International magazine Forbes.com pick up the news surrounding Port Klang Free Trade Zone scandal helping to give it an international perspective. Forbes reports on Q+A why is Malaysia Port Klang scandal is important.
Malaysia’s government is to unveil later on Thursday an independent auditors report into the construction of a free trade zone in Port Klang, a project aimed at boosting capacity in the port.
What started off as a 1.8 billion Malaysian ringgit ($516.2 million) project has ballooned into one which could cost more than 10 billion ringgit following an acrimonious pullout by the project’s Dubai-based international partner.
The issue raises the question of risk foreign investors face when doing business in Malaysia. It has been used to attack the integrity of the government by the opposition at a time when Malaysia’s new prime minister is still reeling from losses in the 2008 general election.
The port authority is due to release the auditor’s report at 3.30pm (0730GMT). Some members of the ruling coalition have been pressing for disclosure to prevent the project from tarnishing the government’s image.
Transparency in the way Malaysia does business will be a major factor in whether it can attract much-needed foreign direct investment.
WHAT IS PKFZ? The Port Klang Free Trade Zone (PKFZ) started 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 Malaysia’s main ports situated near Kuala Lumpur.
HOW DID THE SCANDAL UNFOLD?
Land for the project was acquired by a company, Kuala Dimensi, whose shareholders include senior politicians from the ruling United Malays National Organisation (UMNO), the lead party in the National Front coalition that has ruled Malaysia for 51 years, as well as politicians from other Front component parties.
The port authority reportedly ignored advice from the government chief legal adviser and bought the land from the company in 2002 for 1 billion ringgit, or about 25 ringgit per square foot, compared with the 3 ringgit per square foot which the company acquired the land for.
The company was later awarded sole rights to develop the zone without competitive bidding. Kuala Dimensi later raised funds through the issuance of bonds backed by the Transport Ministry.
PricewaterhouseCoopers was later called in by the Port Klang Autrhority (PKA) to prepare a report amid mounting public anger.
PKFZ came under public scrutiny due to its escalating cost. Previously, the government had said the project would not cost more than 4.6 billion ringgit.
On 5 May, MPs briefed by the authority told reporters that the cost of the project could exceed 10 billion ringgit.
WHY DID THE FOREIGN PARTNER PULL OUT?
Jebel Ali Free Zone Internation (Jafza), the Dubai-based company appointed to managed PKFZ terminated its 15 year-contract, withdrew from the project in July 2007, citing ‘strategic purposes’.
A newspaper report on Jafza’s pullout, which cited documents relating to the project, said the separation was acrimonious and due among others to interference by politicians and others with vested interests.
The Port Klang Authority (PKA) paid RM1.09 billion for the land to be settled over 15 years in a deal that was backed by a government guarantee and Kuala Dimensi sold bonds worth 1.3 billion ringgit. Kuala Dimensi sold 1.4 billion ringgit of bonds, again backed by a government guarantee to develop the site.
Two more tranches of bonds with a total face value of more than one billion ringgit were then sold.
The heads of the PKA have all been senior leaders from the Malaysian Chinese Association, the second largest party in the National Front coalition.
Among its board members, Kuala Dimensi has Azim Zabidi, who was a one-time treasurer of UMNO. Tiong King Sing is director of Kuala Dimensi and treasurer of the Sarawak Progressive ( PGR – news – people ) Democratic Party, another member of the coalition.
Also involved in the project are a former UMNO youth leader from Selangor state, Faizal Abdullah, whose father-in-law, Onn Ismail, is another influential figure in Selangor UMNO, was a former chairman of the cooperative that sold the land to Kuala Dimensi.