Another PKFZ-style mega bailout in the making?

 

While the government is still recouping its losses from the Port Klang Free Zone (PKFZ) project debacle, another similar disaster appears to be in the making in Johor, where the taxpayers will end up footing billions if no immediate remedy is found.

The federal government-backed RM1.4 billion Asia Petroleum Hub (APH), plagued by cost overruns and delays, faced an even bigger setback when its main financier CIMB Bank Bhd pulled out from the project, after injecting RM840 million.

This was revealed by Muhibbah Engineering (M) Bhd, one of APH’s major contractors, in a statement on Tuesday.

Scheduled to be completed by 2009, the project has racked up overruns of RM1.4 billion, including interest costs, while RM2 billion was still needed to complete the project, according to a report by news portal Merdeka Review.

In February, it was reported that the project was only about 60 percent complete.

It was launched on July 5, 2007 by the then-prime minister Abdullah Ahmad Badawi.
Targeted for completion in 2009, it would be one the world’s largest fully integrated terminals, with multiple jetties capable of accommodating over 3,000 vessels annually, handling over 30 million tonnes of petroleum products.

This RM1.4 billion project, which sits on a reclaimed island near Tanjung Pelepas, Johor, was initially developed by homegrown terminal operator KIC Oil & Gas (KIC), which held a 90 percent stake, and the remaining 10 percent by Trek Perintis Sdn Bhd, a government-approved strategic financial investor.

The government had invested RM100 million to create the 100-acre man-made island and provide supporting infrastructure.

Series of mishaps

The project team was led by ZAQ Construction Sdn Bhd, the managing contractor entrusted with the completion of the project, while other major contractors were Mott MacDonald Ltd, Nam Fatt Corporation Bhd, Kencana Petroleum Bhd, Muhibbah Engineering Bhd and Qi-PMC Sdn Bhd.

It was financed by CIMB which offered a three-year RM1.4 billion bridging loan.

What followed was a series of problems for APH soon after the launch, starting with a long-standing ownership battle between KIC and Seaport Terminal (Johor) Sdn Bhd, a company controlled by politically-connected tycoon Syed Mokhtar Al-Bukhary (left), which also owns Tanjung Pelepas Port and Johor Port.

According to Singaporean daily The Straits Times, KIC insisted that it is the rightful developer of APH after it won the rights to lease the island in July 2005 from the Transport Ministry, while Seaport disputed the award on the grounds that the ministry’s move to lease the island to KIC violates an earlier privatisation agreement between the company and the government.

To prevent matters from worsening, the government interfered and dictated APH’s shareholding structure, reducing KIC’s stake to 40 percent and bringing in Seaport and Teori Selatan Sdn Bhd as new shareholders.

Teori Selatan is a company owned by the then-Johor Crown Prince (now Johor Sultan) who later filed a caveat, temporarily halting initial works after citing its unhappiness with its five percent stake.
KIC managed to get the order lifted after a round of talks with Teori Selatan.

It was later reported that the cabinet made attempts to restructure the shareholding again among the four parties - KIC, Trek Perintis, Teori Selatan and Syed Mokhtar.

However, a check with the Companies Commission of Malaysia today confirmed that the shareholding has been rolled back to the initial stage of KIC 90 percent and Trek Perintis 10 percent structure.

'Man-made island unsuitable'

In 2008, it was reported that project costs rose from RM1.2 billion to RM2 billion due to material costs.

According to a report in The Edge published on Aug 9, 2011, the delays were largely due to the need for redesigning after the soil on the island, which was largely silt, was found to be unsuitable for building structures.

“In a nutshell the island was not fit to be transformed into a petroleum hub,” the newspaper quoted a source as saying.

The situation continued to aggravate in 2011, prompting CIMB to place APH in receivership, not once but twice, in June 2011 and January this year.

The hope that the CIMB-led restructuring which may bring in new shareholders as white knights dissipated when CIMB finally decided to withdraw from the project.

The Edge today quoted Muhibbah Engineering managing director Mac Ngan Boon as saying that the main reason for CIMB’s pullout could be the issue of the land lease which has affected the value of the asset.

It reported that APH has yet to receive a land lease for the man-made island registered under the Federal Lands Commissioner, despite the government issuing a development order and approval for site possession and commencement of work to APH in 2006.

Muhibbah Engineering is a public listed company and one of the key subcontractors of APH.

The same paper reported that APH still owes CIMB RM840 million which was drawn down from the RM1.4 billion loan, and another RM381 million to Muhibbah.
Muhibbah had on Feb 27 sued APH and managing contractor ZAQ Construction for the outstanding payment.

Another subcontractor, Nam Fatt, had also taken legal action against ZAQ Construction for an outstanding payment of RM39 million and RM66 million in compensation.

Umno’s fingerprints

Merdeka Review pointed out that Trek Perintis, the shareholder of APH since its establishment, is an Umno-linked company controlled by Abdul Azim Zabidi, the party’s treasurer during Abdullah’s tenure.

ZAQ Construction, the main contractor entrusted to distribute the construction works to subcontractors, is owned by Zainal and Zamani Rafique, brothers of prominent lawyer Zul Rafique and former federal territories minister Zulhasnan Rafique (left).

Zul Rafique is a founding partner of law firm Zul Rafique & Partners, and reportedly helped Prime Minister Najib Abdul Razak to restructure Umno’s corporate assets after the latter took over the premiership and Umno presidency in April 2009.

The news portal also found that Qi-PMC, another subcontractor, shares the same shareholders with ZAQ Construction.

Another subcontractor, Kencana Petroleum, is a public listed company owned by Mokhzani Mahathir, the son of former prime minister Dr Mahathir Mohamad.

Although the major shareholders of KIC - Abdul Rashid Mohd Isa Al-Qadiry and Faidzan Hassan Al-Qadiry - are relatively distanced from Umno, a charity foundation supported by the company, Al-wariseen Trust, has Abdullah as its honorary patron and Umno Youth information chief Reezal Merican Naina Merican as trustee.

With so many Umno-linked figures involved, one could not stop worrying that should the project fail to turn around, taxpayers’ money would be used to foot another multi-billion ringgit bill.