Malaysia negotiating pipeline projects compensation to be paid to China contractors

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KUALA LUMPUR (May 27): The government is negotiating with the China contractors which were tasked to build the Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP) on the compensation to be paid by Suria Strategic Energy Resources Sdn Bhd (SSER), a subsidiary of the Ministry of Finance.

In a statement dated May 25, Finance Minister Lim Guan Eng said that apart from the compensation, the negotiation, which is headed by the Attorney General's Chambers, also involves the sum that should be returned to SSER by the contractors after deducting total compensation cost from the total payments made.

Lim previously disclosed that under the Barisan Nasional administration, some RM8.3 billion or 88% of the RM9.39 billion engineering, procurement, construction and commissioning (EPCC) contract value for MPP and TSGP had been paid by SSER despite only 13% of the work being purportedly done.

"The projects were extremely lucrative for the contractors because payments were made based on timeline progress regardless of work progress done, if any. The terms of the contracts, which were approved by former Prime Minister Datuk Seri Najib Razak, were the most generous in the world where payments were made without having to do the corresponding work," he said.

The contractors for MPP and TSGP are China Petroleum Pipeline Engineering Company Ltd and Huanqiu Project Management (Beijing) Co Ltd.

Apart from the EPCC, Lim said other contracts related to MPP and TSGP are consultancy services agreement (CSA) and maintenance contract amounting to RM688 million, and project management consultancy (PMC) service agreement amounting to RM312 million.

These associated contracts bring the total cost for MPP and TSGP to RM10.39 billion.

Lim said out of the RM9.39 billion EPCC contracts for MPP and TSGP, 85% was meant to be financed by a Malaysian government-guaranteed RMB12.9 billion (RM7.81 billion) loan from EXIM Bank of China, with a term of facility of 20 years, 3.25% interest per annum, 0.25% commitment fee per annum on unutilised portion, and 0.25% management fee for the facility in eight semi-annual instalment.

Lim shared that the amount disbursed under this loan is RMB11.32 billion (RM6.87 billion) so far.

Additionally, Lim said SSER has taken up a revolving credit worth RM1.2 billion from CIMB Bank.

"The credit facility was supposed to be repaid in full by July 2019 but both SSER and CIMB are in discussion to have SSER to pay only RM600 million this year, with the rest to be settled in 2020," he said.

The 18-month tenure loan bears an interest rate of 4.2% per annum.

Meanwhile, Lim also said SSER has paid all the fines imposed by the Sessions Court on Apr 5 this year.

In January this year, Bank Negara Malaysia issued two summons detailing six charges against SSER for failing to abide by Section 214(2) and (5) of the Financial Services Act 2013.

The Sessions Court fined SSER RM3 million for each offense committed for a total of RM18 million penalty.