Port Klang FZ Doomed Sinkhole - RM4.63 b; Same Lawyer & Consultant Deals; Red tape, Political meddling, Inaccurate minutes and Attempted tax evasion

ABOVE: Malaysiakini revelations on Aug 09 07, details H E R E was a tip of the iceberg; and now - MORE SHOCKING details emerged from " emails correspondence". The separation was acrimonious - The general manager at one time Noel Gulliver was escorted out of the office and taken to the immigration headquarters for working without a permit. This PKFZ is also a clear testimony as to why foreign investors shy away from Malaysia s and yet our Minister Rafidah (BELOW) was chiding and threatening her overseas officers for not doing enough.

ABOVE: Rafidah's Advice, Aug 13 07-“Do not narrow your scope to only trade and investment promotion. Look at the entire spectrum of business opportunities for Malaysian companies”
Our opposition leader Lim KS has called on the Transport Minister in charge of this MCA lead fiasco to resign, details H E R E.

He cannot go now, he is now under tremendous pressure from PM Abdullah to explain why after so much he has "done", the 20 death Bus Crash still occurs under his Ministry and the PKFZ fiasco bailout. As suggested, it would be better for him to lead a group of Taoist Priests and "exorcise all the dirty spirits along the country's highway" rather than wasting his time and everyone's time to have a "through investigation to find out the causes". This has been done umpteen times already!
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PM asks Chan to explain

Llew-Ann Phang and Terence Fernandez

KUALA LUMPUR (Aug 13, 2007): Prime Minister Datuk Seri Abdullah Ahmad Badawi (ABOVE) has asked Transport Minister Datuk Seri Chan Kong Choy to explain why concerns by Jebel Ali Free Zone (Jafza) addressed to Chan over the progress of the Port Klang Free Zone (PKFZ) were not entertained. "I will get Chan to report to me about this," Abdullah said after opening the National Asset and Facility Management (Nafam) Convention 2007 today. He was responding to the Sun's front-page report today that Jafza pulled out of the PKFZ deal because of political interference, bureaucracy and non-conformation to the management agreement signed between Jafza and the Port Klang Authority (PKA).

Jafza executive chairman Sultan Ahmed Sulayem and its senior vice-president (international operations), Chuck Heath, wrote to Chan on March 11 and May 29 last year, respectively, but received no replies. In his letter, Sultan Ahmed had said Jafza was facing difficulties working with PKA and these issues were previously advised by Heath.

Sultan Ahmed said Jafza was concerned that the zone's reputation would be in jeopardy because of PKA's continued interference which caused delay. He said PKA had also overruled many areas of its responsibilities, resulting in, among others, an incident in which Jafza general manager Noel Gulliver was escorted out of the office and taken to the immigration headquarters for working without a permit. Heath's letter pointed to a "total lack of government planning ... which has seen the most fundamental issues being considered and resolved only after the event rather than before". Further, he said, transparency was non-existent and the "Malaysian political and economic landscape has too many vested interests seeking involvement and control in this project". Heath also alleged that since the signing of the management agreement, many issues arose, contrary to the spirit of the agreement and the contractual obligations of both parties. Abdullah said: "The Jebel Ali Free Zone (is) some kind of joint venture for the development of the port site. It involves the Dubai people, so I don't want to make any comment at this point." He agreed that he had a meeting with Jafza officials but that it was held "a long time ago but it was not because of this".

Dubai-based Jafza had on July 18 announced it was pulling out of the agreement to manage the PKFZ for 15 years with the aim to mirror Jafza's competitive and attractive business environment because of "strategic reasons". The reasons it cited was that it wanted to concentrate on projects where it could retain control of equity. In PKFZ's case, 100% equity was held by PKA. The original cost of the project ballooned from RM2 billion to RM4.6 billion because of, among others, overvalued land costs. What stands on the site are rows of unoccupied buildings, an incomplete four-star hotel and pothole-ridden roads. Documents obtained by the Sun revealed that the fallout was because of red tape, political meddling, inaccurate minutes and attempted tax evasions.

