal letters of support (get it?) At this stage (September 2006) the PKFZ project cost hadalready rose from the original RM1.8 billion (2002) to RM5.495 billion (RM3.685 billion development cost + RM1.01billion land cost + RM800 million interest cost) and not the RM4.6 billion as reported. In June 2007, PKA madepayments of RM130 million to Special Port Vehicle Bhd and RM230 million to Transshipment Megahub Bhd afterobtaining a RM4.632 billion soft loan from the Government (20 years at 4% pa). The first tranche drawdown of RM920million was made on the same day the soft loan was approved.In July 2007, JAFZI decided to terminate the 15-year contract to operate and manage the free trade zone effective

from July 18, 2007. The Ministry of Transport saw this as an opportunity to apply the blame elsewhere and put out apress release blaming JAFZI for the mismanagement. Can one believe that JAFZI (the company that also managesPort of Kalang at the ultra-successful 11,860 acres Jebel Ali Free Zone at Dubai) could have been capable of thealleged "mismanagement" if PKA had been actively involved in the overall control of PKFZ? JAFZI's reason for

terminating the agreement was that they have a disagreement on how to manage the PKFZ with PKA.On 6 September 2007, PKA general manager Datin Paduka OC Phang and officials from the Transport Ministry

appeared before the Public Accounts Committee (PAC) but PAC chairman Datuk Shahrir Abdul Samad was not satisfiedwith answers pertaining to the project's financing. PAC investigators revisited PKFZ on 18 October but left with morequestions than answers.On 3 October 2007, PKA appointed QS4 (a consortium of quantity surveyors) to provide consultancy services with

regards to the work done in accordance to agreements ADW1, ADW2 and NADW. The professional fees? AnotherRM5.04 million.In November 2007, Transport Minister Chan Kong Choy dismisses suggestions that the RM4.6 million government soft

loan is a bailout, saying that it would be paid back as the lifespan of the free trade zone is about 50 to 60 years. (Therepayment schedule exhibited a time frame from 2010 until 2036, and not the 20-year loan as specified by OTK.) Thencame the Political Tsunami in 2008 and the MCA hierarchy was in dire straits. Chan Kong Choy had earlier steppeddown as a candidate for the federal elections stating ill health. Party president Ong Ka Ting declined to be a minister

and Umno blamed MCA for the bad election results. From this morass came OTK as the new MCA President who hadmade a solemn promise to "tell all". On 5 May 2008, Datuk Lee Hwa Beng took over as the new PKA chairman fromDato' Chor Chee Heung and Lim Thean Shiang took over from OC Phang as PKA general manager and executivechairman of PKFZ on 6 June 2008. Then came the damning PwC report which revealed mismanagement, clandestinedeals, conflicts of interest and a total disregard for transparency and accountability for a project which was supposed tocost RM1.845 billion but ended up at RM12.5 billion. From here on, blame was dished out arbitrarily like candies on aHalloween night. It was OTK in the one corner against Tiong on the opposite corner of the ring. A copy of the PwCreport was also forwarded to MACC. Datuk Lee and Mr Lim then proceeded to scrutinize the contracts against workcompleted and came out with their version of the scandal. They named five parties involved in the conspiracy to defraudPKA and PKFZ. They are (1) KDSB, (2) Datuk Seri Tiong, (3) Datin Paduka OC Phang, (4) BTA Architect and (5)Bernard Tan Seng Swee (consultant for development work).Amongst the alleged unsubstantiated claims (amounting to RM1.5 billion) include:- Procurement of Performance Bond and insurance Premiums which KDSB was not entitled to claim - RM5,016,000.- Monsoon drain works and water supply works which KDSB was not entitled to claim under DA3 - RM254,850,000.- Over claiming of professional fees based on Public Works Department (JKR) Standard Form of Agreement ForConsultancy Services Between Contractor And Consultants For Design & Build Contract - RM76,056,101.08.- Physical Construction of the electrical infrastructure for 33kv system works which had yet to commence -RM55,767,000.

