The controversial merger between government-owned financial services company Avenue Capital Resources Berhad and boutique investment advisory group ECM Libra Bhd - in which Umno Youth deputy chief Khairy Jamaluddin has a direct stake - was, in principle, a case of conflict of interest.

Although the merger , carried out in January this year, has complied with all the statutory regulations, a number of troubling questions remained, said Public Accounts Committee (PAC) head Shahrir Samad at the Parliament House today after chairing a five-hour PAC meeting.

"In principle, there is a conflict of interest if the minister's family member is involved. But here, maybe there was no minister's consent because the matter was not brought to the cabinet - it was decided between the ministry's officials and the party which made the offer," he said.

Pressed on whether Prime Minister and Finance Minister Abdullah Ahmad Badawi was involved in approving the merger which was linked to his son-in-law Khairy's company, Shahrir said it "appears that the decision was made only at the (ministry) officials level".

He, however, was uncertain whether a merger involving a government-linked company (GLC) should be brought to the cabinet for approval.

Shahrir said the committee had to gather more information at its next meeting as to how the decision-making process on the merger was carried out.

"This (scandal) involved personalities who are well-known - one is Kalimullah (Hassan, New Straits Times deputy chairperson) - and the other one, who bought the shares at the end of 2005, was Khairy."

Gov't officials meet PAC

The merger raised eyebrows after it was announced less than a month after Khairy had obtained a loan to acquire a RM9.2 million three-percent stake in ECM Libra, an investment advisory group.

The PAC meeting today heard explanations on the controversial merger from government officers led by Finance Ministry secretary-general Izuddin Dali and Securities Commission (SC) chief Zarinah Anwar.

The PAC, a committee comprises of parliamentarians from both sides of the House, is tasked to check on the government's spending and to ensure that allocations are properly used.

Shahrir said the committee was satisfied with the explanation from the SC on the procedures of the merger.

But he voiced concern that the government may lose control over the new entity, known as ECM Libra Avenue, which Shahrir quipped "sounds like a road name".

"From a rough overview, there is an increase of about RM10 million in the shares values held by the government (in the new entity), but the question is whether the government will lose the controlling stake in the new entity," said Shahrir, who is also the Johor Baru MP.

He added that the PAC is concerned on who will be sitting on the board of merged company and who will regulate it although this has not been finalised yet.

He argued that the position of Avenue Capital as a GLC should be maintained in the merged entity.

Asked to comment on ex-premier Dr Mahathir Mohamad's comment that the merger was inappropriate , Shahrir replied: "It's alright (for Mahathir to say that). I can also said it's wrong but where is the accountability to that statement? We need to do more checks."

Asked whether any other party will be summoned to explain at the next PAC meeting slated for Aug 25 besides the Finance Ministry and SC, Shahrir brushed aside the question, quipping: "I have not been invited to any party."

Questionable decisions in Matrade

Meanwhile, PAC has also studied a management auditing report presented by the Auditor-General's Department on the nine-year delay in the construction of the Matrade building and found that questionable decisions were made from the inception of the project.

Among others, they included the change of the construction site of the building, the monitoring by the Public Works Department, and the Finance Ministry's decision to enter into direct negotiation with contractor Perangsang International Sdn Bhd (PISB).

Elaborating, Shahrir suggested there was no justification for the Finance Ministry to enter into direct negotiation with PISB since direct negotiation is only meant for projects that could be undertaken by companies with specific technical skill or contractors which have already done similar projects.

Asked on the ministry's rationale to enter into direct negotiation with PISB, Shahrir replied: "They said they wanted the Matrade building (to be completed) fast."

He added that an open-tender process would normally take about three months.

Work on the controversial building started in 1994 with completion scheduled in 1997, but the project suffered several delays and led to the appointment of a new contractor.

The original cost of RM167 million shot up to RM287 million.