The PKFZ audit report said the project outlay has ballooned from RM1.96 billion when the free-trade zone was conceived in 2001 to a staggering RM12 billion.
According to the report prepared by PriceWaterhouse Coopers (PwC) - which was released today - the astronomical figure includes mounting interest costs.
"The original estimated cost for the land purchase and development works in 2001 was RM1.957 billion... (the) project outlay has escalated to RM3.522 billion as at Dec 31, 2008.
"Interest cost of the deferred payments to KDSB (Kuala Dimensi Sdn Bhd) amounted to RM1.425 billion resulting in a total project outlay of RM4.947 billion.
"PKA (Port Klang Authority) was unable to fund its obligations to KDSB from its own resources when the first scheduled payment was due in 2007.
"PKA secured a 20-year soft loan of RM4.632 billion from MOF (Ministry of Finance), of which RM4.382 billion is available for draw down.
"This loan would impose an additional interest cost of RM2.506 billion resulting in a total project outlay of RM7.453 billion," said the report.
However, it states that cashflow projections by PKA indicates that it would be unable to service its loan installments between 2012 and 2041, thereby attracting additional interest of another RM5 billion.
This will bring the total project outlay to a whopping RM12.453 billion by year 2051.
The report added that PKA can however avoid or reduce the extra RM5 billion interest cost on two conditions - that (1) it can restructure the MOF soft loan and (2) make the project viable.
Other highlights of the report:
The land was purchased by PKA at a price of RM25 psf (per square feet) on the basis that the land was of special value, despite that the Property Evaluation and Services Department had valued the land at RM10.16 psf in August 2001.
The report noted several weaknesses in the governance and project management.
The report also said that there had been failures to inform cabinet over several key decisions.
This include the failure of the transport minister to inform the cabinet about PKA's inability to pay for the project out of its own funds.
"In May 2004, PKA was aware that it was not able to meet the cabinet's condition on self-financing. PKA should have alerted the cabinet of this important fact.
"To compound the issue, PKA entered into other very significant development agreements thereafter."
It lamented that many important decisions were made without the port authority board's oversight.
"Key agreements were not submitted to the board for approval. The agreements were signed under common seal without prior authorisation."
MACC report tomorrow
Speaking at a press conference to release the report, PKA chairperson Lee Hwa Beng said that he will meeting with the Malaysian Anti-Corruption Agency tomorrow.
Lee said that he was instructed to do so by Transport Minister Ong Tee Keat.
"The transport minister has instructed me to lodge a report with the MACC tomorrow morning at 8am," said Lee.
Lee said that the audit report was not targeted at any particular individuals, and it was up to the MACC to act on its findings.
The report was available to the public from today until June 10 where it can be obtained from the PKA headquarters, or from a special website which hosts the 45-page document.
Lee said that the report was not hosted on the PKA official website because it would incur extra cost and a special server had to be rented to host the document for the public to download.
Meanwhile, the seven-volume appendixes to the report can only be viewed beginning tomorrow at the PKA headquarters during office hours. There are only 15 hard copies available.
Conditions set by auditors
Accompanying Lee to the press conference today was auditors PriceWaterhouse Coopers (PwC) managing director Chin Kwai Fatt and PwC partner, Lim San Pin.
The two were there to verify that the publicly-released report was not tampered with and released in its entirety.
However, Lee said that PwC normally does not grant permission for their reports to be made public and thus the firm was releasing the report with three conditions:
That the reader is not authorised to use or rely on the report to arrive at any conclusion.
PwC has prepared the report for PKA. Their duty of care is only to PKA and PwC does not owe a duty of care to any other party.
PwC is not obliged to respond to any queries.
Despite these conditions, Lee heralded the release of the report as a historic moment.
"This is the first time in the history of Malaysia that an audit by a foreign firm is being released to the public in its entirety," he said.
Immediate actions needed
The audit report detailed a litany of "weak governance and weak project management", which it said have severely undermined the viability of the project.
It recommended PKA to take immediate actions to restucture the Finance Ministry's RM4.632 billion soft loan to avoid a potential default in three years.
"The project's actual occupancy of 14% is low and is not generating sufficient revenue to cover its operation expenses," it warned.
It added that PKA may not have received value for money due to its heavy reliance on KDSB as turnkey developer.
"The development contracts totalling RM1.846 billion were all awarded to KDSB without competitive bids."
Contracts of as much as RM1 billion were also given on the basis of estimated amounts and without detailed building plans.
Part of the project should have been done in multiple phases over eight years instead of having the entire project completed in two years, said the report.
It found that only 77 lots of the 512 Light Industrial Units were rented out as of Dec 31, 2008.
The report also said that PKA could have saved half a billion ringgit had it purchased the land for the project through cash basis by issuing government-guaranteed bonds instead of deferred payment basis which incurred high interest.
There is also the potential interest overcharge of up to RM309 million in connection to the purchase of the land.
"KDSB may have wrongly compounded its interest from PKA using a half-yearly compounding method instead of a 'simple' (non-compoundable) annual basis," it said.