Newly-appointed PKA chairman Datuk Chor Chee Heung berated the authors of the report saying it was pointless to get his comments at this stage. Asked if the report was inaccurate, Chor said he was at a meeting and would respond later.

PKA general manager Datin Paduka O.C. Phang,(ABOVE) who was accused by Jafza officials for her part in frustrating the agreement, was unavailable for comment as she was attending meetings all day.

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Disaster Zone
Red tape, political meddling, inaccurate minutes and attempted tax evasion real reasons Port Klang Free Zone deal collapsed

R. Nadeswaran and Terence Fernandez, from SUN

Port Klang: On record, Dubai-based Jebel Ali Free Zone (Jafza) pulled out of the management of the Port Klang Free Zone (PKFZ) on July 18, for "strategic purposes".

However, the separation was acrimonious, documents obtained by theSun reveal. The correspondence, which include strongly-worded e-mails, disclose that Jafza bailed out because of bureaucracy, interference by politicians and others with vested interests, deliberate incorrect minuting of meetings and even attempts at tax evasion by the Malaysian negotiators.
A turf war also erupted over Noel Gulliver, Jafza's man, who was PKFZ general manager. He was escorted from his office to the Immigration Department for "being in gainful employment without a work permit" - although the agreement between Jafza and Port Klang Authority (PKA) indicates that it is PKA's responsibility to obtain a permit for Gulliver.

The dossier, which borders on deceit and lies, points the cause of the collapse of the deal between Jafza and PKFZ at the government machinery and one woman - PKA chairwoman and general manager Datin Paduka O.C. Phang
According to an e-mail from Gulliver to Jafza International senior vice-president (international operations) Chuck Heath last Oct 30, Phang had given Gulliver three months to "toe the line", ordering Gulliver to report to PKFZ and not Jafza.

Meanwhile, a draft report from Ernst & Young Malaysia on a meeting between PKA, PKFZ and Jafza at Jafza's Dubai headquarters on Nov 29 last year over the funding of the PKFZ also raised concerns. Ernst & Young indicated that the details of the payment schemes involved tax evasion. The Ernst & Young report was submitted by Graham Lovett, Gulf Managing Partner of Clifford Chance, to Heath. Lovett noted: "Clearly, Jafza should not in the meantime enter into any further agreements with PKA/PKFZ of the nature proposed by those entities.

"... urgent action is required to ensure that Jafza is comfortable with the financial agreements concerning the operation of PKFZ, given the potential for reputational damage ..." On Dec 12, Lovett in an e-mail to Heath further expressed his distrust of the Malaysian negotiators, which included Phang. He noted that there were stark contrasts between minutes of a meeting taken by his firm and that by PKA/PKFZ.
One example was the service and operation agreement (SOA), where PKA/PKFZ's minutes indicated that Jafza had agreed to details of the SOA, which included a tax structure that provided loopholes to side-step Malaysian tax laws.

Clifford Chance's minutes, meanwhile, showed that Jafza was unwilling to do so.
The meeting notes added: "Graham Lovett expressed his grave doubts as to the propriety of the tax structure and expressed the view that the more he heard the less he liked ...
"Jafza did not and does not want to be a party to any tax problems with the Malaysian government ..." In the e-mail to Heath, Lovett added: "The differences are so pronounced it is pretty clear to me that they are not acting in good faith ... there is no way that they could have got the key discussions at the meeting so badly wrong ..."
The whole mess that is the PKFZ is also a testimony as to why foreign investors shy away from Malaysia.
In a letter to Transport Minister Datuk Seri Chan Kong Choy dated May 29 last year, Heath said red tape had hampered the progress of the free trade zone as among others, Jafza had to deal with 27 government departments that were involved in the client approval process.

