Port Klang Authority (PKA) should not have agreed to develop the 1,000-acre Port Klang Free Zone (PKFZ) in a "single phase" in 2004 due to its weak financial standing.

PKA former chairperson Lee Hwa Beng said this when he testified in a civil suit brought by PKA against its former general manager OC Phang at the Shah Alam High Court for breaching her fiduciary duty.

Lee argued that even if PKA was able to rent out its RM1 billion properties, including land, buildings, and hotels upon completion, the rental collected would not be able to cover the cost of construction.

"The rental collected will not be able to pay off (construction costs)," he said in a proceeding before Justice M Gunalan.

It was later proven that some of the properties could not even be rented out, Lee added.

"But at that time, nobody (in the PKA board) bothered to look into this (from the financial perspective). Nobody objected," he said when cross-examined by Phang's counsel Matthew Thomas Phillip.

Lee also questioned the decision by the PKA and Transport Ministry to turn the original multi-phase project to a single phase.

The decision was made after the government got interested in building a mega transshipment hub in the model of Jebel Ali in Dubai.

According to PKA's original plan, which was approved by the cabinet in 2002, developer Kuala Dimensi Sdn Bhd would first build 400 acres of land in the first phase, costing about RM400 million.

The overall development cost of the project was initially set at RM585 million in 2003.

Referring to a letter penned by then transport minister Chan Kong Choy in 2004, Phillip said the ministry had ensured PKA's financial capability of developing the project in a single phase.

"(If I chaired PKA then), I would not rely on Transport Ministry (on the financial matter), but the Finance Ministry," argued Lee, who helmed PKA between 2008 and 2011.

In his testimony, he agreed with the defence counsel that the then PKA board, which made the collective decision on PKFZ, should be sued instead of Phang.

Lee said he had recommended action against the entire board, but that PKA disagreed with it.

Phang held the post of general manager in PKA from Sept 1997 to June 2008. 

Lee, who was appointed as PKA chairperson between 2008 and 2011, was instructed by then Transport Minister Ong Tee Keat to take action. 

In March, Lee took to the witness stand and accused Phang of causing the cost of PKFZ to balloon from RM1 billion to RM4.63 billion in 2006. The RM4.63 billion soft loan from the Finance Ministry also imposed an additional RM2.51 billion in interest costs on the corporation.

Lee said Phang breached her duties by entering into eight key agreements relating to PKFZ despite being cognisant of PKA's weak financial position.

Phillip disputed that PKA's financial status was known to its board members, based on a number of correspondences from PKA requesting that the government assist on the project. 

Lee maintained that the cashflow reports of PKA were not revealed to the board on the matter relating to the sales and purchase agreement dated Nov 12, 2002, and the development agreement dated May 26, 2003. 

In such circumstances, he alleged that Phang had misled PKA board when the two agreements were concerned. 

Phillip then asked Lee, who was tasked to probe PKFZ, if he had personally asked the board if they were privy to the cashflow reports with regards to the two agreements. 

Although admitting that he did not interview the board members personally, he said his consultants had queried them. 

The trial will resume next Monday with the defence counsel continuing the cross-examination.