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Najib faces key test over Port Klang scandal

Posted in Uncategorized by malaysiasms on May 7, 2009

The Malaysian Insider

KUALA LUMPUR, May 7 — A financial crisis at Malaysia’s main port agency, which could saddle the government with losses exceeding RM12 billion, is shaping up as a major policy test for the administration of Prime Minister Datuk Seri Najib Razak.

Senior government officials told The Straits Times that the soon-to-be-released audit report on a foray by the Port Klang Authority will show that losses stemming from bonds issued to finance the project could plunge it into insolvency by 2012.

The report, which is expected to be released later this week, also details an array of alleged management irregularities at the free-trade zone development, the officials who are familiar with the report said.

The Port Klang Free Zone project includes industrial buildings, offices and an exhibition centre.

The alleged problems began during the final years of the Mahathir Mohamad government, and continued during the Abdullah Badawi administration, the report by accounting firm PricewaterhouseCoopers will show.

Najib, who took over early last month, must now deal with the fallout from the deepening scandal. It is set to expose the government to the repayment of the bonds that could exceed RM12 billion because of mounting interest charges.

Analysts said the move by the government to make the report public is likely to be welcomed. But they said that Najib’s real test will be whether his government will pursue legal action against those responsible for the huge losses.

That is because the PricewaterhouseCoopers report alleges serious conflict-of-interest breaches between officials of the port authority and executives of private companies with close ties to the ruling Barisan Nasional (BN) government.

“It is a tough situation for the PM,” said a chief executive of a state-controlled commercial bank who is familiar with the audit report. “But the best thing to do is to come clean because it didn’t happen during his watch.”

Among other things, the report will show that the Port Klang Authority failed to carry out detailed studies before pushing ahead with the project and that major decisions were made without consultation with relevant government agencies.

The report also raises serious questions over the conduct of the Transport Ministry in its supervision of the project.

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

The land from the project belonged to Kuala Dimensi, whose shareholders include senior politicians from Umno and other BN component parties.

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

When the Port Klang Authority proposed to buy the land from Kuala Dimensi, government officials said the port agency was advised to forcibly purchase the land under the Land Acquisition Act, which meant it would have been valued at around RM10 psf.

But the port 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 psf, government officials said.

The authority later moved to award Kuala Dimensi sole rights to develop the zone without any competitive bidding.

And to fund the development, Kuala Dimensi raised funds through the issue of bonds that received the backing of the Transport Ministry.

Government officials said the backing given by the Transport Ministry for the issue of bonds is irregular because guarantees on loans or bonds can be issued only by the Ministry of Finance.

“The ministry’s decision to provide government backing on loans raised by developers of the project is the chief reason for the government’s huge exposure to the project,” said a senior government official. — The Straits Times

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