New lease of life for long-delayed Kedah refinery

  • Raja Chik Jaafar says the consortium is looking to bring in more investors for the project later. Mohd Izwan Mohd Nazam/The Edge
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This article first appeared in The Edge Malaysia Weekly, on December 26, 2016 - January 1, 2017.


WHILE southern Johor is seeing much investment going into the development of a regional oil and gas hub, a newly announced mega project has diverted attention up north — to Kedah. The construction of a US$20 billion oil refinery complex in Yan is set to begin in February next year. It is expected to be completed in 2020.

Called the Sultan Abdul Halim Refinery Complex, the facility will house two oil refineries with a capacity of 400,000 tonnes of crude oil and naphtha a day.

The project is essentially another attempt to revive the Yan Industrial Petroleum Project, which was first announced in 2007 with an original estimated cost of US$10 billion.

After multiple delays, the original project owner, Merapoh Resources Corp Sdn Bhd, announced in April 2014 that a partnership with China Energy Huacheng Industrial Investment Co Ltd would kick off the venture, but it failed to do so.

Last month, Konsortium Asia PetroHub (KPHUB) took over Merapoh Resources as well as the refinery project. The purpose of the complex is to refine crude oil imported from the Middle East, Africa and Southeast Asia before exporting it to China.

KPHUB is not worried about the viability of the project. CEO Raja Chik Jaafar Raja Mokhtar points out that China’s demand is very strong. The country currently has 26 days’ worth of stockpile in refined oil products.

China’s plan is to increase that to 130 days’ worth of stockpile, Raja Chik Jaafar tells The Edge.

In addition, KPHUB takes comfort in the locked-in demand by virtue of a forward-purchase agreement with China-based Hainan Zhenrong Energy Co Ltd.

In essence, the agreement will see Hainan Zhenrong buying the products from the Sultan Abdul Halim Refinery Complex.

Raja Chik Jaafar says the agreement is for 39 years from the date of completion of the complex.

“We have negotiated refined oil prices to be based on current market prices minus an agreed discount,” he says, adding that the ultimate buyers will be Hainan Zhenrong and the Chinese government.

KPHUB is a venture between IMC London — a group of UK-based bankers — which holds 50%, VR4U Power Sdn Bhd (30%) and an unidentified Malaysian entity (20%). KPHUB declines to name the 20% stakeholder.

Raja Chik Jaafar says the consortium is looking to bring in more investors for the project later. IMC London will help secure financing for the project.

According to filings with Companies Commission of Malaysia, VR4U Power’s shareholders are Raja Yasmin Baizura Raja Ahmad Azizan of Perak and Tunku Nawar Tunku Sulong of Negeri Sembilan. While both held an equal number of shares when VR4U Power was set up in January last year, Raja Yasmin Baizura now holds 98%, KPHUB officials say.

It is worth noting that the Sultan Abdul Halim Refinery Complex is named after the 14th Yang di-Pertuan Agong, whose five-year term ended earlier this month.

The project management partner for the complex is Saudi Aramco, the state-owned oil and gas company of Saudi Arabia, according to KPHUB.

KPHUB officials say the holding entity of the consortium is KPHUB Sdn Bhd, which was incorporated on Dec 16, three days before the consortium signed two agreements last Monday.

The first agreement covered the appointment of Hainan Zhenrong Energy as the main contractor for the refinery complex while the other was signed with QMIS World Trade International (QMIS WTI). 

According to Hainan Zhenrong Energy, the construction of the complex will involve the reclamation of about 8,000 acres.

QMIS WTI is part of the Hong Kong-based QMIS Financial Group, which is involved in investment banking, asset management and consultancy services, among others.

According to KPHUB, QMIS WTI will be its listing agent for the Nasdaq Stock Market and the Hong Kong stock exchange. Over the next five years, KPHUB is looking to raise some US$180 billion via the listing exercises to fund four more oil refineries — three in Malaysia and another in Thailand.

“The locations of the four refineries have yet to be determined as they are still under negotiation,” says Raja Chik Jaafar.

He adds that they will also see similar forward-purchase agreements but with 70% to 100% take-up by entities linked to the Chinese government, compared with 100% take-up for the two refineries in Kedah.

On the assets being primed for listing, he says the Kedah refinery complex is the first phase of a regional mega project that is wholly owned by VR4U Power.

The other components include a wholesale trading zone called WeZGate Wholesale Trading, Distribution and Throughput Hub. In addition, VR4U plans to build a high-speed rail logistics network for cargo, which will connect 10 townships (slated to comprise industrial and residential properties).

KPHUB declines to disclose the estimated project value for each component at this point.

“It will be WeZGate’s assets that will be listed, including the assets of KPHUB, by QMIS WTI,” says Raja Chik Jaafar. “This is part of WeZGate’s strategy to raise funds for the ‘food for crude’ barter deal and to meet the supply and demand of the 35% refined oil and food back-up of China.”