Mega scandals spiral deeper in the 1990s

By Khairul Khalid

Despite widespread scrutiny and criticism of mega scandals in the 1980s, they persisted in the 1990s. The increasing involvement of the government in big business, ostensibly to accelerate government policies, further blurred the lines between public and private businesses.
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The major mega scandals of the 1980s such as the notorious BMF and Perwaja Steel controversies put the country’s corporate dealings under added scrutiny, but instead of a tighter leash on big business deals involving public funds, this pattern continued into the 1990s.

One of the biggest scandals in the 1990s did not involve private companies at all, but a major government institution – Bank Negara Malaysia (BNM). It all began in the late 1980s when BNM emerged as an aggressive player in the forex (foreign exchange) market under its governor Jaffar Hussein.

However, many insiders claim that the main player behind the transactions was the then BNM  adviser Nor Mohamed Yakcop, who is now special economic adviser to the PM Najib Razak. Both Jaffar and Nor Mohamed subsequently resigned to take responsibility for the losses.

Then prime minister Mahathir Mohamad had openly stated that Malaysia needed to actively manage its foreign exchange reserves so that it did not incur losses from currency fluctuations. BNM’s trading activity appeared to be implicitly sanctioned by Mahathir.

Bank Negara’s RM30 bil forex loss

In 1990, BNM started speculating on market movements of the sterling pound. Between 1992-1993, BNM bet on the appreciation of the sterling pound but lost in a big way after Britain pulled out of the European Exchange Mechanism, leading to the collapse of the sterling pound.

In trading parlance, BNM bought the Sterling Pound long (expecting it to appreciate) and George Soros, a major player in the forex market, had bought the Sterling Pound short (expecting it to depreciate). It was a virtual shootout between two big-hitters — BNM and George Soros.

When the Sterling Pound depreciated, BNM lost about RM30 billion ringgit, overturning previous gains it had made from forex trading. Reports put George Soros’ gains at US$1.7 billion, indicating that BNM had a massive position in pound sterling which it had to unwind for a huge loss.

Soros had won the battle of the Sterling Pound speculators. PM Mahathir Mohamad, in a famous rant several years later during the Asian financial crisis of 1997-98, blamed Soros for Malaysia’s economic woes and subsequently depreciated ringgit.

No government leaders or BNM officials has been taken to task for the BNM forex fiasco. Questions left unanswered include why BNM was allowed to participate in such high risk speculative transactions using public funds and why it was clearly acting beyond its parameters as the central bank and ultimate regulator of Malaysia’s banking industry.

Again, Malaysia entered the record books, this time for its central bank becoming among the largest losers in the world for forex trading. In the 1980s, the BMF fiasco was one of the largest banking failures in the world at that time.

MAS sold and rebought for RM1.8 bil

Shortly after the BNM fiasco, prime minister Mahathir Mohamad brokered a deal in 1994 that allowed Tajudin Ramli to to buy a 32 per cent major stake in Malaysian Airlines System from BNM with a RM1.79 billion loan.

Tajudin was linked to then finance minister Daim Zainuddin. Among others, he was a director of Peremba and Fleet Group, both government-linked entities. He was also a director in one of Daim’s companies, Taman Bukit Maluri. He was widely seen as a Daim proxy although Daim himself denies it.

The 1997 Asian financial crisis affected Tajudin and MAS. This led to Tajudin exiting the troubled airline in 2001 by selling his stake back to the government for RM8 a share and a total of RM1.79 billion, the same amount that he had bought his stake for. The company’s closing share price was RM3.68, less than half the price Tajudin got..

Tajudin was getting an astonishing premium of more than RM4.32 per share or 117% above market price. No independent professional valuation was conducted for the transaction.

Tajudin himself claimed that he was asked by Mahathir to purchase the 32% stake at RM8 per share from BNM to help BNM whose capital had been wiped out the previous year from forex trading.

