Malaysian authorities are facing a scandal over debts allegedly exceeding US$1 billion (euro750 million) incurred by the country’s main port authority, sparking concerns about a possible government bailout – reported AP. The fact that this scandal, which could be the biggest bailout since Badawi took over the premiership in 2003, caught the headline from external financial news provider could spell trouble to the ruling party.

The issue is politically sensitive for Prime Minister Abdullah Ahmad Badawi – who is widely expected to call for general elections before mid-2008 – because he has repeatedly pledged to boost transparency and battle the financial mismanagement that has plagued high-profile Malaysian projects in the past (under the former premier Mahathir).
Abdullah Badawi said last week he needs more details and refused to comment on media reports saying the Port Klang Authority has racked up debts totaling about 4.6 billion ringgit (US$1.3 billion; euro960 million) because of problems with the Port Klang Free Zone, a much-hyped shipping area that opened in western Malaysia last year.

Fears mounted that troubles with the 1,000-acre (400-hectare) PKFZ could hurt investor sentiment after the Dubai-based Jebel Ali Free Trade Zone Authority said last month it was pulling out of a pact to manage the zone due to what it called strategic reasons. Port Klang Authority Chairman Chor Chee Heong said Tuesday he was “busy with meetings” and declined to comment. Chor Chee Heong is also the MCA international affairs bureau chairman, one of the party components within the ruling government.

Shahrir Samad, the chairman of a parliamentary committee that looks into government accounting and fund allocations, said his panel is likely to look into the issue because it might involve public accountability concerns. “Is there (going to be) a bailout? If it involves government funds, we just want to find out what has happened,” Shahrir, a parliamentarian in Abdullah’s ruling coalition, told Associated Press.

Opposition leaders had been blaming the past bailouts on corruption as well as undisciplined spending by former Prime Minister Mahathir Mohamad, whose 22 years in power were marked by expensive yet corrupted modernization initiatives via dictatorship. The government said last year it had spent more than RM11 billion (US$3.1 billion; euro2.3 billion) since 2001 to rescue ailing companies including Malaysia’s national airline, rail and highway networks, and other infrastructure projects mostly launched during Mahathir’s rule.

Badawi who vowed not follow on Mahathir’s path of costly projects had since made a 360 degrees turn by launching multi-billion mega-projects joked as “Multi Corridors” of which were seen as the last effort to boost the economy to fish for votes for the not-so-distance general election.

Just how serious is the scandal? As a comparison, the Bumiputra Malaysia Finance (BMF) scandal in the 1980s which involved slightly less than RM2 billion which shocked the nation had prompted the government to set up a Royal Commission of Inquiry, although the issue had since faded and swept under the carpet without anyone being put behind bars.

It’s both puzzling and mind-boggling to note that the PKFZ have ballooned to RM4.63 billion from the original estimate of RM519 million, mainly due to the 1,000 acres land acquisition which were valued at RM10/sq foot but bought by PKFZ for RM25/sq foot. The cost overruns were unauthorized and therefore illegal as any RM100 million increament in a project’s cost had to be first approved by the Ministry of Finance, of which PKFZ didn’t. It would be more amazing if what MalaysiaKini reported is true – that the “same lawyer” has acted on behalf of both the buyer (PKFZ) and seller (Kuala Dimensi Sdn Bhd) of the land.

So, will the current premier act differently from his predecessor, Mahathir, with this new financial scandal? Most probably not and if the SOP (standard operating procedure) is to be followed, the next action plan would be to divert public’s attention and a black-out on the scandal using the government-controlled media. It’ll be business as usual.

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August 21st, 2007 by financetwitter

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