Shocking Scandal
Malaysians, long immune to scandals of corruption in the past two decades, have been shocked by the systemic failure in moral courage by those involved in the colossal losses of PKFZ. They are the very persons whose duties and job is to safeguard public interests. All corporations have procedures and safeguards to ensure that the transactions and financial commitments are made properly. These are more stringent in government corporations. If any of the officers had carried out their duties the PKFZ losses will not have occurred. Why was there a total system failure?

Significance of the Bail Out
The Government has to bail out PKFZ with an RM4.6 billion soft loan. When interests on the loan are added, the total costs for the loan is RM7.453 billion. Pricewaterhouse Coopers in their report states that the eventual costs may be RM12.453 billion. The significance of these losses can be seen when we compare these figures with the two financial economic packages announced by the Prime Minister, Dato’ Seri Najib to counter the global financial crisis. The first financial package which Barisan Nasional believed to be sufficient was RM7 billion. This means the immediate outlay for the PKFZ is the same size as the financial package to safe the Malaysian economy. In the second financial stimulus package of RM60 billion, the actual cash portion is RM15 billion, of which RM10 billion is to be disbursed in the first year and RM5 billion in the second year. At RM12 billion, the final losses of PKFZ is more than the RM10 billion cash outlay in the second financial stimulus package. In summary, the costs of one PKFZ are what would be sufficient to safe the entire Malaysian economy from the ongoing financial crisis.

It must be remembered that this RM12.453 billion will be borne by the Malaysian Government. This means it is the tax payers’ money. It is our money that has been lost. The Barisan Nasional Government must take steps to ensure that there is accountability and restitution. It must also take steps to ensure that such a debacle will not be repeated. Before this can be achieved, we need to know how such a financial catastrophe could have happened.

Lack of Governance and Management
The Pricewaterhouse report, states there was a lack of governance, poor project management and poor financial management. This in fact raises more questions than answers. There are many questions, but three will suffice to illustrate the problem.

The first question relates to the purchase price of RM25 per square foot. The Government had decided in 1993 to transform Port Klang into a national load centre and regional transshipment hub. The strategies were outlined in the Seventh Malaysia Plan leading to the creation of the Port Klang Free Zone. It is a standard operating procedure for projects of this nature, for the Government to issue a section 4 Notice under the Land Acquisition Act. This is done to freeze the price of the land identified for the project. This is done to prevent speculation and profiteering. All the officers from the various government departments and agencies involved had failed to adhere to this basic procedure to issue the notice of intended acquisition. If this was done, the price would be RM10 per square foot. Instead, the Port Klang Authority ended up paying RM25 per square foot.  The officers cannot be ignorant of this provision. They ought to have spoken up. What is the cause for their failure to speak up? Why did their moral character fail them at this stage of the transaction?

The second question relates to the financing aspect of the transaction. The Cabinet approved the proposal to create the Port Klang Free Zone subject to the conditions that the agreement of MOF is obtained on the funding structure and that the Port Klang Authority will be able to finance the purchase from its own funds.  Pricewaterhouse reports that the Auditor General had in his Audit report for the financial year ending 31st December 2003 stated that PKA did not have sufficient funds to finance the project. The Auditor General repeated this in respect of the financial statements for 2004 and 2005. Despite such clear warnings, the Minister of Transport issued a letter of support on 8 December 2005 and a further letter of support on 23 May 2006. Both letters contained the same statements as follows: -
“We shall at all times in the future ensure that PKA is in the position to meet (and do meet on a full and timely basis) their liabilities in respect of the Repayment Amount outstanding.”

It is not necessary to go into the legal semantics as to whether these letters are letters of comfort or letters of guarantee. These letters are issued by a Minister of the Government of Malaysia to the Malaysian Rating Corporation Berhad and the trustees for the bonds to be issued by Kuala Dimensi Sdn Bhd to bondholders. A man’s word is his bond. Can the words of a Minister of the Malaysian Government be less?

