The cabinet has ordered the chief secretary to investigate whether the transport ministry had wrongly issued a letter of support to a private developer to enable the latter to raise funds for the Port Klang Free Zone (PKFZ).

Developer Kuala Dimensi Sdn Bhd (KDSB) had raised funds for the RM4.6 billion PKFZ project through the issuance of bonds.

The ministry was said to have been advised by a Port Klang Authority (PKA) senior official to issue a letter of support for this purpose.

Following the issuance of the letter, a ratings agency had issued an 'AAA' rating to the Kuala Dimensi bonds, which raised it to the level of bonds guaranteed by the government.

Bonds with government guarantees are usually only issued by the finance ministry.

According to an industry source, the chief secretary was directed - during the cabinet meeting three weeks ago - to look into whether the PKA official's advice had been mistakenly given and if it goes against procedural rules.

"Such letters of support are usually only issued by the finance ministry and that, too, only after it has been directed to do so by the cabinet," said the source when contacted.

PKFZ - modeled after the highly successful Jebel Ali Free Zone in Dubai - was conceptualised as the region's hub of choice for the export and transhipment of manufactured goods.

In a statement last Wednesday, PKA said that about 20 tenants have committed investments in the zone totaling RM467 million.

Despite efforts to portray the project to have successfully taken off, however, the zone's 512 standardised warehouse units, 260ha of open land, and four blocks of eight-storey office complexes resemble a ghost town .

This prompted a site visit last month by DAP leader Lim Kit Siang, who said the project raises a question mark on the "viability, feasability, and integrity" of the whole zone.

Financial squeeze

The 2006 Auditor-General's report states that PKA is already hard put to meet its capital obligations to Kuala Dimensi over PKFZ.

This year alone, said the report, PKA will have to pay RM510 million to Kuala Dimensi. From 2008 to 2017, PKA will have to follow up by making annual payments ranging from RM130 million to RM733 million.

The report notes that, as PKA's liquidity at December 2005 consisted of cash in bank and fixed deposits amounting to RM231.75 million, while its surplus after tax was RM26.63 million.

As such, PKA will "to look for sources of financing to meet its capital obligation".

According to the industry source, however, this issue was resolved in the cabinet meeting by its decision to approve 'in retrospect' the RM4.6 billion development cost of PKFZ.

Investigations will nevertheless proceed, the cabinet directed, into the debacle of PKFZ's rising costs.

This includes an inquiry by an independent accountant into the financial aspects of PKFZ, as well as a separate investigation by the Economic Planning Unit of the Prime Minister's Department into the implementation of the project.

Senior officials of PKA, including its general manager and chairperson, could not be reached for comments.

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