PAC wants probe on Chan, Phang

2009/11/05

Joseph Sipalan

KUALA LUMPUR: The Public Accounts Committee has recommended that the police and Malaysian Anti-Corruption Commission investigate former transport minister Tan Sri Chan Kong Choy and former Port Klang Authority (PKA) general manager Datin Paduka Phang Oi Choo in connection with the Port Klang Free Zone project.

The committee found that the three letters of support issued by Chan and the three letters of undertaking from Phang were an implicit government guarantee that PKA would be allowed to fulfil its obligations under the PKFZ development agreement.

The committee concluded that the pair must be investigated as their letters were issued without approval from the Finance Ministry.

“This could also be considered criminal breach of trust,” the committee said in its investigation report on the PKFZ scandal tabled in Parliament yesterday.

The committee began a probe into the PKFZ fiasco following a police report lodged by PKA chairman Datuk Lee Hwa Beng in August, alleging possible fraud amounting to RM1.5 billion.

Police later froze several bank accounts belonging to Kuala Dimensi Sdn Bhd (KDSB), PKFZ’s turnkey developer.

The committee said Phang’s letters of undertaking were in direct conflict with the government’s decision that the project be self-financed by PKA.

Phang had failed to notify the cabinet in a timely manner that PKA was unable to bear the cost of PKFZ nor did she negotiate with the Finance Ministry and the Economic Planning Unit to source funds for the project.

The committee said Phang had also committed misrepresentation when issuing the letter of undertaking to OSK Securities as the private debt security trustee, stating that PKAwould ask the government to remit funds from the budget allocation to a special reserve account or special code of account managed by PKA.

“PKA did not get any approval from the Transport Ministry or the Finance Ministry on this matter,” said the repor t.

The committee said legal action must also be taken against Phang and the Transport Ministry secretaries-general involved in the project for failing to ensure that all laws and procedures in implementation were adhered to.

The committee also took the PKA board of directors to task for failing to monitor the author ity’s financial situation despite the observation by the auditor-general of their inability to sustain the PKFZ project since 2004.

The committee also recommended that the government redeem its outstanding bonds with KDSB as soon as possible to reduce the costs borne by the government.

It said PKA could have greatly reduced the project cost if it had followed the government recommendation for PKA to issue bonds with government guarantee at an interest rate of four per cent, compared with KDSB’s rate of 7.5 per cent.

Other findings and recommendations by the committee include: • police and MACC must investigate the reasons why PKFZ was fast-tracked before the project masterplan and market assessment studies were completed; • PKA failed to get approval from the Finance Ministry to enter into an agreement with KDSB to build basic infrastructure costing between RM350 million and RM400 million as required when costs exceed RM100 million; • the 400ha of land bought by PKA at a cost of RM1.088 billion for the project would have cost only RM442.13 million if it had been secured via acquisition and subsequently leased to PKA; • the government was double charged on interest, hiking up the land purchase cost to RM1.818 billion based on a 7.5 per cent annual interest charged for delayed payment.

The interest was on top of 7.5 per cent interest calculated into the base price of RM25 per square foot evaluated by the Property Evaluation and Services Department; • PKA’s appointment of KDSB as developer was not done in order as the Transport Ministry secretary-general at the time and Phang had failed to follow Finance Ministry guidelines on contractor appointment for the PKFZ; • PKA should have studied all agreement documents with KDSB on advice from its legal officers and the Attorney-General’s Chambers to make sure all conditions in the agreement guaranteed the interests of PKA and the government; • the consultant quantity surveyor was only appointed nine months after work started on the project; and • no notices of payment issued by KDSB were presented to the consultant quantity surveyor for verification.

All notices were handled directly by the PKA management leading to the possibility of excessive claims by KDSB.