The Perwaja Steel Scandal

Estimated losses: more that RM10 billion

You may have seen online somewhere the long list of scandals in Malaysia that has resulted in
the country losing billions and billions of ringgit. Time Magazine quoted an economist at Morgan
Stanley in Singapore as saying that the country might have lost as much as US$100 billion
since the early 1980s to corruption.
One of these scandals is the Perwaja Steel project which is usually associated with a loss of
RM2.56 billion. But it seems like RM10 billion is a more likely figure. In fact, Mahathir himself
had admitted publicly in 2002 that Perwaja lost RM10 billion in a dialogue with Malaysians in
London where he also admitted that there were possible misappropriation of funds and
mismanagement in Perwaja.
Perwaja Steel started in 1982 as a joint venture between the government-owned Heavy
Industries Corporation and the Japanese company Nippon Steel Corporation. This was
supposed to be a showcase project in Mahathirs push for industrialization. A steel plant costing
RM1 billion was built in Terengganu to supply the domestic needs for steel products.
However, Perwaja encountered production problems and was saddled with large debts. Since
the borrowings were in yen which appreciated significantly at that time interest payments
were getting higher. In 1987 Nippon Steel pulled out of the project. Mahathir then brought in his
friend Eric Chia in 1988 to run Perwaja and to turn it around. He was given full authority to do
what was necessary to reverse Perwajas performance and reported directly to Mahathir.
Another RM2 billion was pumped into Perwaja with government funding and loans from Bank
Bumiputra (RM860 million) and EPF (RM130 million). New facilities were built in Terengganu
and in Kedah. Eric Chia helmed Perwaja for seven years.
Initially, he seemed to have succeeded in turning around Perwaja but after he resigned abruptly
in 1995 it became clear that that was not the case. Total losses had increased to RM2.49 billion
from RM1 billion when Eric Chia took over. Perwaja was crippled by additional debts amounting
to RM5.7 billion.
The new management of Perwaja prepared an internal report where it claimed the following
among others:
inaccurate accounting records
unauthorised contracts amounting to hundreds of millions of ringgit
alleged misappropriation of funds
dubious maintenance contracts amounting to RM292 million (including a contract amount of
RM200,000 per month to a company for gardening, cleaning and vehicle maintenance)
award of RM957 million contract to companies of a long time associate of Eric Chia
In 1999, Anwar made a police report which stated that He (Eric Chia) in fact repeatedly claimed
that his actions had the support and under the directions of Prime Minister Dato Seri Dr.

Mahathir. And this is further substantiated with letters written by the Prime Minister himself. With
the so-called mandate, the Board was sidelined, tender procedures were blatantly ignored and
there were quesitonable, unsatisfactory payments made to certain parties.
After many years of inaction by the ACA and the police, Eric Chia was finally charged for
dishonestly authorizing (not pocketing) a payment of RM76 million (0.076 billion) in 2004. This
only happened after Mahathir stepped down as PM and Badawi took over. RM76 million is a lot
of money but it is miniscule compared to the total loss estimated to be more than RM10 billion.
Eventually, Eric Chia was acquitted by the courts in 2007.
The following sums up quite well this costly Perwaja misadventure,
Perwaja looked like no more than a shining example of a politically conceived, commercially
questionable and poorly executed enterprise that predictably failed. Despite lavish funding, a
robust economy much of the time and protection from competing imports in the form of both
tariffs and quotas, the company was never able to produce steel profitably. It suffered from
chronic operating problems and a crushing debt load, including stiff foreign-exchange losses on
heavy borrowing abroad. Even after the government decided to swallow RM9.9 billion in
accumulated losses and privatize Perwaja in 1996, it continued to flounder.
Yet there was a more sinister side to Perwaja that guaranteed it an exalted place in the
pantheon of Malaysian financial scandals. An unknown portion of the RM15 billion or more that
the company consumed was ripped off in various rackets and ruses. Although both internal and
external reports confirmed that the company was bled white, almost nothing was done to bring
the culprits to justice and recover the funds. Barry Wain
https://wtfreport.wordpress.com/2011/12/15/the-perwaja-steel-scandal/