July 30, 2010
Ong Tee Keat: Foolhardy to ignore the “Missing Links”
I laud the decision of the Board of Port Klang Authority to hold back its final payment of RM222.584 million to Kuala Dimensi Sdn. Bhd. (KDSB)’s special-purpose vehicle (SPV), Free Zone Capital (Bhd).
The payment is stipulated under the New Additional Development Work (NADW) agreement signed between KDSB and the Port Klang Authority (PKA). A total of RM522.584 million is due under NADW, of which RM300 million had already been paid in 2008 and 2009.
The final payment under NADW, due on July 31, 2010, should be withheld to avoid crossing the threshold of what KDSB is legally entitled to.
I have mentioned in my earlier blog that it goes against sound reasoning to make full and final payment when there is a clear dispute, amounting to at least RM83 million for fraudulent claims, such as the supply of 33kv to Precinct 2 and Precinct 8, which has yet to commence from Notice of Payment No 1 until the last Notice of Payment No 24.
The PKA Board has avoided the risk of a ‘hollow victory’, when monies paid cannot subsequently be physically recovered, when the courts rule in its favour.
The Board of PKA had yesterday demonstrated its integrity by making the correct but difficult decision in putting the interests of the government and taxpayers first, as against political interference.
The move to ensure that 1/3 of the Board members comprise independent directors not aligned to any political master, which was initiated during my tenure as Minister of Transport, has begun to bear fruit.
Call for sound reasoning
My hope turned to despair when I read that the current Transport Minister may exercise his ministerial prerogative to override PKA’s decision.
While I recognise that this is a minister’s privilege, the exercise of this right must be tempered with sound reasoning and more importantly, considered with the people’s interest in mind.
The justification behind the decision to “pay according to what has been decided much earlier, according to the schedule that was set a long time ago”, is a sweeping one and indeed foolhardy. It must be read in the light of the following:
a) The existence of new facts – the ‘missing link’ in the PriceWaterhourseCoopers Advisory Services (PwCAS) report, of letters revealing that KDSB had given undertakings or guarantees that it will cover any shortfall in repayments towards the bonds should PKA fail to do so;
b) The above supports the contention that the “Letters of Support” provided by my predecessors at the Ministry of Transport are not guarantees, and effectively releases the pressure from the government to pay the bonds. In other words, the government is under no direct legal obligation to pay the bondholders.
Dismissing unfounded fears
This is supported by the Parliamentary Hansard that recorded a Deputy Minister of Finance stating the same. The letters also do not comply with Section 14 of the Financial Procedures Act 1957 to be effective government guarantees;
c) The fear of negative repercussions to our sovereign rating is unfounded. The reported default of a RM240 million bond by Malaysian International Tuna Port Sdn Bhd. (MITP), a similar case, did not create much of a ripple in the market, as was last year’s one-week default in payment with regards to PKFZ; and
d) The bondholders are not privy to the principal agreements signed between PKA and KDSB. The SPVs’ right to payment are merely secured under the assignment, which is subject to what is lawfully due to KDSB under the principal agreements.
It makes absolute sense to withhold payments to the SPVs pending determination of what is lawfully due to KDSB by the courts.
I hope that the current minister and PKA have enough gumption to carry out the pledge to continue with the PKFZ probe.
There is at least RM1.4 billion in disputed claims for all principal agreements between KDSB and PKA, including the Land Agreement (LA), Development Agreements (DA) and Additional Development Agreements (ADW), of which more than RM2 billion is payable as scheduled until 2017.
Sweeping the dirt under the carpet this year will not make the problem go away.