PKA will pay, says minister

by Terence Fernandez and Giam Say Kho, TheSun

KUALA LUMPUR (July 27, 2010): Transport Minister Datuk Seri Kong Cho Ha today used his ministerial power to override yesterday’s decision by the Port Klang Authority (PKA) to refuse to make the final payment of RM222.58 million to a special purpose vehicle (SPV) set up by Port Klang Free Zone turnkey contractor Kuala Dimensi Sdn Bhd (KDSB) to raise funds from the market.

The SPV, Free Zone Capital Bhd (FZCB), is one of four set up by KDSB to raise funds from bonds for the controversial PKFZ project.

When met after the MCA presidential council today, Kong said: “We will pay according to what has been decided much earlier; according to the schedule that was set a long time ago.

“I will talk to them (PKA).”

A news report in a financial daily today said the PKA board had decided not to make the final payment to FZCB as the board did not want to be in a position where PKA wins a law suit against KDSB but cannot recover the money.

Effectively, PKA has shifted the decision on its bond obligation to Kong under Section 3(4) of the Port Authorities Act 1963, which gives the power to the minister to override the board’s decision.

theSun has learnt that the PKA decision could have basis in the revelation that KDSB had given undertakings that it will cover any shortfall in repayments towards the bonds should the PKA fail to do so.

PKA had been under pressure to make the bond payments from various quarters as failure to do so would result in adverse effects on the local bond market.

However, these guarantees by KDSB reveal that any shortfall in the bond repayment makes it KDSB’s problem and not the Malaysian taxpayers.

It is understood that these undertakings emboldened the PKA board to withhold its final payment to FZCB, due on July 31.

The PKA is currently suing KDSB for RM1.4 billion for breach of contract.

PKA chairman Datuk Lee Hwa Beng said the letters from KDSB to three SPVs – FZCB, Valid Ventures Bhd and Transshipment Megahub Bhd — were tabled at yesterday’s Board meeting.

However, he declined to say if the guarantees by KDSB were the basis of the Board’s decision to withhold payment to FZCB.

“I cannot reveal the deliberations of the meeting, but we have advised the Transport Minister of our decision,” Lee said, declining to say more.

The letters which were sighted by theSun earlier this month revealed the creation of escrow accounts with OSK Securities Bhd. They are deemed as the “missing link” in investigations into the RM12.5 billion mega-scandal. Former Transport Minister Datuk Seri Ong Tee Keat said even auditors PriceWaterhouseCoopers had not come across these letters.

“These undertakings will prevent taxpayers money from being further abused,” said Ong when met recently.

He added that he had been calling for payments to KDSB to be frozen until the outcome of the PKFZ probe.

The letters read: “We hereby confirm that we undertake to cover the shortfall in the event of any shortfall in the amount payable by Port Klang Authority in the year …. vis-a-vis the bond repayment amount after taking into account balances in the Escrow Account.”

The FZCB letter dated Sept 12, 2006 was signed by KDSB director Idris Mat Jani with RM6.5 million in the escrow account. It also stated that KDSB will provide a corporate guarantee for the New Additional Development Works (NADW) equivalent to 5% in value of the NADW.

The Valid Ventures letter dated Feb 28, 2006 also signed by Idris stated that KDSB is required to gradually build up a sum of RM47.6 million in the Escrow Account.

The guarantee for Transshipment Megahub in a letter signed by KDSB director Omar Abdul Latip on Sept 13, 2004 stated that the Escrow Account will have not less than RM36 million.

According to reports, Valid Ventures is owed RM1.3 billion due next year while Transshipment Megahub is owed RM1.4 billion due in 2012.

Another RM150 million is owed to another SPV, Special Port Vehicle Bhd.