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Malaysian government negotiating compensation for cancelled RM9.4b pipeline project

In June last year, Finance Minister Lim Guan Eng revealed that the government had paid RM8.3 billion for the two projects worth RM9.4 billion despite only completing 13 per cent of the work. Picture by Firdaus Latif. Sketched by the Pan Pacific Agency.

Pan Pacific Agency | COMMUICATION AGENCY FOR PACIFICA REGIONS

KUALA LUMPUR, May 25, 2019, MalayMail. The Malaysian government is now negotiating with China-based contractors on the total compensation amount to be paid by Suria Strategic Energy Resources Sdn Bhd (SSER), following the cancellation of the RM9.4 billion pipeline, reported the MalayMail.

The Ministry of Finance (MoF) said the negotiation will also include the sum to be returned by those contractors back to SSER.

“The government of Malaysia is now negotiating with China-based contractors on the total compensation amount to be paid by SSER, as well as the sum that should be returned to SSER by the contractors after deducting total compensation cost from the total payments made.

“The Attorney General’s Chambers (AGC) is heading the negotiation on behalf of the government and will be recommending to the Government the next steps to take,” said Finance Minister Lim Guan Eng said in a media statement here.

SSER was incorporated as a wholly-owned unit of the Finance Ministry in 2016 to undertake two projects: the Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP).

Both contracts were awarded to China Petroleum Pipeline Bureau (CPPB) in November 2016 in contracts signed by former Treasury secretary-general Tan Sri Irwan Serigar, who is also SSER chairman.

In June last year, Lim revealed that the government had paid RM8.3 billion for the two projects worth RM9.4 billion despite only completing 13 per cent of the work.

Subsequently, the projects engineering, procurement, construction and commissioning (EPCC) contracts and other associated contracts have been terminated in August last year. Together, all the contracts were valued at RM10.4 Billion.

Today, Lim revealed as of March 28, 2019, SSER had paid RM 8.377 billion for EPCC and consultancy work for the project.

Lim also revealed that out of the RM9.4 billion EPCC contracts for MPP and TSGP, 85 per cent of the cost was meant to be financed by a CNY12.9 Billion (RM7.8 Billion) loan from EXIM Bank of China, with the borrowings guaranteed by Putrajaya.

“Additionally, 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 RM0.6 billion this year, with the rest to be settled in 2020,” he said.

Lim added that 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 Tun Razak, were the most generous in the world where payments were made without having to do the corresponding work,” he said.

On April 5 this year, SSER was fined RM18 million by the Sessions Court for failing to comply with Bank Negara Malaysia conditions.

Among the offences were that SSER had issued loan funds from The Export-Import Bank of China not based on the progress of the MPP and TSGP projects and paid RM8.3 billion or 88 per cent of the cost of construction of RM9.4 billion for the two projects to the contractor, China Petroleum Pipeline Engineering Co Ltd when work progress was only at 13 per cent.

The MPP is a RM5.35 billion project to build a 600km oil pipeline from Jitra to Port Dickson while the TSGP is a 662km gas line connecting the Kimanis Gas Terminal to Sandakan and Tawau at a cost of RM4.06 billion.

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