Port Klang Scandal

November 14, 2017 Economics

1. 0Introduction Port Klang Free Zone or PKFZ is an integrated 1,000-acre Free Commercial and Industrial Zone providing facilities for international cargo distribution and consolidation centre. PKFZ is situated in Port Klang, adjacent to port, the world’s 15th ranked port in 2009 in terms of throughput volume. However, problems occur when few Malaysia’s politician has been charged in persuading the government to spend an additional RM227m on acquiring additional land for the Free Zone development.

This paper starts with the definition of corporate governance and discussion about the Port Klang Free Zone scandal. The discussion included the review of Port Klang scandal, reasons and impact of the scandal to Malaysian. 2. 0Definition of Corporate Governance Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit.

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It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance. These dimensions of corporate governance should not be overlooked.

A definition by the Finance Committee on Corporate Governance in Malaysia in the Report on Corporate Governance (2002) stated that: “Corporate governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking account the interests of other stakeholders”. This indicates that corporate governance is not only applied to the shareholders but the other stakeholders as well.

Corporate Governance deals with the manner the providers of finance guarantee themselves of getting a fair return on their investment. Corporate Governance clearly distinguishes between the owners and the managers. The managers are the deciding authority. In modern corporations, the functions/ tasks of owners and managers should be clearly defined, rather, harmonizing. Corporate Governance deals with determining ways to take effective strategic decisions. It gives ultimate authority and complete responsibility to the Board of Directors.

In today’s market- oriented economy, the need for corporate governance arises. Also, efficiency as well as globalization are significant factors urging corporate governance. Corporate Governance is essential to develop added value to the stakeholders. Corporate Governance ensures transparency which ensures strong and balanced economic development. This also ensures that the interests of all shareholders (majority as well as minority shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that the organization fully recognizes their rights 3. Port Klang Scandal The Port Klang Free Trade Zone, a commercial and industrial project south of the capital, was conceived as a 1. 82 billion ringgit (539 million dollar) venture constructed over 1,000 acres (405 hectares). However, what started off as a 1. 8 billion Malaysian ringgit ($516. 2 million) project has ballooned into one which could cost more than 10 billion ringgit following an acrimonious pullout by the Jebel Ali Free Zone Authority. The story started when, according to the Price Waterhouse Coopers report, Kuala Dimensi sold the land to the Port Klang Authority for RM1. 9B, or RM25 per square foot although by using Malaysia’s Land Acquisition Act, it could have been purchased for RM10 per square foot. Kuala Dimensi acquired the land from the Pulau Lumut Development Cooperative for only RM3 per square foot. A flock of UMNO officials were involved in various roles including the party’s permanent chairman, Onn Ismail, his son-in-law Faizal Abdullah, the former party treasurer Azim Zabidi and others. The scandal had open to the public when Malaysian Parliamen’s Public Accounts Committee approach to PKA to question for the over-spending for PKFZ project.

Because of that, Ling Liong Sik, a former transport minister, had been charged with misleading the government into buying a piece of land within the zone which will cost an extra 720 million ringgit. Apart from Ling, former Port Klang Authority (PKA) general manager Datin Paduka OC Phang, PKFZ turnkey contractor Kuala Dimensi Sdn Bhd chief operating officer Steven Abok and architect Bernard Tan Seng Swee of BTA Architect, the project consultant were charged last December with criminal breach of trust (CBT) and making false claims all amounting to over RM382. 5 million. Law Jenn Dong, former engineer at the developer of the PKFZ has been charged with 24 counts of cheating related to the development of the PKFZ. All of them protest their innocence and their cases are moving to trial. Partly as a result of this, the final cost of the project has increased from $630m to $3. 9bn, while external auditors have estimated that break even will not be achieved until 2051 and the Free Zone could well make losses until 2029. 3. 1Why did it take place?

First of all, the impropriety in land transaction of government has played an important role in this scandal. The government has agreed the Port Klang Authority(PKA) to pay RM1. 09B for the land to be settled over15 years and Kuala Dimensi sold bonds worth 1. 3 billion ringgit. Kuala Dimensi sold 1. 4 billion ringgit of bonds, again backed by a government guarantee to develop the site. These decisions were made without consultation with relevant government agencies. Moreover, illegal use of the Letter of Support from the government also one of the reasons that lead to the scandal.

The cabinet has agreed to approve the payment to give retrospective approval of the government’s guarantee in issuing bonds by Kuala Dimensi. This support must be based on the issuing of several Letters of Support by the Transport Minister, where these letters would become an implicit government guarantee that is legal. This has result to Ling has being arrested for deceived the government into approving the purchase of the Pulau Indah land for PKFZ — an offence classified as cheating.

