The delay was due to several factors including declassification of documents, indemnity requirements, and Cabinet review of the final report.

This is a chronological breakdown of important milestones:

A position review was recommended by the auditors and accepted by Port Klang Authority (PKA).

A position review is a logical first step to establish what the high priority issues are, and then follow-up action should be taken.

PwCAS has no legal investigative powers and neither can the PKA board give it jurisdiction on matters outside the board’s own scope of authority.

No. Professional and, reputable accounting firms such as PwCAS would not have signed the report if it was written by someone else.

Due to the nature of the case, MOT felt that an independent and professional accounting firm was required to assess the situation at PKFZ and PKA. The process to engage a professional accounting firm required the approvals of various Government agencies and took longer than anticipated.

During the time it took to engage PwCAS  and for the firm to conduct its position review, MOT begun to revamp the management of both entities. Marketing efforts for PKFZ was started in the middle of 2008. Several large potential investors were targeted and negotiations are on-going.

It was an honest and serious effort to enable transparency and accountability.

PKA will endeavour to follow-up with MACC with regards the report lodged from time to time.

General Disclaimer/ Qualification: The transactions referred to here are subject to legal review by our external lawyers and PKA reserves its right to challenge the legality of some of these transactions.

 * All figures are subject to finalisation of accounts, legal advice and possible legal challenge.
 

Land was purchased by PKA at price of RM1,088 million (that is RM25 psf including Infrastructure Works with land fully reclaimed) instead of through compulsory acquisition which would have cost RM442 million (that is RM10.16 psf for land partly reclaimed and no infrastructure works). The cabinet made the decision based on the recommendation of Selangor State Government that compulsory acquisition was not possible because PKFZ is not a public interest project; and the Land had been issued with development order in 1995.

There are three financial arrangements:
a) PKA to pay MOF for the soft loan of RM4.632 billion (revised to RM4.382) billion at a rate of 4%.

b) PKA to pay the developer for deferred principal sum of RM3.481 billion at a rate of 7.5%. This is subject to legal advice and possible legal challenge. 

c) The developer to pay the bondholders for the principal amount of RM3.685 billion at rates between 5.25%-6.15% (based on Additional Development Works Supplemental Agreement ADW2 - actual rates may differ)

In a nutshell, PKA entered into several development agreements and supplemental agreements with KDSB with deferred payment scheme at a rate of 7.5%. The table below summarizes these agreements:

* All figures are subject to finalization of accounts, legal advice and possible legal challenge.

Notes:
LA= Land Agreements (LA1 on 12/11/02, LA2 on 27/3/04)
DA= Development Agreements (DA1 on 27/2/03, DA2 on 26/5/03, DA3 on 27/3/04)
ADW= Additional Development Works (ADW1 on 30/11/05, ADW2 on 26/4/06)
NADW= New Additional Development Works (NADW on 26/4/06)

Two major issues concerning interest cost to KDSB were highlighted in the PwCAS report that will need to be addressed in the next phase of PKFZ fact finding:

Issue 7: PKA could have reduced its funding cost had it complied with MOF’s recommendation to issue government-guaranteed bonds and develop the project in phases.

Issue 9: KDSB may have overcharged PKA for interest between RM51 million and RM 309 million in connection of the land purchase (already on special value for deferred payment).

PKA does not have the funds to meet its obligations to KDSB. Considering this project is of national interest to enhance the competitiveness of Port Klang, MOF decided to give a 20-year soft loan in the amount of RM4.632 billion. This amount, to be drawn down in tranches,  has since been revised to RM4.382 billion as PKA has paid KDSB RM250 million from its own funds in 2007. The interest rate is set at 4% per annum.

PwCAS identified a number of issues warranting the attention of the Board. These issues are summarised in the table below:

* All figures are subject to finalization of accounts, legal advice and possible legal challenge.

Based on the findings of the PWC report, a Task Force led by Skrine was set up to advise PKA on the validity, performance, breaches and recovery under the various agreements. If necessary, legal action will be taken.

