[Disbursed Portion] China Eximbank disburses RMB 11.32 billion via loan for Trans-Sabah Gas Pipeline and Multi-Product Pipeline Construction Project (Linked to Project ID#62286)

On March 22, 2017, Suria Strategic Energy Resources Sdn Bhd (SSER)— a special purpose vehicle that is wholly owned by the Government of Malaysia — signed a loan agreement worth RMB 12,877,000,000 (or RM 7,814,000,000) for the Trans-Sabah Gas Pipeline and Multi-Product Pipeline Construction Project. The loan carried the following borrowing terms: a 20 year maturity, a 3.25% interest rate, a 0.25% commitment fee, and a 0.25% management fee. The Government of Malaysia issued a sovereign guarantee in support of the loan. The borrower was to expected to use the proceeds of the loan to finance 85% of the cost of two separate Engineering, Procurement, Construction and Commissioning (EPCC) contracts: an RMB 3.08 billion (RM 4.06 billion) EPCC contract for the Trans-Sabah Gas Pipeline (TSGP) Project that was issued to China Petroleum Pipeline Engineering Company Ltd (CPPE) on November 1, 2016 and an RMB 4.5475 billion (RM 5.35 billion) EPCC contract for the Multi-Product Pipeline (MPP) Project that was issued to CPPE on November 1, 2016. As of May 27, 2019, the China Eximbank loan had achieved an 88% disbursement rate [RMB 11,320,000,000 (RM 6,869,000,000 or $1.65 billion) out of RMB 12,877,000,000]. The loan’s (principal) outstanding amount was approximately $1.656 billion (RM 6.9 billion) as of December 31, 2018. The TSGP involves the construction of a 662 km gas pipeline from Kimanis Gas Terminal facilities to gas turbine power generation plants in Sandakan, Lahad Datu and Tawau. The objective of the project is to install all required facilities such as pipeline, sub-transmission stations, remote control block valve stations and all other related equipment to transport 300 million standard cubic feet per day (MMscfd) of natural gas. The MPP involves the construction of a 600 km multi-product petroleum pipeline connecting Melaka and Port Dickson to Jitra, Kedah. The ingresses are Melaka refinery, Port Dickson (HRC) refinery and Port Dickson (PETRON) refinery. The egresses are Sitiawan, Kulim and Jitra. The designed capacity of pipeline is up to 307,000 barrels a day (kbpd). CPPE and Huanqiu Project Management (Beijing) Co Ltd (HQPMC) were the contractors responsible for implementation. The MPP and TSGP commenced in April 2017. However, the Malaysian Government referred the projects to the country’s anti-corruption authorities when it learned that 88% of the value of the two EPCC contracts was paid by SSER despite the fact that the TSGP only achieved an 11.4% (unverified and unaudited) completion rate and the MPP only achieved a 14.5% (unverified and unaudited) completion rate. It also terminated the two EPCC contracts with CPPE on September 6, 2018. Then, on January 15, 2019, Bank Negara Malaysia (BNM) — the Malaysian central bank — issued two summons detailing 6 charges against SSER for failing to abide by Section 214 (2) and (5) of the Financial Services Act 2013. The 6 charges were: 1. The disbursement of loan of 88% of project value was not in accordance with the progress of the MPP at 13% of work done, which remains unverified or unaudited. 2. The failure to ensure good and effective governance practice in the management and implementation of the MPP. 3. The failure to obtain BNM’s approval for changes in the project timeline of the MPP. 4. The disbursement of loan was not in accordance with the progress of the TSGP. 5. The failure to ensure good and effective governance practice in the management and implementation of the TSGP. 6. The failure to obtain BNM’s approval for changes in the project timeline of the TSGP. On April 5, 2019, the Sessions Court fined SSER RM 3 million for each offense committed for a total of RM 18 million penalty. SSER paid the fines. Then, in July 2019, the Malaysian government was reportedly negotiating to reclaim funds from CPPE. Several months later, in September 2019, Datuk Amhari Efendi Nazaruddin, a special officer to former Prime Minister Najib Razak, testified before the country’s High Court, that Razak had sent him on a ‘secret mission’ to Beijing to seek a China Eximbank loan agreement for the MPP and TSGP but that the Prime Minister’s true intention was to use the proceeds from the China Eximbank to bail out the deeply-indebted 1MDB (state investment fund). Then, in early October 2021, Malaysia's Finance Minister Tengku Zafrul revealed to parliament that the TSGP had been revived under Muhyiddin Yassin’s Perikatan Nasional (PN) government on February 10, 2021. Since the controversial announcement of the TSGP’s resumption, multiple concerns regarding the project’s transparency and financial viability have resurfaced. Pakatan Harapan’s leaders have demanded a thorough investigation by the Malaysian Anti-Corruption Commission regarding the project’s revival, emphasizing that they were 'extremely shocked' by Muhyiddin’s decision. Project ID#62285 captures the portion (RMB 11,320,000,000) of the China Eximbank loan that was disbursed. Project ID#62286 captures the cancellation of the funding for the MPP and the TSGP (RMB 12,877,000,000).

Additional details

1. The Chinese project title is 600公里长多元产品石化管道 or 多元石油產品输送管 or 沙巴天然气运输管道工程. 2. SSER is a wholly-owned Minister of Finance Inc. (MOF Inc.). subsidiary set up on May 19, 2016 to undertake the Multi-Product Pipeline (MPP) and the Trans-Sabah Gas Pipeline (TSGP) projects. MOF Inc. is a corporate entity owned by the Government of Malaysia’s Ministry of Finance that has the authority to enter into contracts, acquisitions, purchases, possessions, holdings and maintains tangible and intangible assets. 3. In 2015, Malaysia's then-Prime Minister Najib Razak was accused of channelling over RM 2.67 billion (approximately $700 million) from 1Malaysia Development Berhad (1MDB) — a government-run investment fund — to his personal bank accounts. The event triggered widespread criticism among Malaysians, with many calling for Najib Razak's resignation –- including Mahathir Mohamad, one of Najib's predecessors as prime minister, who later defeated Najib in the 2018 general election and returned to power. Razak reportedly asked Low Taek Jho (commonly referred to as Jho Low) to negotiate with the Chinese Government to resolve the 1MDB crisis. Jho Low is also accused of being the mastermind of an elaborate effort to defraud 1MDB. In October 2016, Interpol published a red notice at Singapore's request to locate and arrest Low in an investigation related to 1MDB scandal. Then, in November 2020, Al-Jazeera reported that Low was currently living in Macau, in ‘a house owned by a senior member of the Chinese Communist Party’. 4. The China Eximbank loan that supported this project is not included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020

Number of official sources

8

Number of total sources

18