MoF reveals RM9.4bil gas pipeline scandal

Finance Minister Lim Guan Eng

KUALA LUMPUR: The Finance Ministry (MoF) has discovered two gas line projects totaling RM9.4bil, where 88% of the amount has been drawn down - but only 13% of the work had been completed. 

This is one of the projects ‘kept hidden’ under the red files away from the scrutiny of the most officials in the Treasury.

The projects were handled by a MOF Suria Strategic Energy Resources Sdn Bhd (SSER).  

Finance minister Lim Guan Eng said that he had been informed by Treasury officers that SSER is an off shoot of SRC International, a company under debt plagued 1Malaysia Development Bhd (1MDB).

SSER is wholly-owned subsidiary of MoF that was set up on May 19, 2016 with the specific intent to undertake the Multi-Product Pipeline (MPP) and the Trans-Sabah Gas Pipeline (TSGP) projects. Both projects were approved by the cabinet on July 27, 2016.

The MPP involved a 600km multi-product petroleum pipeline connecting Melaka and Port Dickson to Jitra, Kedah costing 4.53 billion yuan and RM2.53bil, or approximately RM5.35bil.

The TSGP, on the other hand, was to build a 662km gas pipeline from Kimanis Gas Terminal to Sandakan and Tawau, costing 3.08 billion yuan and RM2.14bil, or approximately RM4.06bil.

Both projects amounted to RM9.41bil were awarded to China Petroleum Pipeline Bureau (CPPB) on Nov 1, 2016. The agreements were signed by the then Treasurer-General, Tan Sri Irwan Serigar Abdullah, who was also the chairman of SSER. Irwan has resigned on May 23.

SSER has secured funding from China Exim Bank amounting to 85% of the project value on March 22, 2017 while the balance of the 15% funds required were to be raised via sukuk issuance. 

Both the China Exim Bank borrowings and the sukuk are secured with Federal Government Guarantees.

During a briefing provided to Treasury officials on May 28, SSER reported that the 3-year projects had commenced in April 2017. 

As at the end of March 2018, the MPP and TSGP projects had achieved only 14.5% and 11.4% progress completion respectively. The completion rates, however, have yet to be verified or audited.

Lim said the ministry was shocked to discover that the amounts of RM4.71bil and RM3.54bil for the MPP and TSGP projects had already been drawn down and paid to CPPB. 

The total sum paid of RM8.25bil constitutes a staggering 87.7% of the total project value,  despite an average completion rate of only 13%, with another two years of the contracts to go.

“We have discovered that the payment schedule for the above contracts are based almost entirely on timeline milestones, and not on progressive work completion milestones. Worse, based on the agreements signed, 85% of the project value would be paid by March 1, 2018,” Lim said.

Additionally, he noted that the payment did not include two other consultancy agreements signed for the same projects worth about RM312mil and RM213mil, and a maintenance agreement worth RM476mil, awarded to companies from China, totalling an additional RM1bil.