Malaysia to bail Port Klang free zone out of over $1 bil. debt

For the first time, the government disclosed what the opposition has been making noise about in recent weeks  the financial crisis engulfing Port Klang Authority, the country's most established port agency. The crisis could be damaging to Prime Minister Abdullah Ahmad Badawi as he prepares for an early general election.

The scandal involves the 405 hectare free zone complex off Port Klang, some 50 kilometers northwest of Kuala Lumpur, which the Transport Ministry said in a statement Thursday would cost a total 4.632 billion ringgit ($1.34 billion).

The project was originally estimated to cost around 1.1 billion ringgit.

''Because the total PKFZ (Port Klang Free Zone) costs are high, the government has agreed to approve a soft loan to PKA,'' the ministry said. ''The details of that loan are under discussion.''

The project first attracted controversy in 2002 when Kuala Dimesi Sdn. Bhd., a private company linked to politicians from Abdullah's ruling United Malays National Organization, sold the land the project is sited for to PKA for 1.1 billion ringgit or 25 ringgit per square foot.

The company purchased the land in the 1990s for only 96 million ringgit or 3 ringgit per sq. ft

The deal was sealed despite the AttorneyGeneral's Chambers and the Finance Ministry advising PKA to forcibly acquire the land under the country's Land Acquisition Act, which would have meant that the land could be bought at around 10 ringgit per sq. ft.

Adding to the confusion, PKA later awarded Kuala Dimensi the rights to develop the free trade zone. It also roped in the Dubaibased Jebel Ali Free Trade Zone Authority to manage and market the project.

JAFZA's withdrawal from the deal last month, purportedly because it was denied an equity stake in the business, opened up a can of worms in connection with the near empty free trade zone.

Presently, it has only managed to attract an investment of 725 million ringgit since it became fully operational last November. The Transport Ministry put part of the blame on JAFZA for the escalating cost.

It said in the statement that JAFZA insisted that the project should be developed in one go utilizing 1,000 acres (404.69 hectares) at a cost of 1.845 billion ringgit.

The project was initially planned to be completed in two phases on just 500 acres (202.34 hectares) at a cost of 400 million ringgit. Other elements that pushed up the cost to 4.632 billion ringgit were interest of 7.5 percent on the loan to buy the land, payable over 15 years, a 10 percent professional fee and a variation order capped at 20 percent, according to the statement.

Opposition leader Lim Kit Siang from the Democratic Action Party described the PKFZ crisis as Abdullah's first ''megabailout'' since taking office in 2003.

It is ''set to be the biggest financial scandal at the beginning of any prime minister,'' he said in a statement.

He raised questions over Abdullah's pledge of fiscal prudence and no rescue of ''white elephant'' projects that used to be synonymous with Mahathir's era. The PKFZ was conceived during Mahathir's administration but the mismanagement occurred under Abdullah, who is also the finance minister.

The DAP has already lodged a police report seeking an investigation into the land deal and other irregularities.

//Kyodo news