AUDIT REPORT A lucrative RM507.77 million deal involving the Transport Ministry and an inexperienced dredging company has come under the scrutiny of the auditor-general.

According to the Auditor-General's Report 2015 (Series 2), the Transport Ministry in 2001 received 15 bids for a contract to undertake dredging works at ports in the country.

However, all tenders were cancelled and instead the contract was given to the newly-established Malaysian Maritime and Dredging Corporation Sdn Bhd (MMDC). The company was established in June 2002.

"The finance minister at the time (Dr Mahathir Mohamad) decided that MMDC be granted the contract for dredging works at river mouths across the country, with a 15-year concession period.

"Checks also revealed that on Aug 10, 2002, the Finance Ministry decided that all prior dredging tenders were to be cancelled and awarded to MMDC.

"However, checks by the Audit Department did not reveal any document pertaining to discussions, valuations or studies regarding the decision at the Transport Ministry level," reads the report.

No cabinet approval

In 2003, said the auditor-general, the Economic Planning Unit (EPU) directed the Transport Ministry to prepare a concession agreement, which would make it a privatisation project and subject to approval by the cabinet.

"But in June 25, 2003, the Finance Ministry informed (the EPU) that the contract offered to MMDC was a long-term contract and not a privatisation concession.

"Therefore, an exclusive rights agreement needed to be signed between the Transport Ministry and MMDC," reads the audit report.

Following this, the Transport Ministry on July 8, 2003, informed the EPU that it does not intend to prepare a paper on the matter and seek cabinet approval.

"On Aug 22, 2005, the Finance Ministry agreed that MMDC would be given the long-term contract, spanning 15 years, on condition that the Transport Ministry seeks approval from cabinet.

"Checks revealed that there was no evidence that the Transport Ministry had sought cabinet approval, as instructed by the Finance Ministry," the audit report states.

Criticisms by auditor-general

The contract was signed between MMDC and the Transport Ministry secretary-general in October 2005. By that time, Mahathir had retired and Abdullah Ahmad Badawi was both finance minister and prime minister.

The report noted that dredging work undertaken by MMDC was generally satisfactory although there was room for improvement.

Most criticisms were directed at how MMDC was awarded the contract, despite it being a new company with no experience in this field.

"Moreover, there was confusion between the EPU and the Finance Ministry on whether the contract was for long-term work or outsourcing, which has implications on whether cabinet's approval was needed.

"The decision was made without proper discussions, valuations or detailed study, which can cause weaknesses in planning and in the identification of the project's objectives," reads the report.

The report added that the Finance Ministry should have also considered the bids by other firms before deciding on MMDC.