AUDIT REPORT A wholly-owned subsidiary of Sarawak's State Financial Secretary Incorporated awarded contracts worth a whopping RM923.03 million to four firms through direct negotiations.

According to the Auditor-General's Report 2011, Sarawak Coal Resources Sdn Bhd awarded the contracts for the extraction and transportation of coal ore in Mukah, where Sarawak Chief Minister Abdul Taib Mahmud's Balingian state constituency is located.

However, the deal was awarded without the oversight of the state financial secretary, which is required for all contracts worth above RM500,000.

azlanThe 10 contracts, each worth between RM4.42 million and RM262 million, were awarded to Hock Peng Realty Sdn Bhd, Piritemp Sdn Bhd, Alam Suria Equity Sdn Bhd and Verde Mount Corporation Sdn Bhd.

Taking the lion's share was Hock Peng Realty, which was awarded four contracts worth RM822.4 million, or 89 percent of the total contract value.

However, Sarawak Coal Resources said in response to the auditor-general that it "did not know" the state financial secretary's oversight was required and that it would endeavour to follow all procedures in the future.

The audit also found that Hock Peng Realty and Alam Suria did not adhere to their contracts and to the environmental impact assessment report.

Hock Peng Realty was supposed to fill the mine site with topsoil after mining ceased in early 2011, but the audit found the Ulu Bedengan mine is now a large lake.

On the other hand, Alam Suria Equity filled up its 6,160 square-metre Ulu Sikat mine site, but the area was not rejuvenated as per the contract requirement.

'Contracts didn't side state firm'

According to the audit, the ore was mined for sale to PPLS Power Generation Sdn Bhd (PPLS), Mukah Power Generation Sdn Bhd (MPG) and other companies.

However, the report notes that contracts signed with the two power companies were not in favour of Sarawak Coal Resources.

The agreement signed between Sarawak Coal Resources and MPG in August 2008 states that MPG will pay RM81 per tonne for 25 years from October 2008, but the audit found that the market price to be RM163.25 a tonne.

Sarawak Coal Resources also signed a five-year contract with PPLS in June 2010 to sell ore at RM135 per tonne when the market price was RM199.48 per tonne.

The deal struck between Sarawak Coal Resources and MPG was to open for re-negotiation only five years after Oct 1, 2008.

As such, Sarawak Coal Resources's bid to renegotiate the sale price for Balingian coal ore from RM81 per tonne to RM98 per tonne, following rising operational costs in 2010, was rejected by MPG.

However, in response, Sarawak Coal Resources said that it had fixed the sale prices according to what other suppliers were selling at the time while taking into account profit margins.

Staff bonuses despite losses

The audit also ticked off Sarawak Coal Resources, which was running losses of RM10.30 million in 2008, RM16.25 million in 2009 and RM3.63 million in 2010 for giving bonuses to its staff.

"The audit found that that a bonus payment of RM46,477, RM95,333 and RM243,187 were made in 2008, 2009 and 2010 although Sarawak Coal Resources was running losses.

"Bonuses were paid out based on staff performance and ore output but were not approved by the minister and the state authorities," it reads.

In response, Sarawak Coal Resources said that the losses in 2008 to 2010 were incurred due to heavy asset purchases.

"Based on our audited 2011 accounts as at July 2011, Sarawak Coal Resources gained a profit of RM1.93 million for 2011," the company said.