The then Selangor Land Office’s decision to deem that it was not a public interest project was within its jurisdiction, based on its interpretation.

National interest projects are not necessarily public interest projects.

Answer: 

The Special Task Force led by Skrine was set up to advise PKA on the validity, performance, breaches and recovery under the various agreements. If necessary, legal action will be taken.

On public accountability, a report had been filed with the MACC on the matter and PKA will fully assist in possible criminal actions, including the issuance of periodic reminders to the said Commission.

This is a figure estimated by PwCAS which could arise in the scenario PKA’s cashflow projection shows a cumulative cash deficit between 2012 and 2041 thereby necessitating an extension of te MOF’s soft loan to 2051. 

This scenario assumes that PKA and PKFZ does not do anything further to restructure the debts nor is there a faster take-up rate of PKFZ through improved marketing campaigns and improvement to external economic conditions.

This figure has also been misused by certain quarters as the total cost to the Government. It is not.

The cost to the Government is simply the difference between the prevailing market rates for comparable investments (size, risk profile, and time horizon) and the soft loan interest of 4%. Even then, that cost should be discounted by the socio-development benefits of increased employment and new industries made possible by a transshipment hub anchored in a free trade zone. Examples of new industries that can be illustrated at PKFZ currently include specialized oil and gas deep-sea drilling equipment, power boat manufacturing, and ultra-high precision metal fabrication.
 

Yes.

Firstly, by restructuring the MOF soft loan that will improve PKA’s cash flow position and hence avoid potential default by 2012. At 4% rate, the interest on the soft loan from MOF will amount to between RM2.506 billion (contract term to 2036) and RM7.506 billion (extended term to 2051).

Interest savings can be realized through a reduction in interest rate or by introducing interest-free period until PKFZ reaches full tenancy (expected in 2018). The quantum of savings depends on the size of the rate reduction or duration of the interest-free period.

Secondly, management of PKA is able to turnaround the project, making it viable and hence improving its cashflow position. Viability of PKFZ in future depends on marketing, improvement of economic climate, domestic and regional competition and multi-agency approval environment.

The management team at PKFZ will be strengthened for this purpose.                   

If PKA manages to pay MOF within the stipulated 20-year term (by 2036), the interest cost will be RM2.506 billion out of total project outlay of RM7.453 billion.

In the event PKA stretches repayments until 2051 to match its projected cash flows, additional interest cost could amount to RM5 billion. If this were to happen, the Project outlay would increase from RM7.453 billion to RM12.453 billion.

Payment to MOF represents payment to the Government of Malaysia.

The sum of RM6.888 billion being the principal repayment and interest payable on MOF soft loan ultimately goes back to the Government.

As at 31 December 2008, PKA has paid a total of RM1.378 billion, the outstanding balance which is subject of legal review and possible legal challenge.

The RM1.378 billion is funded by a combination of PKA’s own funds (RM0.458 billion) and draw down of RM0.920 billion from the MOF approved soft loan of RM4.632 billion.

The approved amount of RM4.632 billion has since been revised to RM4.382 billion as PKA has paid KDSB RM250 million from its own funds in 2007.

The Special Task Force comprises of lawyers, accountants, quantity surveyors and building cost consultants from professional firms specializing in areas of concern raised in the Report will be conducting a legal review and make recommendations on how to rectify the wrongs, pursue appropriate legal remedies and financial restructuring. PKA has nominated senior lawyer, Mr. Vinayak Pradhan from Skrine to head the team.

The remaining principal balance due to KDSB is only RM2.144 billion. Under extreme negotiating position, PKA could drawdown this amount from MOF and pay off KDSB in full (less any disputed amounts for work not done and overcharges). This will save RM1.425 billion in interest charges that is due to KDSB. This will work if KDSB could redeem the bonds at a deep discount or feel ‘encouraged’ to comply.

