The controversy surrounding the Port Klang Free Zone (PKFZ) refuses to die down, especially after the government yesterday evening ordered the scheduled payments to be made to bondholders of the multi-billion ringgit project.

The decision, which pre-empted a Port Klang Authority (PKA) meeting this morning to decide on whether or not the payments should be made, begs the question of why the government insisted on making the payments.

azlan It does not help the government's case that three letters of undertaking suddenly surfaced this month, which indicated that PKFZ turnkey contractor Kuala Dimensi Sdn Bhd (KDSB) would foot whatever outstanding amount not paid by the PKA to the bondholders via the four special purpose vehicles (SPV).

The current dispute surrounds the final payment of RM222.58 million due this Saturday (July 31) to one of the SPVs, Free Zone Capital Bhd (FZCB).

The letter of undertaking issued to FZCB said that KDSB would "cover the shortfall in the event of any shortfall in the amount payable by the Port Klang Authority in year 2010 vis-a-vis the bond repayment amount after taking into account balances in the escrow account".

The letter, signed by KDSB director Idris Mat Jani on Sept 12, 2006, also gave the guarantee that the contractor would maintain the "required balances" in the escrow account.

Idris had also on Feb 28, 2006 signed a similar letter sent to Valid Ventures Bhd for payments in 2011 while another company director, Omar Abdul Latip, had on Sept 13, 2004 signed a similar letter issued to Transshipment Megahub Berhad for payment to be made in 2012.

NONE Malaysiakini managed to get copies of all three letters, but has so far been unable to verify the authenticity of the documents with KDSB as its chief executive officer Faizal Abdullah ( right ) is currently out of the country.

Standard operating procedures

It was however learnt that such letters of undertaking are issued as standard operating procedure when a company offers bonds to investors to raise money for a given project.

The letters notwithstanding, it can still be argued that the government has grounds to withhold the payments without having to suffer a dent in its credit rating.

Petaling Jaya Utara MP Tony Pua pointed out that this is not a case where the government had refused outright to make the payments for no good reason.

He said the payments due to bondholders are directly related to the PKA's ongoing suit against KDSB for over-claiming, in which the port authority accused the contractor of claiming for incomplete work.

"All the government needs to do is announce that it will honour its guarantee to the bondholders, depending on the court's decision. If it declares the project complete, then the government will honour the bond.

"If it is proven in court that KDSB had committed fraud, then the bondholders can sue KDSB," he said.

Pua stressed that regardless of who pays, the bond holders don't have to fear losing out on their investments as there are enough safeguards to make sure either the government or KDSB foots the bill.

He noted that even if the government, through PKA, does not make the payments, KDSB is duty-bound to make up for the unpaid monies using the escrow account set up with the SPVs.

" NONE The issue is not whether to pay or not, but whether the work is done or not," he said Pua ( left ), referring to PKA's suit against KDSB.

Decision is ‘to protect KDSB'

He also took a swipe at the government for its decision to proceed with the payments anyway, saying he sees no other reason for it other than to protect KDSB and its owner, Sarawakian tycoon and Bintulu MP Tiong King Sing.

Had the government decided to withhold the payments, it would cause substantial losses of profit by KDSB, he said.

"To avoid the above outcome, (Transport Minister) Kong Cho Ha has chosen to instruct PKA to make the payments which are ‘due' despite the ongoing dispute and litigation, to ensure that one of the biggest beneficiaries of BN patronage projects remains an on-going concern."

A sum of RM222.58 million is scheduled to be paid out to FZCB, and another RM150 million owed to another SPV, Special Port Vehicle Bhd this Saturday (July 31).

A RM1.3 billion payout is scheduled for Valid Ventures next year, while RM1.4 billion is due to go to Transshipment Megahub in 2012.