In addition, business ethics and the endless greediness of human beings are the main issues that build up the scandal. Criminal breach of trust can be define simply as ‘dishonest misappropriation’ or ‘conversion to own use’ of other’s property. Former Port Klang Authority general manager Datin Paduka O. C. Phang and three others were accused of criminal breach of trust (CBT) and cheating by making false claims on 2009. However, she denied the allegations over payments worth 254 million ringgit to the project’s developer. Leaders had abuse their powers to gain illegal money.

The cabinet has agreed to ratify the letters of guarantee issued by the Transport ministry without proper investigation or survey over the land prices. This shows that Transport minister will have chances to being corrupt by the developer to increase the price for purchasing the land that much lower than the cost. 4. 0Recommendation There are few recommendations for Malaysia’s government to prevent scandals and corruptions in the future. “Whistleblower policy” can give protection to informants who provide confidential information to the government related to corruption.

Thus, identities of people who reports corruption will be kept secrets and will be protected from retaliation. Malaysia Anti-Corruption Commission provides an online whistleblower mechanism and posts a corruption hotline with relating reporting guidelines through which companies and individuals can report corruption. This may encourage people on telling the truth and reduce corruption. The anti corruption agency neither Anti-Corruption Agency (ACA) nor Malaysian Anti-Corruption Commission (MACC) that introduced for the replacement of ACA are a full independent body.

Malaysia should have more independent and autonomy as well as requiring it to report to parliamentary committees as practiced in South Korea. Furthermore, public disclosure of politician’s assets, reforming of political financing and regulation of political parties and the promotion of freedom of information were also need to be improve by the government. Despite the anti-corruption agency, independent directors on board or auditors are also important to prevent corruptions.

The role of independent directors on the board of directors is to effectively monitor and control firm activities in reducing opportunistic managerial behaviours and expropriation of firm resources (Fama and Jensen 1983a,b, Brickley et al. 1994). The independent directors normally not require making significant investments in order to become or remain as director. Hence, by having more independent directors or auditors may reduce the possibility of involving in corruptions. Public should given freedom for speech to address their thoughts and suggestion for government’s improvements.

The Internal Security Act should be repealed, and amendments to the Police Act and the University and University Colleges Act that circumscribe freedom of expression and assembly should be changed, allowing greater scope for peaceful advocacy and dissent. Access to information strengthens mechanisms to hold governments accountable for their promises, obligations and actions. It not only increases the knowledge base and participation within a society but can also secure external checks on state accountability, and thus prevent corruption that thrives on secrecy and closed environments. . 0Impact of the scandal The corruption scandal no doubt had tarnished the image of the government. The politicians especially from ruling Barisan National (BN) party are now facing the pressure to thoroughly investigate scandal as it has become international news. The people have no confidence in the MACC or PAC on dealing to the scandal. BN leaders have to calm the people, convince them of the investigation results and remove their doubts so that the general elections are not affected. The issue raises the question of risk foreign investors might face when doing business in Malaysia.

Recent studies suggest that corruption negatively impacts on FDI and may act as a disincentive to investment. Corruption makes dealing with government officials, for example, to obtain local licenses and permits, less transparent and more costly, particularly for foreign investors. Transparency in the way Malaysia does business will be a major factor in whether it can attract much-needed foreign direct investment. Malaysia’s economy is perceived by foreign businessmen to be more corrupt this year compared to last year.

Malaysia’s Corruption Perception Index (CPI) 2010 is slightly lower than last year, ranking it 56 out of 178 countries. Mr Ngooi Chiu-ling, secretary-general of TI-Malaysia said that, “There is also poor progress in the Port Klang Free Zone (PKFZ) fiasco, no further action by the attorney-general in judicial appointment tampering, the practice of awarding mega projects and contracts without open tenders and no integrity pacts implemented to date. ” Thus, if government do not solve those problems radically, corruptions such as PKFZ scandals or Renong bailout will happens again. 6. Conclusion Investigation of the PKFZ is still ongoing and more personalities are expected to be charged over the Port Klang Free Zone (PKFZ) scandal. Government should cooperate with the private sectors to put an end to corruption. The Prime Minister has clearly expressed the wish to reduce corruption in Malaysia. The people are right behind him and can be counted on for support. All that needs to be done is to weed out the corrupt elements in our society by stepping up prosecutions. Then, by inculcating integrity in every individual, we can achieve our goal of a corruption free Malaysia.

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