1Malaysia Development Bhd (1MDB) and PetroSaudi International Limited (PSI) of Saudi Arabia yesterday announced the setting up of a US$2.5 billion (RM8.7 billion) joint-venture company to invest in strategic high-impact projects in Malaysia and the region.

1MDB, which was formerly known as Terengganu Investment Authority (TIA), will inject US$1 billion as part of its share in the joint venture while PSI will fork out the rest.

“The objective of the JV is to generate long-term economic development,” said Prime Minister Datuk Seri Najib Razak at a Lembaga Tabung Haji function yesterday.

“It is hoped that this will trigger more investments into Malaysia, especially from countries which have a surplus in capital,” he added.

Najib, who is also the finance minister, said that the Saudi Arabia injection is proof of the nation’s confidence in Malaysia and their interest in developing a bilateral relationship.

When asked which sectors the JV company will invest in, Najib said: “Mostly petroleum-related industry, renewable energy sector and real estate”.

But the premier declined to specify which projects the company is looking at.

“Announcements will be made from time to time. But I was told by the central bank on Monday that the money (from PSI) is already with us,” said Najib, who made a four-day state visit to Saudi Arabia in July.

According to insiders familiar with the deal, the fund is expected to invest in large scale projects to develop resorts in Pahang, Kedah and Perak and also play a major role in the Sarawak Corridor of Renewable Energy (Score).

The Score project is a RM20 billion plan to tap on Sarawak’s potential to generate electricity and build a electricity-intensive industry around it.

Part of the plan involves building a few hydroelectric dams that would potentially generate up to 20,000 megawatts. The Bakun Hydroelectric Dam, which is almost completed, has the capacity to generate up to 2,400 Mw.

TIA had raised RM5 billion from the debt market a few months ago to spearhead investments in high impact projects in Terengganu and the rest of the country. However, the federal government later decided to manage the fund itself, and changed its name to 1MDB. The fund aims to drive strategic initiatives for long-term sustainable economic development and promote inflow of FDI into the country.

PSI, based in Al-Khobar, Saudi Arabia, is mandated to carry out investments which can strengthen the relationships between Saudi Arabia and key countries worldwide.

In a statement earlier yesterday, PSI chief executive officer Sheikh Tarek Essam Ahmad Obaid said: “Malaysia has long been a model of stability and development for developing countries.

“We believe that recent economic liberalisation policies announced by the prime minister will only make Malaysia a more attractive place for investors. We envisage Malaysia becoming an important partner for the Kingdom of Saudi Arabia.’’

This article appeared in The Edge Financial Daily, October 1, 2009.