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This article first appeared in The Edge Financial Daily on June 7, 2018

KUALA LUMPUR: Oil and gas industry analysts describe the project value for two pipeline projects undertaken by Suria Strategic Energy Resources Sdn Bhd as excessively expensive.

The two projects are the Multi-Product Pipeline (MPP), a 600km multi-product petroleum pipeline connecting Melaka and Port Dickson with Jitra, Kedah which costs RM5.35 billion, and the Trans-Sabah Gas Pipeline (TSGP), a 662km gas pipeline connecting the Kimanis Gas Terminal with Sandakan and Tawau, costing RM4.06 billion.

Both projects amounting to RM9.41 billion were awarded to China Petroleum Pipeline Bureau (CPPB) on Nov 1, 2016 by finance ministry (MoF)-owned Suria Strategic, under the purview of the previous Barisan Nasional government.

For the MPP, an analyst with a local investment bank said while there is a need for such a pipeline, the RM5.35 billion bill is “way too expensive”.

“With this pipeline, you don’t require a lot of land acquisition as it runs through uninhabited areas. Even in the event that it passes through villages, at most they would need to pay a sort of rental fee to the village head to look after the pipeline. [The] RM5.35 billion for 600km is extremely expensive.

“At present, there is the Klang Valley Distribution terminal MPP that is operated by a joint venture comprising Petronas Dagangan Bhd and Shell Malaysia Trading, which links up refineries in Melaka and Port Dickson with Dengkil, so petroleum products are currently transferred up north via tanker trucks. So, there is a need for a pipeline to connect beyond that,” he told The Edge Financial Daily.

Meanwhile, a senior analyst is also surprised by the whopping RM4.06 billion costs for the TSGP.

“Previous feasibility studies on transporting gas to a gas-fired power plant on the east coast of Sabah had indicated that it would make more sense to build a liquefied natural gas (LNG) regasification plant there rather than a trans Sabah pipeline

“Given that the quantities of gas were somewhat smaller, it may have been more feasible to build a floating LNG regasification terminal that could be eventually scaled up, similar somewhat to what was done in Melaka,” he said.

The analyst pointed out that in 2010, Petroliam Nasional Bhd (Petronas) started building its 3.8 million tonnes per annum (mtpa) LNG regasification plant in Melaka, completed in three years at a cost of RM3 billion. In 2014, Petronas and Dialog Bhd started building their 3.5 mtpa LNG regasification plant in Pengerang, Johor, completed in three years at RM2.7 billion.

“The initial plans for the Sabah LNG regasification was reportedly only for one-third of Melaka’s capacity and therefore indicative costs were reportedly RM1 billion. While inflation and added security would have raised the costs since then, a four-fold increase in cost would seem very strange,” he said.

He also questioned the manner in which the RM8.25 billion or 87.7% of the total project value was paid, despite an average completion rate of 13% with another two years of the contracts to go.

“This is not the norm in the oil and gas industry. You pay based on project milestones, based on work completed and not the timing milestone,” he said.

Both analysts also found it strange that the national oil company was not involved in these deals made by the MoF under the previous administration.

“It is very peculiar for the MoF to sign such deals with a foreign party. They are very basic projects which Petronas has the ability, the experience and the financing capability to handle,” said the bank-backed analyst.

The senior analyst concurs. “No major oil and gas project in Malaysia without the involvement of Petronas has succeeded in the past.”

Prime Minister Tun Dr Mahathir Mohamad said yesterday that Finance Minister Lim Guan Eng and Malaysian Anti-Corruption Commission (MACC) officers will travel to China soon to discuss with relevant officials about the RM8.25 billion payments made by the previous government for the two pipeline projects.

He said the idea that one should pay progressively according to time, with no regard to the progress of the work done, is wrong.

“We want to study why this system of payment was agreed to by the [previous] government,” Dr Mahathir told reporters after the weekly cabinet meeting yesterday

On the possibility that the progressive payments were to fund 1Malaysia Development Bhd’s loans, he said: “We will investigate.”

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