Media statement by Tony Pua Kiam Wee in Petaling Jaya on Thursday, 29^th July 2010:

There is no obligation for the Government to pay Kuala Dimensi debts if the contracted works for PKFZ are not carried out to completion or specifications

In a statement yesterday, the Transport Ministry said Port Klang Authority (PKA) would have to make payment to special purpose vehicles as set out in the payment schedule.

In making the decision, the Transport Ministry said, "the government had taken all relevant factors including the government's commitment to bondholders, and PKA's obligations under the agreements signed.... PKA had also given an undertaking to make payment to the special purpose vehicles."

The statement and excuse given by the Transport Ministry to make the full payment due amounting to RM372 million as at 31st July 2010 is completely unacceptable given the fact that PKA is currently disputing the amount of work done by the Port Klang Free Zone project contractor, Kuala Dimensi Sdn Bhd (KDSB).

Given that there is a claim by the PKA that work on the project has yet to be completely to specifications, there is no legal obligation on PKA or the Government to make any payment to any party until such disputes are resolved, especially since the PKA has already filed a suit in the High Court to contest up to RM1.4 billion worth of works.

It makes absolutely no sense for the Government to insist on making the payment when the Government itself disagrees that work has not been carried out. The only possible reason for the Minister of Transport, Datuk Seri Kong Cho Ha to insist on making the payment, while overriding the decision of the PKA board of directors who had received the appropriate legal advice is to protect Kuala Dimensi Sdn Bhd. This is to ensure that KDSB does not get into financial troubles with the bondholders.

This is because, as part of the bond agreement's security arrangements, KDSB has issued two letters of undertaking:

1. For the construction, development and completion of the project on a turnkey basis;

2. To cover any shortfall in the amount payable by PKA vis-a-vis payment obligations under the bond after taking into account the credit balance in the Escrow Account;

KDSB has also granted a "Power of Attorney to [the bondholders] as security to ensure that the development works are completed pursuant to the terms and conditions of the agreements which can only be invoked and exercised by [the bondholders] upon KDSB having defaulted under the agreements."

Based on the above letters and power of attorney, it basically means that should the Government fail to make payment for the project to the bondholders due to incomplete works, the bondholders will then demand from KDSB any shortfall in the amount payable by PKA, and on top of that undertake legal action against KDSB for failing to complete the project and for the bondholders to take over the development works of the project. These actions will obviously mean substantial losses of profit by KDSB, a company owned by Barisan Nasional (BN) backbencher's chairman, Datuk Seri Tiong King Sing.

Hence to avoid the above outcome, Datuk Seri Kong Cho Ha has chosen to instruct PKA to make the payments which are "due" despite the on-going dispute and litigation, to ensure that one of the biggest beneficiaries of BN patronage projects remains an on-going concern. What is perhaps most disappointing is the fact that this decision comes at a time when the Government has preached prudence in expenditure, called for the rakyat to accept substantially reduced subsidies and yet, when it comes to one of their own like SYABAS or KDSB, the Barisan Nasional government will not hesitate to extend hundreds of millions of ringgit to assist these companies.

We call upon the Finance Minister, Datuk Seri Najib Abdul Razak to immediately demand that the Transport Ministry witholds its decision to insist on the payment as part of the government's "rakyat first" policy. Instead, as a compromise, the Finance Minister should request that any payments were to be made, it should be made to a specially set up trust or escrow account manned by independent auditors until such a time that the Government's litigation with KDSB has been resolved in the Courts.

* Tony Pua Kiam Wee, DAP National Publicity Secretary & MP for Petaling Jaya Utara