Port Klang Safe Zone (PKSZ)

Group 3

Name Matrics Number

Haymanisha A/P Sundraraj CIA160039

Puvendrha Naidu A/L Nokanaidu 17095390/1

Kishore Kumar A/L Nagarajah 17169738/1

Muhammad Yusuf Adriansyah 17094223/1

Zainina Binti Zainuddin 17109232/1

Introduction

The Port Klang free Zone (PKFZ) project is a 1,000-acre regional industrial park in
Port Klang, Selangor. The project aimed to develop the seaport into a national
multimodal transhipment that offer facilities for international cargo distribution by
advancing various investment incentives to investors including tax exemptions on
specific product and services, subsidies, permitting the regulation of wholly
foreign-owned enterprises, capital and profit repatriation, research and
development support, and training and export incentives.
 Case overview (PKFZ)

PKFZ project initiated Scandal Breaks

● Project mooted by Minister of Transport (MoT) and
Malaysian Chinese Asociation (MCA) Dr Ling Liong Sik
● In 1999, Malaysian cabinet under PM Mahatir Mohammed
approved the project and placed under purview of Port Klang
Authority(PKA)
● In reality, direct control of the project was exercised by the
MCA leadership
2001
● In 2006, JAFZI raised concerns to MoT Minister Chan Kong Choy about political
meddling and cumbersome bureaucracy.
● In 2007, JAFZI decided to pull-out from their 15 year contract. They criticism about
severe repercussions of poor corporate governance on the confidence of foreign
investors because of political interference in major projects.
● In 2008, annual Audit General Report noted initial project cost of RM1.845 billion had
ballonned to RM 4.947 billion
2009-2013

1997-1999 2006-2008
Beginning of the project
● PKA appointed Jebel Ali Free Zone International (JAFZI) to manage the
project
● Project budget is RM1.957 billion for land purchase and development
● Appointed Kuala Dimensi Sdn.Bhd. (KDSB) as developer (this is the
central of corruption of this project)
● Kuala Dimensi Shareholders are senior UMNO and MCA officials
during PM Abdullah Ahmad Badawi’s administration
Audit Report, Cost Overruns, & Regulatory Actions
● PriceWaterhouseCoopers (PwC) was later called to prepare a report amid
mounting public anger
● Government approved RM4.632 billion soft loan to bail out the project as
PKA was unable to service the first scheduled payment in 2007 to KDSB
● 6 individuals were charged in court, including 2 former MOT Ministers, Ling
& Chan.ALso, OC Phang (former PKA GM), Bernard Tan (consultant
architect for KDSB), Law Jenn Dong (former project manager of PKFZ),
Stephen Abok (COO of KDSB)
Facts about PKFZ
● The facility comprises 512 warehouses, 2000 covered parking bays,
four office buildings, an exhibition centre and a four-star hotel
(Malaysiakini, 28 May 200921).
● The chairman of PKA’s board of directors, for example, has always
been reserved for senior MCA politicians and influential Selangor
UMNO leader.
● Land of project was acquired above the market price (RM3/sqf) and
bought RM25/sqf by a company Kuala Dimensi, whose shareholders
include senior politician from MCA and UMNO.
● PKA’sgeneral manager O.C. Phang hrough a letter dated 7 April
2004, pressured MOT Minister Chan Kong Choy to influence MOF
Minister Abdullah Ahmad Badawi to appoint Syarikat Perunding BE.
● In spite of these cost overruns, PKFZ only enjoyed an occupancy rate
of less than 20 per cent, about 50 per cent of which was for light
industrial units, 5 per cent for office blocks, about 25 per cent of the
land was occupied by a hotel and exhibition hall which were not
operational (Malaysiakini, 12 Jun 200731).
● MOT blamed the project’s cost overruns on JAFZI mismanagement,
arguing that the PKFZ’s initial plan was to develop it in two phases.
This was patently untrue as PKA had decided on the single phase
development model.
● The PwC Audit Report (2009) indicated that, firstly, no appropriate
studies were done prior to initiating the project, thereby pinning the
blame on the MOT. There was virtually no proper government
project management and control despite it being a multi-billion
project.
● MOT Minister, Dr Ling (1986-2003) and Chan (2003-2008) issued
four Letters of Guarantee for KDSB to raise RM4 billion bonds for
the project. Both Ministers had breached MOF regulations, as the
MOT Minister has no authority to produce financial guarantees on
the state’s behalf.
● in 2009, PKA chairperson Lee Hwa Beng lodged a police report
against KDSB over possible fraudulent claims of between RM500
million and RM1 billion and a RM920 million lawsuit against KDSB
and other related parties. Despite these civil suits, the government
released RM3.039 billion to service the KDSB project bonds.
The key issues in the case are:

1. The inefficiency of control

2. Abuse of power and duty
i) Cost overrun (RM 3 billion)
ii) Independence of PKA
ii) Audit Report
Recommendations
 Brief Facts:

Abuse of power and Political affiliation or conflict of interest of powerful

duty stakeholders in a government project provides a lot of

room for deviation from the project objectives in order
to fulfill their political favours.
 Analysis for this issue will be done based on the fraud
triangle model.

Analysis
 Pressure from stakeholders to include them in this money-
making scheme is highly visible

E.g. :

- PKA’s General Manager also pressured Minister of

Transport to influence Minister of Finance’s decision
to accept his rejected recommendation of a key

Pressure vendor

- PKA board has included Abdul Rahman Palil,

Selangor UMNO Leader. The Chairman of PKA’s
board of directors, for example, has always been
reserved for senior MCA politicians such as Dr Ting
Chew Peh (2000-2004).

- PKA appointed KDSB,that also comprises several

senior UMNO and MCA officials, as the project’s
turnkey developer. KDSB is in charge of selecting
key project vendors e.g. quantity surveyors.
 Opportunity to create a circle of sustained control by
the corrupts allowed for a longer period of exploit.

- Malaysian Cabinet under Prime Minister

Mahathir Mohammed approved PKFZ and
placed it under the purview of the Port Klang
Authority (PKA), a statutory body under the
Opportunity Ministry of Transport (MOT).

- MOT Minister is traditionally reserved for an

MCA politician

- No open tender for key vendors especially

selection of KDSB

These undoubtedly created an opportunity for the

corrupts to use their political power in maneuvering
this fraudulent conduct.
Rationalization Justification for these unethical conducts within this
project are:

The wellbeing of citizens is not their main - Helping out another politically affiliated friend
concern
- To strengthen support in the world of politics

Any unethical behaviours can easily be justified, it is

more important for us to focus on the other two
elements because they are more visible and can be
handled in an effective manner.

Recommendations:
Government projects should entirely
be championed by independent,non
politically affiliated stakeholders
Was This recommendation in place during PKFZ
scandal?
No because the clear authorization by Prime Minister
Mahathir to put PKFZ under the purview of PKA shows
that he recognizes the members of PKA are of
political parties but is alright with that arrangement.
The only possible way to combat fraud in government
projects is by removing the pressure and opportunity
elements, because rationalization happens internally
and is comparatively difficult to prevent.
Our recommendation should be able to tackle all the
highlighted issues that has arised in the pressure and
opportunity analysis.