The Task Force’s recommendations and any legal action taken by PKA may have an impact on the current contractual obligations with regards principal repayment and interests payable to KDSB, and determine existence of any factor that may vitiate unfavourable terms.

The restructuring of MOF soft loan would also have a positive impact.

A substantial investment had been made in the project and closing it down may not be viable as the investment was made using the Government’s money. 

This may be an aspect to be considered by the special task force comprising lawyers led by Skrine who are looking into recovery action.

MACC and the police had received reports to establish criminal investigation.

The Minister of Transport, PKA and PKFZSB will cooperate fully in these investigations.

Letters of comfort are usually issued to lending institution acknowledging the awareness and support of a company’s attempt for financing.

Generally, they do not create legal obligations as they do not guarantee the loans approval for the company.

By cooperating fully with MACC in its investigations.

The issues raised by PwCAS is determined by the TOR set out in Section 1 of the said report. 

The issue of elaboration is a qualitative one and information provided in the PwCAS report is confined to its relevance for the PKA board’s attention.

The PwCAS report identified apparent weaknesses in governance surrounding the project.

Yes, a full set of appendices is available to the public who can view them at the PKA headquarters.

Fourteen (14) sets of the PwCAS report, including the appendices have been submitted to the Public Accounts Committee, which include members of the opposition. Further, a set or 300 copies were distributed to Members of Parliament.

The information contained in the appendices have been declassified.

Yes, it can be viewed at www.pkfznews.com.my.

Yes, he and his deputy will answer questions in Parliament pertaining to PKFZ in a full and frank manner.

The Special Task Force comprises of lawyers, accountants, quantity surveyors and building cost consultants from professional firms specializing in areas of concern raised in the Report. PKA has nominated senior lawyer, Mr. Vinayak Pradhan from Skrine to head the team.

The Task Force has to make in depth analysis and studies within its given scope of expertise and provide PKA the appropriate recommendations, within two (2) months, for follow-up actions to be taken by the Government.

PKA has also set up a Committee of Corporate Governance led by YBhg Datuk Paul Low Seng Kuan from Transparency International. It shall oversee all future governance issues to ensure that the lapses that have been identified in the Report do not recur in future.

The committee has also been tasked with putting in place a long-term control mechanism to ensure the PKA board and management follow and abide by good governance rules and regulations.

At PKFZ level, an Executive Committee has been formed to plan and monitor the business development of the trade zone. PKFZ has to strengthen its marketing and management expertise and come up with more innovative and sustainable campaigns and operating systems to attract more investors.

The Exco Committee must at the same time ensure that all future activities and new developments at PKFZ are carried out in a cost effective and transparent manner.

Thank you for your suggestions which will be forwarded to the exco committee and management of Port Klang Free Zone Sdn. Bhd.

The issue of payments to KDSB is currently the subject of legal and financial review. The exco committee and the management of PKA is looking at the issue seriously. It must be noted that a protest of the amount to be paid will be in order.

Documents pertaining to engagement of consultants for work done by Port Klang Authority and Port Klang Free Zone Sdn. Bhd. are under review by the 2 committees and task force set up on 10th June 2009.

The task force and 2 committees are given 2 months to revert with clear action plans on the way forward. These include possible legal challenge to the agreements.

PKA, the task force and 2 committees will provide full cooperation to MACC's investigation into possible criminal wrongdoing.

Yes, a substantial part of the PKFZ project had been developed and is operational. The exco committee was established to beef up promotions and operational efficiency of the management of PKFZ so as to encourage a greater take-up among potential investors.

There were differences of opinion between JAFZI and PKA which led to JAFZI's pull out.

The exco committee and management of PKFZ is currently working on beefing up promotions as well as to strengthen operational efficiency to attract more investors to PKFZ. They are confident that the PKFZ project will bring about ultimate long term benefits.

There are already serious enquiries from potential large investors from abroad.

The members of the task force and committees represent professionals from their fields of expertise which are supposed to complement the skills and experience of PKA and PKFZ Sdn. Bhd.

