PKFZ and the infamous letter of support

Remember PKFZ and the infamous letter of support?

The courts recently found Port Klang Authority’s GM guilty in the PKFZ fiasco.

PKFZ was supposed to be Malaysia’s Jebel Ali Free Zone but it ended up a failure, a massive RM12 billion failure for the taxpayer. This was THE Malaysian financial scandal until it was eclipsed by 1MDB.

At the bottom of the fiasco was the Letter of Support issued by the Minister of Transport to support the bonds issued to develop PKFZ. The Letter was obviously issued to support the bonds because it was not likely to generate the cash flows to meet the financing obligations.

But did the Letter tantamount to a guarantee by the Government for the bonds? The Government decided to honour the Letter though it was signed by the Minister of Transport (bypassing MOF as required under the Financial Procedure Act), and even addressed to MARC, the rating agency (instead of the trustee for the bondholders)!

Finally, why was a similar Letter of Support issued by LKIM not honoured by the Government for the Malaysian International Tuna Port? The court judgments on that case make for very interesting reading.