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- Over claiming for the hotels works - RM24,934,244.14- Variation works claim which KDSB was not entitled to as the procedural requirement under the additionaldevelopment works (ADW) has not been complied with - RM62,189,000.- Providing 33kv supply to Precinct 2 and 8 and the civil and infrastructure work to Main Intake Station which had yetto be carried out - RM83,000,000.- Cost difference from re-measurement by JUBC Sdn Bhd of the Office Blocks and Light Industries Units -RM93,000,000.- Failure to make contributions to authorities for the basic infrastructure works as required under Land Agreement 1 -

RM2,249,742.29 Datin Paduka OC Phang was also reproached for:- Failing to consider PKA's ability to self-finance the purchase of the land and continuing to enter into significant andexpensive development contracts with KDSB on November 30, 2005 and April 26, 2006 totaling RM1.055 billion.- Failing to consider that the special value of RM25 psf had included interest, instead of RM25 psf on a deferredbasis with further or additional interest of 7.5%.- Refusing to heed the advice of her officers and other professionals, to appoint quantity surveyors for DA3, ADW1and NADW delaying the appointment of the quantity surveyors and thereafter limiting and restricting their role;- Insisting that Perunding BE Sdn Bhd be appointed as the sole quantity surveyor with the knowledge that the firmhad a conflict of interest, having been engaged by KDSB and/or its subcontractor for the same Project;- And, generally, in making unilateral decisions without the approval of the PKA members.

The relationship between OTK and Tiong soured after the latter alleged that he had contributed RM10 million in cash (in3 separate contributions) to MCA in 2007 via OTK, a fact vehemently refuted by OTK and MCA. MCA treasurer Tan SriTee Hock Seng told reporters that MCA had not received any donations from Tiong since he became party treasurerlast year. The "free" jet setting life of OTK just went up in smoke. And then came the allegations by OTK that DatukTiong was conspiring with sacked MCA VP Chua Soi Lek to topple him as MCA President and to conceal the PKFZscandal (or rather to perform damage control on it). It was also alleged that Datuk Tiong was in fact the numero unotaiko of the Hua Kiew Road Gang and that the underworld has already put a price on OTK's head (which explains whyPDRM assigned two UTK bodyguards to protect him). Furthermore, it was alleged that Tiong was bankrolling Chua tothe tune of RM100 million "to get things done". On 18 August 2009 MACC announced that they will assign a 30 memberpanel to probe the PKFZ scandal. The PDRM subsequently froze the accounts held by KDSB with funds of roughlyRM140 million, pending their own investigations into the scandal. Tiong has been interviewed by MACC investigatorstwice (at his air-conditioned office as opposed to Teoh's treatment at MACC offices) since. On 9 September 2009 theCabinet sat down to discuss a confidential report of the PKFZ prepared by a government-appointed task force headed

by senior Malaysian lawyer Vinayak Pradhan, a report that singled out former Transport Minister Chan Kong Choy; OCPhang, Tiong King Sing and the board directors of the port agency, for not carrying out their duties with adequate care.Will this confidential report be released to the public? The saga continues. Footnotes:- The real purchase price of the 999.5-acre project land was estimated at RM1.81 billion (inclusive of the 7.5%interest) and not RM1.09 billion.- Only the Ministry of Finance is legally authorised to issue Letters of Support.- Jabatan Penilaian dan Perkhidmatan Harta, Kementerian Kewangan valued the land at the market values of RM17psf (November 1998) and RM18 psf (May 2000) with access road and infrastructure. (RM13.50 without access roadand infrastructure.)- Agreement DA3 specified a RM1.303 billion project (including interest at 7.5%) but has ballooned to RM1.85 billion.KDSB claimed professional fees of RM121.592 million, an item not specified in the DA3 agreement.

- PKA's cash flow projections show that PKFZ is expected to be in cash deficit from 2012 and will not be in the blackagain until 2042. This projection was prepared by PKA and PKFZ on the assumption that PKFZ will achieve fulltenancy by 2018. PwC did not perform an audit on it because it was not included in the specified terms of reference.- Both Tiong and Chua denied the conspiracy allegations made by OTK.- Under the government's general orders, a civil servant is not allowed the use of the jets.- While the PwC report and subsequent findings by the new PKA management named many individuals, none hasbeen charged with a crime so far.- So far, the PM and DPM have not publicly given their support to OTK. Datuk Tiong is rumoured to be "close" to thePM.

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