The RM7.5 bil Bakun debacle

Mega scandals spread not just in the Peninsular Malaysia, but East Malaysia as well. In 1994 the government of Malaysia embarked on one of the largest privatisation projects ever with the announcement of the RM15 billion Bakun Dam project in Sarawak. The project was initially proposed by Mahathir in the 1980s but was shelved due to financial constraints

The ambitious project was awarded, without open tender, to Ekran Bhd, a company owned by Sarawak timber tycoon Ting Pek Khiing who had close links to former Sarawak chief minister Abdul Taib Mahmud, Daim Zainuddin and PM Mahathir Mohamad.

The original plan for Bakun hydro-electric dam was to generate a capacity of 2,400MW for Sarawak although the projected energy requirements for the entire state was only 200MW for 1990. To utilise this excess capacity, it was then proposed that Bakun would provide at least a quarter of the whole of Malaysia’s power requirements, generating revenue of an estimated RM3.5 billion a year.

To transport electricity from Sarawak to the Peninsular, two undersea cables 650 kilometres long were proposed. There were also plans for the construction of an aluminum plant, a pulp and paper plant, the world’s biggest steel plant and a high-tension and high-voltage wire industry to gobble up the massive capacity.

The project was plagued from the start by financial problems and opposition by environmentalists and displaced native villagers. The project seemed to be doomed after the 1997 financial crisis. Ekran was unable to complete the project due to severe financial problems but despite this failure was awarded RM950 million in compensation. Ekran was delisted in 2010 and Ting was declared a bankrupt.

The Bakun project was revived on a smaller scale after Abdullah Ahmad Badawi succeeded Mahathir as prime minister in 2004. It’s official price tag is RM7.46 billion, including Ekran’s compensation and RM500 million in resettlement costs.

The RM4.6bil PKFZ controversy drags on

Another big scandal that started brewing in the late 90s and dragged on until the late 2000s was the PKFZ (Port Klang Free Zone) controversy.

PKFZ was the brainchild of former transport minister Ling Liong Sik who mooted the idea in 1997. The government approved the 1,000 acre industrial park in 1999 to transform Port Klang into a regional hub for cargo distribution and transhipment. PKFZ was modeled after the Jebel Ali Free Zone in Dubai and its initial cost was RM1.9 billion.

The government initially appointed Jebel Ali Free Zone Authority (Jafza) to operate and manage PKFZ for 15 years. In 2007, Jafza pulled out of the deal amid reports of political interference and a falling out with the owners of PKFZ, PKA (Port Klang Authority). By 2006, the cost of the project had more than doubled to RM4.6 billion.

Between 2007-2008, the government approved soft loans of more than RM4 billion to the troubled project. This prompted an independent audit of PKFZ accounts. The response to PKFZ was alarmingly poor and the occupancy rate was less than 20%. Then transport minister Ong Tee Keat formed a special task force to investigate PKFZ and warned that costs for PKFZ could reach an astronomical RM12 billion.

A police report over financial irregularities was then filed by PKA against PKFZ’s turnkey contractor Kuala Dimensi Sdn Bhd (KDSB) and BTA architect.

KDSB is a company majority-owned by Tiong King Sing, member of parliament (MP) for Bintulu and former chairman of the Barisan Backbenchers Club. PKA also filed a RM720 million lawsuit against KDSB over the former’s purchase of 1,000 acres of PKFZ land from the latter. A major factor in the dispute was discrepancies over land valuation.

Former PKA general manager OC Phang, KDSB’s chief operating officer Steven Abok and project architect Bernard Tan Seng Swee were charged with criminal breach of trust amounting to approximately RM380 million. Former KDSB project director Law Jenn Dong was charged for alleged fraudulent claims totalling RM116 million. Two former transport ministers, Ling and Chan Kong Choy were also charged in court for cheating and misleading the government about the PKFZ project.

The cases for Phang, Abok, Tan and Law are still pending. However, both former cabinet ministers Ling and Chang were eventually acquitted in 2013 and 2014. So far, the government has not divulged the the total losses incurred by PKFZ.

And still, the mega scandals continued.

Yesterday: Riding the first wave of Malaysia’s mega scandals

Tomorrow: Major mega scandals of the 2000s