You may be interested to know that the Chairman of PKA, Dato' Lee Hwa Beng was previously the chairman of a public listed logistics company.

Based on the findings of the PWC report, a Task Force led by Skrine was set up to advise PKA on the validity, performance, breaches and recovery under the various agreements. If necessary, legal action will be taken.

The then Selangor Land Office's decision to deem that it was not a public interest project was within its jurisdiction, based on its interpretation. It is common to deem development such as schools, hospitals and public parks as public interest projects.

National interest projects are not necessarily public interest projects.

The Special Task Force led by Skrine was set up to advise PKA on the validity, performance, breaches and recovery under the various agreements. If necessary, legal action will be taken.

On public accountability, a report had been filed with the MACC on the matter and PKA will fully assist in possible criminal actions, including the issuance of periodic reminders to the said Commission.

Answer:

The Ministers feelings are being translated into actions that have to be guided by due process of the law.

This precludes making baseless accusations and using defamatory words guided by emotions.

Answer:

We are not aware of previous “roadmaps to recovery" for PKFZ.” The questioner should share such documents if they exist.

Answer:

The assumption that PKA and PKFZ had always been such a "good team" belongs to the person who asked the question. It is also erroneous to describe PKA as being 'technically insolvement'.

This is not the assumption nor the official position of PKA. In fact, the PwCAS report outlined weaknesses in governance and project management on the project.

The Ad-Hoc Committee on Corporate Governance were established to strengthen good governance within PKA and its relationship with PKFZ.

A PKA Task Force had also been set up to advise on the legal and financial position of PKA.

Answer:

The briefing which was reported in a few mainstream newspapers, was not officially sanctioned by the Ministry of Transport nor was it done under the purview of Port Klang Authority.

There is no need nor is there relevance to do so.

Official statements in support for the MCA President from the party can be viewed at www.mca.org.my.

Answer:

Dato' Sri Ong Tee Keat had also addressed this question to the Public Accounts Committee of Parliament.

Answer: 

Answer: 

Worthy questions are being addressed daily. One only needs to look in www.pkfznews.com.my.

The Minister of Transport had already appeared before the Public Accounts Committee (PAC) on 16th July 2009, and was reported even by YB Tan Seng Giaw that he had provided full cooperation to the PAC.

Answer:

Question 94:

Malicious accusation. A vision (or even mental) test may be required to see where the Minister stands.

Question 96:

It is quite clear that the making of the PwC report public is a highwatermark case of the Barisan Nasional government's commitment to meet the expectations of the Malaysian public.

Question 47 from Lim Kit Siang's blog:

The PwCAS report and the appendice had been available to the public since 28th May 2009.

The public is able to view and download the report and appendice at www.pkfznews.com.my.

Given the right impetus and strong Government support, PKFZ certainly has the opportunity to become one of the best Free Zones in the world.

PKFZ is strategically located in South East Asia within a seamless port environment in Port Klang, currently the 15th busiest container port in the world and the region’s largest multi-purpose port. This location makes PKFZ an ideal investment hub for manufacturing, trading and logistics activities.

With the increasing liberalisation of regional trade through AFTA and China-AFTA, PKFZ is poised to become the preferred location for foreign investors seeking to expand their market outreach in the Asian region.

To be a successful free zone, PKFZ has to overcome challenges from within as well as from external factors.

The challenges for PKFZ stem from the need to provide a competitive and business-friendly environment.

Issues pertaining to the ease of doing business must be addressed and along with this, the cost of doing business is another important consideration for investors in the free zone. The organization therefore, has to be managed by a very dynamic, pro-active and customer-centric management team.

The political and economic situation of our country has a direct impact on PKFZ. Under the current global economy downturn, competition within the region has become more intense and  Malaysia’s political stability and its good social framework has put our country in a more advantageous  position.

While PKFZ will capitalize on this favourable position, the free zone will thrive better with further economic recovery.