News: ECRL Terms Similar to Two Chinese Pipeline Projects

Jun 7, 2018

The new government has discovered two large-scale projects implemented by the prior administration with terms that are strikingly similar to the East Coast Rail Link (ECRL) which is under review, reported The Star.

Finance Minister Lim Guan Eng said on Monday (4 June) that the information on the RM9.41 billion Multi-Product Pipeline (MPP) and Trans-Sabah Gas Pipeline (TSGP) were contained in “red files”, which were allegedly kept hidden by the previous administration from Treasury officials.

These two projects caught the attention of the new government as a large amount of money has been paid to the contractor even though there is little construction progress.

“We were shocked to discover that the amounts of RM4.71 billion and RM3.54 billion for the MPP and TSGP projects had already been drawn down [respectively]. The total sum of RM8.25 billion paid constitutes a staggering 87.7 percent of the total project value.”

“This is despite an average completion rate of only 13 percent, with another two years of the contract to go,” Lim told reporters. Specifically, only 11.4 percent of the MPP and 14.5 percent of the TSGP has been built as of 31 March 2018.

For the RM55 billion ECRL, about RM13 billion has been paid to the contractor, but there are speculations that some of the amount may have been used to repay the loans of the scandal-ridden1Malaysia Development Bhd (1MDB).

The ECRL has triggered a firestorm of criticism due to its hefty costs, which works out RM80 million per km of rail tracks. In comparison, other local railway projects cost an average of RM50 million per km.

Moreover, the financing terms for ECRL and two aforementioned pipelines are also the same, with Malaysia paying for 15 percent of the projects’ expenses, while 85 percent will come from China’s Export and Import Bank (Exim Bank).

Lim revealed that the Finance Ministry had created a wholly-owned unit, Suria Strategic Energy Resources (SSER), to carry out the MPP and TSGP.

“SSER successfully secured funding from Exim Bank amounting to 85 percent of the project value on March 22, 2017. The balance of 15 percent were to be raised via sukuk issuance. Both the Exim Bank borrowings and the sukuk are secured with federal government guarantees.”

“The contracts for SSER were also signed at the same time as the contracts for the ECRL by [former Treasury secretary-general] Tan Sri Mohd Irwan Serigar Abdullah,” he said.

The deals for the MPP, TSGP and ECRL were inked during former Prime Minister Najib Razak’s trip to China in November 2016, and the advance payments are way higher than the typical agreements.

For instance, the advance payment for the three projects or the “mobilisation fees” is 15 percent compared to five percent typically. They all started in April 2017 and were awarded without public bidding.

China Communications Construction Co was appointed as the contractor of the ECRL, while China Petroleum Pipeline Bureau (CPPB) bagged the MPP and TSGP in November 2016.

“The agreements were signed by Irwan, who was the chairman of SSER, who recently resigned on 23 May,” noted Lim.

Image sourced from The Star Online

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