Business

Friday May 29, 2009

Cabinet, board not aware of decisions


PRICEWATERHOUSECOOPERS Advisory Services Sdn Bhd (PwC) has identified several issues that warrant the attention of the board of Port Klang Authority (PKA) on the Port Klang Free Zone project (PKFZ).

The issues in PwC’s report Position Review of Port Klang Free Zone Project and Port Klang Free Zone Sdn Bhd (PKFZSB) dated Feb 3 talks about the authority to enter into agreements, financial implications of the agreements, project management and status, ability to meet financial obligations and the financial position of PKFZSB.

One of the issues highlighted comprise several development proposals which were not tabled to the Cabinet for approval despite having obtained prior Cabinet approval to purchase the land for PKFZ.

Port Klang Free Zone (PKFZ)

PwC is of the view that as prior Cabinet approval had been obtained for the land purchase, subsequent proposals to develop the land should also be tabled to the Cabinet by the Ministry of Transport (MOT)/PKA.

“The total value of the development agreements of RM1.846bil is more than the land purchase price of RM1bil and would warrant deliberation by the Cabinet,” it said.

Lack of supervision

The report said that key matters were not tabled to the PKA board for approval. For example, board approval was not sought when PKA’s common seal was affixed to certain agreements and when delivery of land was accepted without contractor Kuala Dimensi Sdn Bhd (KDSB) completing the infrastructure works specified.

PwC noted that some agreements were also not submitted to the board for prior approval and this conflicted with good corporate governance.

In addition, the steering committee, which together with the general manager led the implementation of the project, was not established by the board or subject to its supervision.

“The general manager and the steering committee did not have formal terms of reference or specified limits of authority. Roles, responsibilities and accountability were not defined,” it added.

Another issue was that there could be potential conflicts of interest due to the involvement of parties who had prior association with either the land or KDSB. It cited the example of Datuk Abdul Rahman Palil, who was a PKA board member from 1997 to 2003.

He was also president of Koperasi Pembangunan Pulau Lumut Bhd (which he declared in a board meeting), the original owner of part of the land. Also noted was that Datuk Wira Chor Chee Heung was non-executive deputy chairman of Wijaya Baru Global Bhd (WBGB) from April 2004 to July 2007 and chairman of PKA from April 2007 to March 2008.

WBGB and the parent company of KDSB, Wijaya Baru Holdings Sdn Bhd, share a common shareholder and director Datuk Seri Tiong King Sing. KDSB carried out construction works when Chor was the non-executive deputy chairman of WBGB.

The report also highlighted that the interest on the soft loan from the Ministry of Finance (MOF) would increase the project outlay from RM4.947bil to RM7.453bil.

The project outlay of RM7.453bil has not taken into account potential additional interest which might arise if PKA was unable to meet the scheduled instalments on the soft loan. PwC said potential additional interest could amount to RM5bil if loan repayments are deferred to match PKA’s projected cashflows.

“If this were to happen, the project outlay would increase from RM7.453bil to RM12.453bil,” it added.

The report brought up the fact that the land was acquired at RM25 per sq ft which exceeded market value because it was of “special value” to PKA, and that PKA would also enjoy deferred payment terms.

PwC said according to the Hansard (the official record of the proceedings of Parliament), there were two view points on the mode of land acquisition – compulsory acquisition according to the Attorney-General and MOF and that compulsory acquisition was not suitable according to the Selangor State Government.

It was further mentioned in the Hansard that compulsory acquisition was not possible because PKFZ was not a public interest project and the land had been issued with a development order in 1995.

The Cabinet had deliberated and concluded that in the best interest of the country and to avoid complications, the land be purchased outright. Jabatan Penilaian dan Perkhidmatan Harta, Kementerian Kewangan had placed a value of RM10.16 per sq ft for compulsory acquisition with land partly reclaimed and no infrastructure works.

“Compulsory acquisition, had it been possible, would have cost RM442mil compared with the purchase price of RM1.088bil,” PwC said.

Interest overcharged

It noted that KDSB might have overcharged PKA for interest in connection with the purchase of the land. Based on a set of computations provided to PKA by KDSB, interest had been compounded on a six-monthly basis instead of non-compounded yearly basis on the balance consideration price of RM979,610,400.

“Depending on whether the yearly repayment is applied against interest or principal, interest has been potentially overcharged by between RM51mil and RM309mil.

“KDSB disagrees with this intepretation of interest computation. We have informed PKA management to refer the matter for legal advice,” PwC said.

Another issue highlighted was that letters of support issued by the MOT could be construed as a guarantee that PKA would meet its obligations on a full and timely basis.

“If this is the case, MOT has breached Treasury regulations which require such letters be approved by the MOF.

“Because of the potential significance of the letters of support, PKA would not have the option to default on its obligation to KDSB,” PwC said.

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