Heath wrote: "There has been a total lack of government planning ... which has seen the most fundamental issues being considered and resolved only after the event rather than before."
He added that the lack of transparency from the start had also hampered the development of the free trade zone, with Jafza not having access to relevant details of the main development contract.
"The Board of directors structure has not provided any fundamental support and in fact has drawn us into political issues that have a negative impact on the development," Heath wrote. "The Malaysian political and economic landscape has too many vested interests seeking involvement and control in this project. ..." he said, taking a swipe at the Finance Ministry for placing obstacles in the form of obsolete regulations as well as the non-issuance of licences and financial incentives.
"Unfortunately," Heath added, "without radical surgery in cutting out the above obstacles, we feel this project is doomed to failure."
Jafza CEO Salma Ali Saif Hareb, in a letter to Chan, said the final version of the SOA "had never been presented to Jafza management for final approval".

Perhaps in desperation, Salma threw in the prime minister's name for good measure to ensure that PKA kept its side of the bargain.

He wrote on the need for an " ... immediate review and implementation of a program to deliver a competitive and attractive business environment within the PKFZ that mirrors that of Jebel Ali Free Zone as per the instruction of the Prime Minister of Malaysia on March 14, 2006".It is learnt that Jafza officials met Datuk Seri Abdullah Ahmad Badawi to express their concerns on the success of the project and other anomalies and shortcomings in the setting up of PKFZ.

Updated: 12:31PM Mon, 13 Aug 2007

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RM4.6b white elephant? By Kang Siew Li

THE RM4.6 billion Port Klang Free Zone (PKFZ) project is facing criticism, with players in the logistics sector saying that the 405ha facility in Pulau Indah risks becoming a white elephant.

PKFZ is owned by the Port Klang Authority (PKA).

Port Klang Free Zone Sdn Bhd's (PKFZSB) newly-appointed general manager of business development, Chia Kon Leong, said as manager and marketeer of PKFZ, the company is working overtime to make sure that the free zone is a success. "PKFZ will not be a white elephant as has been said of Westports and Port of Tanjung Pelepas (PTP) in the past (when they were newly set up). Jafza International (Jafza) took about 10 years to get its (Jebel Ali) free zone going, and today investors are queuing to get in. With our free zone better positioned, our journey (to success) will be shorter," said Chia via the short message service. Jafza is operator of the Jebel Ali Free Zone but the company recently pulled out of a 15-year contract to manage PKFZ, citing a change in business strategy. Critics of the project, however, have raised numerous issues, with some saying that it is overly ambitious. It comprises building 512 warehouses of 5,487 sq ft each, 2,000 covered parking bays, four eight-storey office buildings, a three-storey exhibition centre and a four-star hotel. They also questioned the project's development cost which has ballooned from an original estimate of RM100 million to RM3.6 billion.

"How did they (PKA) decide to invest that amount (RM3.6 billion)? Why 512 arehouses? Did PKA conduct a feasibility study to determine what type of infrastructure would be required before starting construction? As it is, the take-up rate for space at PKFZ remains low," an industry source told Business Times. The source pointed out that other free trade zone operators in the country usually build their facilities based on demand to reduce risk. "For example, PTP will only develop the land in its Pelepas Free Zone when there is investment. "To date, the port has spent some RM300 million to develop infrastructure in Pelepas Free Zone which is similar in size to PKFZ," the source added. Eyebrows were first raised when PKA bought the land in 2002 for RM1.05 billion or RM25 per sq ft from Kuala Dimensi Sdn Bhd, a subsidiary of Wijaya Baru Global Bhd, as many said the land was over-priced. It has been reported that Kuala Dimensi bought the land in 1999 from the Pulau Indah Malay Fishermen Cooperatives for RM95 million or RM3 per sq ft. Concerns were also raised over the government body's move into property development and free zone operations. PKA further infuriated the industry with its decision to appoint Kuala Dimensi as a turnkey contractor to develop the PKFZ.

