Malaysia in discussion with China firms on pipeline compensation

An oil pipeline in Johor. Malaysia is in discussions with China-based contractors for compensation relating to the termination of pipeline projects worth 9.4 billion ringgit (S$3.09 billion). PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - Malaysia is in discussions with China-based contractors for compensation relating to pipeline projects worth 9.4 billion ringgit (S$3.09 billion).

The government is negotiating with China Petroleum Pipeline Engineering Co and Huanqiu Project Management Beijing Co on the total compensation to be paid by Suria Strategic Energy Resources Sdn, which was overseeing the projects, for the termination of the work, the finance ministry said in a statement on Saturday (May 25).

Payments were made to contractors based on timeline progress, rather than the amount of work done, the statement said.

"The Attorney-General's Chambers is heading the negotiation on behalf of the government and will be recommending to the government the next steps to take," Finance Minister Lim Guan Eng said in the statement.

The talks will also include the amount to be reimbursed to SSER for compensation for work yet to be carried out.

SSER had paid 8.3 billion ringgit, or 88 per cent of the contract value, when only 13 per cent of the work has been "purportedly done on two pipeline projects", the Finance Ministry said.

The works done so far have yet to be audited and verified, it said.

Malaysia undertook a sweeping review of public projects after a change in government in May 2018. It has revived billion-dollar projects this year, including the East Coast Rail Link done in partnership with Chinese companies.

The nation's anti-graft agency raided SSER's offices and removed Mr Mohammed Azhar Osman Khairuddin as director last year.

The government also sought assistance from the Chinese authorities to trace the flow of funds and investigate the possibility of money laundering.

Bank Negara Malaysia issued two summons covering six charges against SSER earlier this year, including failure to obtain the central bank's approval for changes in the project timeline.

The Sessions Court fined the company 18 million ringgit, which has since been paid.

Join ST's Telegram channel and get the latest breaking news delivered to you.