How could such letters of support by the Minister of Transport be issued without the officers in the Ministry of Transport, the Ministry of Finance, the Attorney General’s Chambers and the many other officers of the various government agencies involved in such projects having reviewed and approved them? There are standard procedures designed to check that the Federal Government does not enter into financial commitments without proper investigation. Section 14 of the Financial Procedure Act 1957 requires any guarantees involving a financial liability to be given only with the written authority of the Treasury or in accordance with Federal law. Again, as in the purchase price, if the officers and agencies involved had complied with the processes and procedures, they could have warned the Federal Government of the impending financial disaster. Again, these officers and advisors cannot be ignorant of such routine requirements. How could a Minister have been allowed to make a representation on behalf of the Government that it will ensure that PKA is in a position to meet the repayment sum when the Auditor General had reported that PKA did not have sufficient financial resources to meet its obligations. It is the duty of these officers to speak up. What is the cause for their failure to speak up? Why did their moral character fail them at this stage of the transaction?

The third question relates to the decision to develop the entire 1,000 acres in one phase instead of two phases over 8 years. This is the unkindest cut of all by those entrusted to safeguard the people’s interest. This decision is the fatal stroke to PKFZ just like Brutus stabbing of Caesar. It may be argued that being a business decision, it is a matter for the discretion of the PKFZ’s board of directors. Although it is a commercial decision, directors are required to make their decisions by exercising care, skill and diligence. The decision to develop 1,000 acres in one phase is a decision no rational businessman would make. It is so plain, so manifest, and so simple of appreciation that no man with any ordinary degree of prudence, acting on his own behalf, would have entered into such a transaction of creating a financial obligation of RM4.6 billion without any concrete commitments that there will be purchasers or tenants for the entire 1,000 acres. This decision may tantamount to a breach of directors’ duty of care and skill if there was no justification for the decision. The Pricewaterhouse report does not provide any information to support the decision to develop the entire 1,000 acres in one phase instead of several phases. Todate, only 14% of the total lettable area is occupied. This is the cause for the project costs running into RM12 billion. How could the various representatives of the Government agencies in PKA and PKFZ Board of Directors agree to such a decision? How could such eminent persons fail to be cognizant of facts so plain and simple? Only a person of endemic incompetence would not have grasped its significance. PKA’s cashflows would be insufficient to pay the financial obligations for the entire development in one phase. The directors were appointed to safeguard the peoples’ interest and to speak up. They failed when the moment for them to do so arose. What is the cause for their failure to speak up? Why did their moral character fail them at this final stage of the transaction?

Today, with the release of the Pricewaterhouse report, the horses have bolted from the stable. It is too late to stop the losses. There can only be a demand for accountability. A report can be lodged for criminal investigation and hopefully we will see the wrongdoers being charged, tried, and imprisoned for their misdeeds. Civil suits can be filed with mareva injunctions to prevent the wrongdoers benefitting from their ill gotten gains and tracing orders to recover the monies. However, unless we find the cause for the failure of the many to speak up when it was their duty to do so, we will have more PKFZs. Unless we find the answer as to why those that we have entrusted did not have the moral courage to stop the wrongdoers, Malaysians will continue to pay for more PKFZs.

Moral Code
It has been said by Claude Frederic Bastiat, the famous French classical liberal theorist, political economist and member of the French assembly, that when plunder becomes a way of life for a group of men living together in a society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it. Claude Frederic Bastiat’s words may have been realized in Malaysia. A probable inference for the systemic failure of our government agencies to stop the plundering of our coffers is that our officers have come to believe that our system authorizes plunder and corruption and our moral code has been subverted to glorify it. However, there could be another reason then the wholesale lost of values by our Government agencies.

A more probable reason is that the officers’ act or fail to act out of fear. It may be that a leader is corrupt, but the entire Government agencies and servants are not by necessity corrupt. They failed to act out of fear. It has often been said that power corrupts and absolute power corrupts absolutely. A necessary development of this adage is that power does not corrupt but fear corrupts.

This episode in PKFZ has shown that there is endemic fear because it was not a failure by one person but the failure of a whole multitude of officers and agencies. It was a systemic failure.

Malaysians must have the courage and conviction to put an end to this climate of fear. This must be done quickly because as a nation, we are hemorrhaging to death. How many more PKFZs do we need before we finally put this to an end?

In the words of Thomas Jefferson:
“When the people fear their Government there is tyranny,
When the Government fears the people, there is liberty”.
Let us put fear in the Government for Malaysia’s liberty and an end to the plundering.

William Leong Jee Keen
Member of Parliament for Selayang
10th June 2009