to those who are following up on this case... additional reading/study material for you...
i like how the current govt inteprete the facts... they call it a soft-loan... :) ...
p/s ; any 'extra funds' would be just nice for the up and coming general election eh?!?.. :) ...
Huge overruns prompt financial rescue plan yet to be made public
By Leslie Lopez, South-east Asia Correspondent
The Straits Times
A FINANCIAL crisis at Malaysia's main port authority could turn out to be the biggest scandal yet for the nearly four-year administration of Prime Minister Abdullah Badawi. The Port Klang Authority, the country's most established port agency, is saddled with close to RM5 billion (S$2.2 billion) in borrowings following a foray into developing a 400ha free-trade zone.
The huge debt stems from bonds issued by a private company that was awarded the rights by the Port Klang Authority to develop the free-trade zone. The private company, Kuala Dimensi, has long links to several senior officials of Datuk Seri Abdullah's ruling Umno party and was originally awarded the development project at a cost of RM1.08 billion.
But that figure has ballooned to RM4.6 billion because of hefty cost overruns, according to bankers and industry executives as well as government documents seen by The Straits Times. To avoid any fallout to the country's banking system, Datuk Seri Abdullah's government has decided to bail out the project.
The financial rescue plan has not been disclosed publicly yet. But senior government officials say the Cabinet agreed last month to salvage the project.
Among other things, the government has decided to extend a financial lifeline of RM4.6 billion to help the Port Klang Authority meet its financial obligations on borrowings from the country's financial institutions. This rescue will include a RM510 million payment this year to Malaysian banks, and the remainder in separate instalments between next year and 2010, government officials and bankers close to the situation said.
Such financial bailouts were common during the 22-year tenure of Tun Dr Mahathir Mohamed, Datuk Seri Abdullah's predecessor. The government was forced to rescue the country's state-owned Bank Bumiputra twice; bailed out the country's scandal-ridden Perwaja Steel project that lost more than RM10 billion; and took over ailing national carrier Malaysia Airlines from businessman Tajudin Ramli.
A senior Finance Ministry official says Datuk Seri Abdullah has been briefed about the problems with the free-trade zone project. But the official declined further comment. The situation comes at an awkward time for the Premier, who took office in November 2003 and is widely expected to call a snap election within the next six months. The project was mooted during Tun Dr Mahathir's administration, but government officials acknowledged that the Port Klang Authority's huge debts were incurred during the Abdullah administration.
Moreover, the huge overruns could have been the result of serious regulatory and procedural lapses by the Port Klang Authority and Transport Ministry officials, as documents reviewed by The Straits Times show. The free-trade zone project began as a joint venture between the Port Klang Authority and the promoters of the Jebel Ali Free Trade Zone (Jafza) in 1999 to attract foreign investment and promote the Malaysian port. The land from the project belonged to Kuala Dimensi, whose current chairman is Umno treasurer Datuk Azim Zabidi. The company acquired the land in the 1990s for RM96 million, or roughly RM3 per sq ft.
When the Port Klang Authority proposed to buy the land from Kuala Dimensi, documents reviewed by The Straits Times show that the government body was advised to forcibly purchase the land under the country's Land Acquisition Act, which meant that the property would have been valued at around RM10 per sq ft. But the Port Klang 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 per sq ft, government documents show .
The authority also decided to award the now cash-flushed Kuala Dimensi sole rights to develop the free-trade zone. To fund the development, Kuala Dimensi raised funds through the issue of bonds that received the backing of Malaysia's Transport Ministry. According to government officials, the Cabinet was told early last month that there were serious shortcomings in the running of the project.
The Cabinet meeting, which was chaired by Deputy Prime Minister Najib Abdul Razak, was told that the huge jump in the cost of the project to RM4.6 billion from RM1.08 billion did not have the proper approval of relevant government agencies. Typically, any jump of more than RM100 million in the cost of a project has to be approved by the Ministry of Finance, which is headed by Datuk Seri Abdullah, government officials say.
The Cabinet members who met were also told that the backing given by the Transport Ministry for the issue of bonds was also against normal government practice. Guarantees on loans or bonds can be issued only by the Ministry of Finance, government officials say. Several bankers say the losses from the Port Klang free-trade zone could escalate in the coming months as infrastructure such as roads leading to the area have yet to be completed.
There is also concern that the entire project could become a white elephant following Jafza's pulling out as principal partner last month. Senior government officials tracking developments of the project say that Jafza executives had raised their concerns as early as March last year. A top Jafza executive, senior vice-president for international operations Chuck Heath, had written to Transport Minister Datuk Seri Chan Kong Choy saying that, without 'radical surgery', the project was doomed to failure.