KL govt unearths $3.2 billion pipeline scandal

Former prime minister Najib Razak said he was "confident that all necessary process procedures and laws have been complied with" in the two pipeline projects.
Former prime minister Najib Razak said he was "confident that all necessary process procedures and laws have been complied with" in the two pipeline projects.PHOTO: REUTERS

KUALA LUMPUR • Malaysia's Finance Ministry said it has discovered dubious payments made in two pipeline projects, with nearly 90 per cent of the contracts worth RM9.4 billion (S$3.2 billion) being paid out but only 13 per cent of the work being completed.

The projects - one multi-product petroleum pipeline running from Melaka and Negeri Sembilan to Kedah, and a gas pipeline from Kimanis to Sandakan and Tawau, all in Sabah - were handled by Suria Strategic Energy Resources (SSER), a wholly owned subsidiary of the Ministry of Finance (MOF).

Both projects were approved by the Cabinet in July 2016, under the previous Barisan Nasional administration.

They are believed to form part of the projects kept as "red files", which Mr Lim said were hidden away from the scrutiny of most Treasury officials during the administration of former prime minister Najib Razak. Datuk Seri Najib was also finance minister during his nine years at the helm.

"I have instructed my officers to file a report with the Malaysian Anti-Corruption Commission," Finance Minister Lim Guan Eng of Pakatan Harapan said in a statement issued yesterday.

According to the statement, the projects were awarded to China Petroleum Pipeline Bureau (CPPB) in November 2016.

The 600km multi-product petroleum pipeline (MPP) connecting Melaka and Port Dickson in Negeri Sembilan to Jitra, Kedah, costs about RM5.35 billion. Meanwhile, the 662km Trans-Sabah gas pipeline (TSGP) from Kimanis Gas Terminal to Sandakan and Tawau costs about RM4.06 billion.

SSER secured 85 per cent of funding for both projects from China Exim Bank in March last year, while the remaining 15 per cent was to be raised by issuing sukuk, or Islamic bonds. Both the China Exim Bank borrowings and the sukuk are secured by federal government guarantees.

Work on the three-year projects began in April last year. As of the end of March, the MPP was 14.5 per cent complete but RM4.71 billion had been paid to CPPB. The TSGP was 11.4 per cent complete as at the same date, with RM3.54 billion paid out.

"We have discovered that the payment schedules for the above contracts are based almost entirely on timeline milestones, and not on progressive work completion milestones. Worse, based on the agreements signed, 85 per cent of the project value would be paid by March 1, 2018," Mr Lim said.

The total sum paid of RM8.25 billion constitutes 87.7 per cent of the total project value, despite an average completion rate of only 13 per cent.

Mr Najib, responding to the allegations in a Facebook posting yesterday, said he was "confident that all necessary process procedures and laws have been complied with" in the two pipeline projects.

Separately, Malaysia's central bank governor Muhammad Ibrahim has offered to resign from his post two years into his term, according to people familiar with the matter. The move comes after Mr Lim said the US$520 million (S$694 million) raised by the previous administration from a land sale to the central bank was used to pay off debts of scandal-ridden state fund 1MDB.

THE STAR/ASIA NEWS NETWORK, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 06, 2018, with the headline 'KL govt unearths $3.2 billion pipeline scandal'. Print Edition | Subscribe