According to sources, Kuala Dimensi had issued bonds to finance the development costs, but is now having difficulty repaying its first bond payment totalling some RM570 million, which is due this year. "The Government initially approved a cost of RM100 million to develop PKFZ, after which any additional cost had to be approved first by the Ministry of Finance. However, Kuala Dimensi has flagged a RM3.6 billion in cost overruns since starting the project in 2003," said a source close to the matter.
"About one-and-a-half months ago, the company had asked the Government for a soft loan amounting to RM3.6 billion, being the sum spent to develop PKFZ.

"It is understood that the Government has approved it, which brings the total project cost to RM4.6 billion, including for land acquisition," the source added. Since its soft launch in November last year, PKFZ has attracted RM468.3 million worth of investments from six companies for prepared land to build manufacturing facilities, eight companies for the light industrial or warehouse units and seven companies for the leased business complex.

Norway's Aker Kvaerner, Salarium Argentum Inc and Pantech Group Holdings Bhd are among the companies that have or are setting up their base there.However, industry executives are still not so optimistic.

"Even if they get the investors, how are they going to recover the RM4.6 billion spent? Now they (PKFZ) are probably giving very low lease rates just to fill up space, sparking a price war among free trade zone operators in the country," said one industry source.
Northport (Malaysia) Bhd managing director and chief executive officer Datuk Basheer Hassan Abdul Kader said so far, Northport has yet to get much benefit out of the development of PKFZ, which is situated in close proximity to Westports.
He said instead, the project might pose a threat to Northport's own free commercial zone."So far, we are competitive (in terms of rates offered among free zones), but we are watching (with the entry of PKFZ)," he said at a media workshop on Thursday.

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19-07-2007: Jafza withdraws

by Kevin Tan; from bizedge.com

Global free zone operator Jafza International has unilaterally terminated its contract to manage and market the multi-billion ringgit Port Klang Free Zone (PKFZ) due to a change in business strategy. The Dubai-based company's move follows its decision to realign its business strategy to focus on free zone developments that it can have operational control as an equity stakeholder. In an announcement yesterday, Jafza said the PKFZ concession was purely an operational and management contract with 100% equity retained by Port Klang Authority (PKA).

"As Jafza further develops as the world's leading global free zone developer, the company is now primarily interested in free zone developments where it can retain operational control as an equity stakeholder in a project," it said in a statement. Jafza has a 15-year contract with PKA to manage the free zone since Oct 24, 2004. Some RM3 billion has been invested in the 250ha free zone over the last five years. PKFZ is expected to obtain a RM4.6 billion soft loan from the government to meet its debts obligation. Jafza said it had given a formal notice of termination to Port Klang Free Zone Sdn Bhd, which is also known as Port Klang Free Zone Authority (PKFZA), which was responsible for overseeing PKFZ.

When contacted by The Edge Financial Daily, PKA general manager Datin Paduka OC Phang said Jafza's pullout would not have an impact as PKFZ had the capability to reach out to customers on its own. "We have targeted to lease out at least 30% of our open space by mid-2008," she said. Phang declined to say if PKA would have any recourse on the early termination of the contract. It was recently reported that only 13% of the open space had been leased out, with the largest investor being Norwegian oil and gas company, Aker Kvanner. She said PKFZ had been actively seeking someone to fill the position left vacant by Jafza appointee Noel Gulliver William, who returned to Dubai in April. On Jafza's decision to pull out of PKFZ, Phang said PKA had not intended to offer any shareholding to Jafza in the free zone and the latter had never brought up the issue.

On PKFZ's future plans, Phang said it had set up business development and sales and marketing divisions to drive its marketing effort further. "We have recruited experienced marketing staff. What we want now is a managing director," she said.

On PKA's RM3.4 billion debts comprising commercial bonds and asset-backed securities, Phang said the government had in principle agreed to extend them a soft loan of RM4.6 billion to take care of the loan as PKFZ was considered a "national project".

In 2002, PKA acquired 250ha of land in Pulau Indah for RM1.8 billion from Kuala Dimensi Sdn Bhd, a company associated to Wijaya Baru Global Bhd.

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