PKFZ: Want to Pay or Don't Want to Pay?

The Government sues Kuala Dimensi Sdn Bhd for RM1.4 billion in excess payment and yet at the same time guarantees payment to Kuala Dimensi's creditors – does it know what it is doing?

On August 26, 2009, the Port Klang Authority (PKA) sued Kuala Dimensi Sdn Bhd (KDSB) for wrongful or excess claims amounting to RM1.4 billion. This amount include

• excess interest calculations of RM720 million,
• wrongful claims for RM255 million for monsoon drain works and water supply works,
• excess claims of RM93 million for Office Blocks and Light Industries Units, and
• RM83 million for electricity supply and other works which have yet to be carried out

PKA has to date paid RM2.04 billion for the purchase of the land and the construction works carried out. There is an outstanding amount of RM2.80 billion to be paid out of a total of RM4.84 billion for the project payable to KDSB.

KDSB in turn has borrowed RM3.685 billion by issuing bonds to both local and international investors.

It was then arranged that since PKA will owe the contract fees to KDSB and KDSB owes money to its bondholders, PKA will make payments directly to KDSB's bondholders, on behalf of KDSB.

However, since the Government via PKA is clearly disputing a huge amount of RM1.4 billion payable to KDSB, PKA should not be making further payments to KDSB and by the above arrangement, to its bondholders until the disputed amount is resolved.

This is because should the Courts decide that KDSB has made wrongful or excess claims amounting to RM1.4 billion, the outstanding loans due to the bondholders must be settled by the owners of KDSB themselves (since they borrowed the money) and not by the Malaysian Government.

However, both the Prime Minister, Datuk Seri Najib Abdul Razak and the Deputy Finance Minister, Dr Awang Adek have confirmed that “the government would guarantee around US$1 billion [RM3.685 billion] in bonds issued [to KDSB] to fund a free zone project to allay investor concerns over the debt,” reported by Reuters yesterday. Prime Minister Datuk Seri Najib Razak had told an investor briefing in New York yesterday that the government would honour all PKFZ obligations.

The Prime Minister's guarantee hence tantamounts to an official bailout of KDSB who may be unable to repay the bondholders, if PKA is successful in its suit against KDSB. What is happening is that the Government on the one hand, believes that KDSB should not be paid RM1.4 billion for wrongful claims, while on the other hand, assures the bondholders that it will pay all debts owed by KDSB to its creditors.

The rakyat will want to ask why is the Government giving an iron-clad assurance to settle KDSB's debt obligations, even if the KDSB is subsequently proven to have failed to perform a satisfactory job on PKFZ and should not be paid in full? This only goes to show that at best the Government is completely clueless about its actions, or worse, it is sanctioning a bailout of KDSB which is owned by the Barisan Nasional Backbencher Club's Chairman, Datuk Seri Tiong King Sing.

We call upon the Government to pay only for services and works which has been satisfactorily completed and not a cent more for wrongful claims. Any outstanding debt to bondholders as a result of payment shortfalls by the Government must be settled by KDSB or its shareholders without involving a single cent of public funds.