Monday 13 August 2007

Port Klang Free Zone (PKFZ) Scandal: Stinks All the Way Up to Government and UMNO Politicians

The Port Klang Free Zone (PKFZ):
RM 4.6 BILLION investment of tax-payers money turning into a scandalous white elephant

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(Image courtesy of Rocky's Bru)


" The REAL disaster is when the powers-that-be allow the perpetrators go unpunished."
- Captain Yusof Ahmad of "Ancient Mariner" Blog

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"The UMNO Connection in the Scandal"
(Image courtesy of Mob's Crib)

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(Image courtesy of Malaysiakini)


Port Klang Free Zone Project. (Read here for more)

The free-trade zone project began as a joint venture between the Port Klang Authority and the promoters of the Jebel Ali Free Trade Zone (Jafza) in 1999 to attract foreign investment and promote the Malaysian port.

The land from the project belonged to Kuala Dimensi, whose current chairman is UMNO treasurer Datuk Azim Zabidi.

The company acquired the land in the 1990s for RM96 million, or roughly RM3 per sq ft.

When the Port Klang Authority proposed to buy the land from Kuala Dimensi, documents reviewed by The Straits Times show that the government body was advised to forcibly purchase the land under the country's Land Acquisition Act, which meant that
the property would have been valued at around RM10 per sq ft.

But the Port Klang Authority ignored the advice from the government's chief legal adviser and proceeded to buy the land from Kuala Dimensi in 2002 on a commercial basis, for RM1 billion, or roughly RM25 per sq ft, government documents show.

The authority also decided to award the now cash-flushed Kuala Dimensi SOLE rights to develop the free-trade zone.

To fund the development,
Kuala Dimensi raised funds through the issue of bonds that received the backing of Malaysia's Transport Ministry.

The UMNO and UMO Youth Political Connection in the Scandal
Malaysiakini (Read here for more)

The purchase of even a modest property requires separate lawyers working on behalf of the seller and buyer, each striving to get the best deal for their own clients.

This was NOT the case with the Port Klang Free Zone (PKFZ), as documents procured by malaysiakini indicate.

Those parties who were supposed to have acted either in the best interests of the buyer of PKFZ -Port Klang Authority (PKA) - or that of its seller and developer Kuala Dimensi Sdn Bhd (KDSB) - were, in fact, ONE AND THE SAME.

Consider, for example, the legal firm, Rashid Asari & Co, which had drafted the March 2004 land development agreement between PKA and Kuala Dimensi. The lawyer engaged to draft the agreement works for ‘the other side.’

PKA appointed Rashid Asari & Co, the firm that was, and remains today, on Kuala Dimensi’s legal panel. Abdul Rashid Asari who heads the legal firm also happens to be the vice-chief of the Kapar Umno division.

PKA could have chosen for the task of drafting the agreement lawyers that would best represent PKA’s interests (and, thereby, tax-payers’ interests) by ensuring these interests are enshrined.

Among Rashid’s fellow Excos in the Kapar UMNO division is its permanent chairman Onn Ismail.

Onn Ismail formerly headed the Pulau Lumut Development Cooperative Bhd (PLDCB).

Onn Ismail’s son-in-law, Faizal Abdullah is the Kapar UMNO division’s Youth Chief. Faizal Abdullah also happens to be the deputy-Chief Executive officer of Wijaya Baru Global Bhd (WBGB) - the property developer and investment firm behind the sale and development of PKFZ.

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"A Khairy Loyalist"

The 1,000 acres of land on which PKFZ sits was owned by Pulau Lumut Development Cooperative Bhd (PLDCB). In the 1990s, Pulau Lumut Development Cooperative Bhd (PLDCB) sold the 1000 acres of land to Kuala Dimensi .

Present PLDCB chairperson Abdul Rahman Palil is a Selangor executive councillor and Sementa state assembly person. He is the Kapar UMNO division head.

In order to monitor the development of PKFZ - as well as to be the final arbiter between PKA and Kuala Dimensi in the event of disputes over development ‘cost variations’ - an independent quantity surveyor (IQS) was to have been appointed by the Ministry of Finance (MOF).

On Nov 3, 2003, PKA’s general manager OC Phang wrote to the Ministry of Finance (MOF) recommending that one Damansara-based Syarikat Perunding BE Sdn Bhd be appointed the project’s IQS. But this same company had been under WBGB’s employment as a development consultant for the PKFZ. When contacted, a Syarikat Perunding BE official confirmed it is still engaged as the IQS for PKFZ.

MOF rejected her recommendation, so Phang put the pressure on Transport Minister Chan Kong Choy in a letter dated Apr 7, 2004. She requested Chan to lobby Finance Minister Abdullah Ahmad Badawi in order to appoint Syarikat Perunding BE as the IQS. She wrote:
“ We respectfully request your help in appealing to the Finance Minister so that Syarikat Perunding BE is appointed as IQS for the development project on Pulau Indah. To facilitate the proper action, a copy of a draft letter to the Finance Minister is herewith attached.” which dutifully includes the draft letter, minus Chan’s signature, to Abdullah.

