Port Klang in dire straits
Malaysia's Port Klang Authority (PKA) is facing up to a $1.4 billion debt as a result of its recent investments on the development of a 400 ha free-trade zone. Reports say that the huge debt is a result of massive project cost overruns with development costs ballooning from an original $314 million to the current figure of close to $1.4 billion.
A private company, Kuala Dimensi, had been awarded the rights by PKA to develop the Port Klang Free Zone (PKFZ) facility in Pulau Indah at a cost of $314 million.
Kuala Dimensi proceeded to issue bonds to fund the development. Development costs however, rapidly increased and with a walk-out of the project's main joint venture partner, Dubai World-owned Jafza International, the PKA itself has been left with bonds to pay off that are close to a staggering $1.4 billion.
Initial reports said that in order to avoid any fallout to the country's banking system, the Malaysian government has decided to bail out the project.
Although details of a financial rescue plan have not been disclosed yet, reports quoted senior government officials saying the Cabinet agreed last month to salvage the project.
The same reports said that the government has decided to extend a financial lifeline of about $1.4 billion to help the PKA meet its financial obligations on borrowings from the country's financial institutions.
News reports today have quoted Second Finance Minister Nor Mohamed Yakcop saying that the government will step in only if it is in the long-term national interest to do so.
He declined to comment on whether approval for a $1.4 billion loan had already been given, saying that “we don't see the government going out and bailing out failed entrepreneurs. That's not our policy. But sometimes we put money in to create confidence for the overall economy.”
Meanwhile, concerns are high that the entire project could become a white elephant following Jafza's pulling out as a principal partner last month.
Senior government officials tracking developments of the project say that Jafza executives had raised concerns as early as March last year, according to reports.
A top Jafza executive, senior vice-president for international operations Chuck Heath, had written to Transport Minister Datuk Seri Chan Kong Choy saying that, without 'radical surgery', the project was doomed to failure.
Malaysia's Port Klang Authority (PKA) is facing up to a $1.4 billion debt as a result of its recent investments on the development of a 400 ha free-trade zone. Reports say that the huge debt is a result of massive project cost overruns with development costs ballooning from an original $314 million to the current figure of close to $1.4 billion.
A private company, Kuala Dimensi, had been awarded the rights by PKA to develop the Port Klang Free Zone (PKFZ) facility in Pulau Indah at a cost of $314 million.
Kuala Dimensi proceeded to issue bonds to fund the development. Development costs however, rapidly increased and with a walk-out of the project's main joint venture partner, Dubai World-owned Jafza International, the PKA itself has been left with bonds to pay off that are close to a staggering $1.4 billion.
Initial reports said that in order to avoid any fallout to the country's banking system, the Malaysian government has decided to bail out the project.
Although details of a financial rescue plan have not been disclosed yet, reports quoted senior government officials saying the Cabinet agreed last month to salvage the project.
The same reports said that the government has decided to extend a financial lifeline of about $1.4 billion to help the PKA meet its financial obligations on borrowings from the country's financial institutions.
News reports today have quoted Second Finance Minister Nor Mohamed Yakcop saying that the government will step in only if it is in the long-term national interest to do so.
He declined to comment on whether approval for a $1.4 billion loan had already been given, saying that “we don't see the government going out and bailing out failed entrepreneurs. That's not our policy. But sometimes we put money in to create confidence for the overall economy.”
Meanwhile, concerns are high that the entire project could become a white elephant following Jafza's pulling out as a principal partner last month.
Senior government officials tracking developments of the project say that Jafza executives had raised concerns as early as March last year, according to reports.
A top Jafza executive, senior vice-president for international operations Chuck Heath, had written to Transport Minister Datuk Seri Chan Kong Choy saying that, without 'radical surgery', the project was doomed to failure.