Malaysiakini
29/05/09
According to the report prepared by PriceWaterhouse Coopers (PwC) - which was released today - the astronomical figure includes mounting interest costs.
"The original estimated cost for the land purchase and development works in 2001 was RM1.957 billion... (the) project outlay has escalated to RM3.522 billion as at Dec 31, 2008.
"Interest cost of the deferred payments to KDSB (Kuala Dimensi Sdn Bhd) amounted to RM1.425 billion resulting in a total project outlay of RM4.947 billion.
"PKA (Port Klang Authority) was unable to fund its obligations to KDSB from its own resources when the first scheduled payment was due in 2007.
"PKA secured a 20-year soft loan of RM4.632 billion from MOF (Ministry of Finance), of which RM4.382 billion is available for draw down.
"This loan would impose an additional interest cost of RM2.506 billion resulting in a total project outlay of RM7.453 billion," said the report.
However, it states that cashflow projections by PKA indicates that it would be unable to service its loan installments between 2012 and 2041, thereby attracting additional interest of another RM5 billion.
This will bring the total project outlay to a whopping RM12.453 billion by year 2051.
The report added that PKA can however avoid or reduce the extra RM5 billion interest cost on two conditions - that (1) it can restructure the MOF soft loan and (2) make the project viable.
Other highlights of the report:
The land was purchased by PKA at a price of RM25 psf (per square feet) on the basis that the land was of special value, despite that the Property Evaluation and Services Department had valued the land at RM10.16 psf in August 2001.
The report noted several weaknesses in the governance and project management.
The report also said that there had been failures to inform cabinet over several key decisions.
This include the failure of the transport minister to inform the cabinet about PKA's inability to pay for the project out of its own funds.
"In May 2004, PKA was aware that it was not able to meet the cabinet's condition on self-financing. PKA should have alerted the cabinet of this important fact.
"To compound the issue, PKA entered into other very significant development agreements thereafter."
It lamented that many important decisions were made without the port authority board's oversight.
"Key agreements were not submitted to the board for approval. The agreements were signed under common seal without prior authorisation."
MACC report tomorrow
Speaking at a press conference to release the report, PKA chairperson Lee Hwa Beng said that he will meeting with the Malaysian Anti-Corruption Agency tomorrow.
Lee said that he was instructed to do so by Transport Minister Ong Tee Keat.
"The transport minister has instructed me to lodge a report with the MACC tomorrow morning at 8am," said Lee.
Lee said that the audit report was not targeted at any particular individuals, and it was up to the MACC to act on its findings.
The report was available to the public from today until June 10 where it can be obtained from the PKA headquarters, or from a special website which hosts the 45-page document.
Lee said that the report was not hosted on the PKA official website because it would incur extra cost and a special server had to be rented to host the document for the public to download.
Meanwhile, the seven-volume appendixes to the report can only be viewed beginning tomorrow at the PKA headquarters during office hours. There are only 15 hard copies available.
Conditions set by auditors
Accompanying Lee to the press conference today was auditors PriceWaterhouse Coopers (PwC) managing director Chin Kwai Fatt and PwC partner, Lim San Pin.
The two were there to verify that the publicly-released report was not tampered with and released in its entirety.
However, Lee said that PwC normally does not grant permission for their reports to be made public and thus the firm was releasing the report with three conditions:
That the reader is not authorised to use or rely on the report to arrive at any conclusion.
PwC has prepared the report for PKA. Their duty of care is only to PKA and PwC does not owe a duty of care to any other party.
PwC is not obliged to respond to any queries.
Despite these conditions, Lee heralded the release of the report as a historic moment.
"This is the first time in the history of Malaysia that an audit by a foreign firm is being released to the public in its entirety," he said.
Immediate actions needed
The audit report detailed a litany of "weak governance and weak project management", which it said have severely undermined the viability of the project.
It recommended PKA to take immediate actions to restucture the Finance Ministry's RM4.632 billion soft loan to avoid a potential default in three years.
"The project's actual occupancy of 14% is low and is not generating sufficient revenue to cover its operation expenses," it warned.
It added that PKA may not have received value for money due to its heavy reliance on KDSB as turnkey developer.
"The development contracts totalling RM1.846 billion were all awarded to KDSB without competitive bids."
Contracts of as much as RM1 billion were also given on the basis of estimated amounts and without detailed building plans.
Part of the project should have been done in multiple phases over eight years instead of having the entire project completed in two years, said the report.
It found that only 77 lots of the 512 Light Industrial Units were rented out as of Dec 31, 2008.
The report also said that PKA could have saved half a billion ringgit had it purchased the land for the project through cash basis by issuing government-guaranteed bonds instead of deferred payment basis which incurred high interest.
There is also the potential interest overcharge of up to RM309 million in connection to the purchase of the land.
"KDSB may have wrongly compounded its interest from PKA using a half-yearly compounding method instead of a 'simple' (non-compoundable) annual basis," it said.
Malaysiakini
29/05/09
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