Lack of Transparency and Procedures Not Followed

According to government officials, the Cabinet was told early last month that there were serious shortcomings in the running of the project.

The Cabinet meeting, which was chaired by Deputy Prime Minister Najib Abdul Razak, was told that the huge jump in the cost of the project to RM4.6 billion from RM1.08 billion did NOT have the proper approval of relevant government agencies.

Typically, any jump of more than RM100 million in the cost of a project has to be approved by the Ministry of Finance, which is headed by Datuk Seri Abdullah, government officials say.

The Cabinet members who met were also told that the backing given by the Transport Ministry for the issue of bonds was also against normal government practice.

Guarantees on loans or bonds can be issued only by the Ministry of Finance, government officials say.

Several bankers say the losses from the Port Klang free-trade zone could escalate in the coming months as infrastructure such as roads leading to the area have yet to be completed.

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The PKFZ Hotel

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PKFZ Gateway
(Photos courtesy of "Ancient Mariner" Blog )

There is also concern that the entire project could become a white elephant following Jafza's pulling out as principal partner last month.

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PKFZ: Empty Warehouses
(Photo courtesy of "The Ancient Mariner" Blog)

Senior government officials tracking developments of the project say that Jafza executives had raised their concerns as early as March last year.

The Sun Reported:(Read here for more) and HERE
"... Prime Minister Datuk Seri Abdullah Ahmad Badawi has asked Transport Minister Datuk Seri Chan Kong Choy to explain why concerns by Dubai-based Jebel Ali Free Zone (Jafza) addressed to Chan over the progress of the Port Klang Free Zone (PKFZ) were not entertained.

Jafza pulled out of the PKFZ deal because of political interference, bureaucracy and non-conformation to the management agreement signed between Jafza and the Port Klang Authority (PKA).

Jafza executive chairman Sultan Ahmed Sulayem had said PKA had also overruled many areas of its responsibilities, resulting in, among others, an incident in which Jafza general manager Noel Gulliver was escorted out of the office and taken to the immigration headquarters for working without a permit. Further, he said, transparency was non-existent and the "Malaysian political and economic landscape has too many vested interests seeking involvement and control in this project".

The original cost of the project ballooned from RM2 billion to RM4.6 billion because of, among others, overvalued land costs.
The Straits Times (Singapore) Reported: (Read here for more)

"... The Port Klang Authority, the country's most established port agency, is saddled with close to RM5 billion (S$2.2 billion) in borrowings following a foray into developing a 400ha free-trade zone.

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Port Klang Authority Hq
(Photo courtesy of
"Ancient Mariner" blog )

Kuala Dimensi, has long links to several senior officials of Datuk Seri Abdullah's ruling UMNO party
and was originally awarded the development project at a cost of RM1.08 billion.

But that figure has ballooned to RM4.6 billion because of hefty cost overruns, according to bankers and industry executives as well as government documents seen by The Straits Times.

To avoid any fallout to the country's banking system, Datuk Seri Abdullah's government has decided to bail out the project.

But senior government officials say the Cabinet agreed last month to salvage the project.

Among other things, the government has decided to extend a financial lifeline of RM4.6 billion to help the Port Klang Authority meet its financial obligations on borrowings from the country's financial institutions.

This rescue will include a RM510 million payment this year to Malaysian banks, and the remainder in separate instalments between next year and 2010, government officials and bankers close to the situation said.

A senior Finance Ministry official says Datuk Seri Abdullah has been briefed about the problems with the free-trade zone project. But the official declined further comment.

Moreover, the huge overruns could have been the result of serious regulatory and procedural lapses by the Port Klang Authority and Transport Ministry officials, as documents reviewed by The Straits Times show.

There is also concern that the entire project could become a white elephant following Jafza's pulling out as principal partner last month.

Senior government officials tracking developments of the project say that Jafza executives had raised their concerns as early as March last year.

A top Jafza executive, senior vice-president for international operations Chuck Heath, had written to Transport Minister Datuk Seri Chan Kong Choy saying that, without 'radical surgery', the project was doomed to failure.

Acrimonious Separation of JAFza and Port Klang Authority (PKA)

The correspondence, which include strongly-worded e-mails, disclose that Jafza bailed out because of bureaucracy, interference by politicians and others with vested interests, deliberate incorrect minuting of meetings and even attempts at tax evasion by the Malaysian negotiators.

Noel Gulliver, Jafza's man, who was PKFZ general manager, was escorted from his office to the Immigration Department for "being in gainful employment without a work permit".

The agreement between Jafza and Port Klang Authority (PKA) indicates that it is PKA's responsibility to obtain a permit for Gulliver.

The dossier, which borders on deceit and lies, points the cause of the collapse of the deal between Jafza and PKFZ at the government machinery and one woman - PKA chairwoman and general manager Datin Paduka O.C. Phang.

Ernst & Young Malaysia's Report on Meeting on Nov 29 at JAFZA HQ

Ernst & Young indicated that the details of the payment schemes involved tax evasion.

The Ernst & Young report was submitted by Graham Lovett to Jafza International senior vice-president (international operations) Chuck Heath.

Lovett noted:
"Clearly, Jafza should not in the meantime enter into any further agreements with PKA/PKFZ of the nature proposed by those entities.

"... urgent action is required to ensure that Jafza is comfortable with the financial agreements concerning the operation of PKFZ, given the potential for reputational damage ...

The differences are so pronounced it is pretty clear to me that they are not acting in good faith ... there is no way that they could have got the key discussions at the meeting so badly wrong ..."
On Dec 12, Lovett in an e-mail expressed his distrust of the Malaysian negotiators, which included Phang. He noted that there were stark contrasts between minutes of a meeting taken by his firm and that by PKA/PKFZ.

PKA/PKFZ's minutes indicated that Jafza had agreed to details of the SOA, which included a tax structure that provided loopholes to side-step Malaysian tax laws. Clifford Chance's minutes, meanwhile, showed that Jafza was unwilling to do so.

Jafza International senior vice-president (international operations) Chuck Heath wrote to Transport Minister Datuk Seri Chan Kong Choy dated May 29 last year, that the lack of transparency from the start had also hampered the development of the free trade zone, with Jafza not having access to relevant details of the main development contract.

Jafza International senior vice-president (international operations) Chuck Heath wrote:
"The Board of directors structure has not provided any fundamental support and in fact has drawn us into political issues that have a negative impact on the development," Heath wrote.

The Malaysian political and economic landscape has too many vested interests seeking involvement and control in this project. ..."
Jafza CEO Salma Ali Saif Hareb, in a letter to Transport Minister Chan, said the final version of the SOA "had never been presented to Jafza management for final approval".

  • Read here on "Rocky's Bru"

  • "... The Sun has a front page story headlined Disaster Zone. Citizen Nades and Terence Fernandez obtained documents and let you feel the filth and smell the stink of this crony-project.

    Azim Zabidi's name is also mentioned. He is chairman of Kuala Dimensi and is also Umno's treasurer. This is the same guy mentioned in Joceline Tan's
    article as one of the most eager to kow-tow to Khairy Jamaluddin's wish to take over the Umno Youth's throne.

    The shit has hit the fan."
  • Read here and here on Captain Yusof Ahmad's blog "The Ancient Mariner"
  • "...The overinflated sum of RM4.63 billion for the development of PKFZ is actually MORE than the costs of developing both Pelabuhan Tg. Pelepas (PTP) and West Port combined!

    The fact that well connected politicians in the guise of businessmen are thumbing their noses and seem to be getting away with murder speaks volumes of the state of the nation.

    This will surely be Pak Lah's first major bail out using tax payers' money. Whatever happened to all the promises made? Many people I know are getting pretty cheesed off.

    ...the real disaster is when the powers that be allow the perpetrators go unpunished.

    The culprits have already been named and much as I hate to get personal, some of them are people who are known to me.

    It is corruption, stupid.

    It is no more pure conjecture since there are ample proof abound so nothing short of a Royal Commission of Inquiry, I say, after all the RM2 billion BMF scandal of the 80's had one and we are talking about RM4.6 billion here.

    So Pak Lah, stick to your promise, stop monkeying around and get your ass in gear.
    (Some national leaders may think its OK for them to fail occasionally or make a few mistakes here and there, but in my book, for them FAILURE IS NOT AN OPTION. The Japanese will go commit harakiri for less, for crying out loud).

  • Read here in "The Aisehman".
    "...The mainstream media are NOT asking the Prime Minister the questions on the Port Klang Free Zone they should be asking.

    The media should be asking specifically about the bailout, the land deal, the massive cost over-runs, and the involvement of UMNO and MCA politicians in this scandal, NOT about the complaints of the Arabs.

    No disrespect to them, but compared to the matter of Malaysians being buggered by our politicians and the government (again), who gives a toss about the complaints?

    Quit pissing around, you twit. The Straits Times has already reported that a bailout was agreed to at a Cabinet meeting held last month.

    Ok, so the meeting was chaired by chicken-shit Najib (who has flown the coop for two weeks), but don’t tell me you’re not already aware of the details of something as massive as this is.

    So piss off if all you can say is “I will get Chan to report to me about this”, as if you don’t know anything about the whole thing.

    The government is not in the business of cheating the people, you say? What a wanker.
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